New estimation of the gross domestic product in Baltic countries in 1913–1938

Abstract

Using the demand-side approach we provide new estimates of output per capita for Estonia, Latvia, and Lithuania in 1913, 1922, 1929, and 1938. Our findings suggest that the levels of real output per capita in Estonia and Latvia were much above the all-Russian mean in 1913. In 1938, the output per capita of Estonia and Latvia surpassed the prewar level by up to 20%, but the total output of Latvia did not reach this mark because of population reduction. Structural changes in the interwar Estonian and Latvian economies explain long postwar recovery and modest growth beyond the prewar levels. In 1892–1914, there was export-oriented industrialization of Latvia, resembling the development of Eastern Asian “tigers” in the late twentieth century. By 1914, mainland Latvia was an “entrepot industrial economy,” created mainly by the foreign direct investments of Western companies that established their subsidiaries there beyond the Russian protective customs wall. After the loss of the Russian market, Latvia and Estonia partially deindustrialized and reagrarized, while the interwar independence period was too short for policies of “Denmarkization” to bring about strong catching-up growth. Therefore, their standing in the international ranking according to output per capita did not improve over the 1913–1938 period. Lithuanian output per capita stagnated until 1929 because of infraction of its economic integrity by the loss of the Vilnius area and difficulties of economic integration of the formerly German Klaipėda (Memel) region, but did grow rapidly in 1930s up to 40% of 1913 level by 1938.