The Evolving Growth Model of Lithuania: Republic of Lithuania

Lithuania has seen strong income convergence since regaining independence, but in recent years progress in this respect has stalled as the contribution of capital deepening and TFP growth to labor productivity growth became lackluster. Persisting constraints faced by firms, such as lack of access to credit, low spending in R&D and limited availability of workers with sufficient digital skills, explain low rates of corporate investment, productivity and innovation. Looking ahead, targeted structural reforms are essential to support a lasting recovery in labor productivity growth. Key structural reforms include changes in labor market and education needed to reduce skill mismatches and improve labor quality, reforms in the financial sector allowing for deeper capital markets, and reforms aimed at accelerating to transition to a digitalized economy and a more comprehensive AI preparedness.