Baltic | Pathways to Economic Diversification in Small and Open Economies: How the Baltic States Navigate Structural Change with Giedrė Dzemydaitė

This event is presented by the Baltic Studies Program of the MacMillan Center at Yale. How do small and open economies diversify their industries, and what factors shape their paths of economic transformation? This presentation examines the long-term structural evolution of the Baltic States, focusing on their pathways to economic diversification from 1995 to 2022—a period that includes both their transition from planned to market economies and their subsequent integration into the European single market. The talk explores how these economies diversify their export structures, particularly in response to external shocks such as financial crises and covid-19, and the extent to which relatedness, economic complexity, and market size constraints influence their diversification pathways. By applying an evolutionary approach to economic resilience, the study assesses new specialization entries in the Baltic States’ export portfolios and reveals that while diversification largely follows a path-dependent trajectory, entry into more complex product groups often involves less related diversification, suggesting that forces beyond path dependency play a significant role in shaping economic complexity. Although economic diversification tends to slow during crisis periods, crises also act as catalysts for structural adjustments in these small and open economies—reinforcing specialization in closely related industries rather than fostering entirely new sectors. The study also highlights the role of public R&D investment and knowledge-intensive business services (KIBS) in enabling new specializations and examines how the small market size of the Baltic States shapes their ability to enter global markets. The discussion will address key questions such as: · How do economic crises influence structural change in small and open economies? · To what extent does diversification remain constrained by existing industrial structures? · What role do R&D investments, knowledge-intensive services, and market size play in shaping new economic opportunities? This talk contributes to broader discussions on economic resilience and structural transformation, offering insights relevant to scholars in economics, development studies, and related disciplines.