The Evolving Growth Model of Lithuania: Republic of Lithuania

Selected Issues Papers, October 13, 2025

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Lithuania experienced strong income convergence since regaining independence, but recent progress has stalled.
The contribution of capital deepening and total factor productivity (TFP) growth to labor productivity growth has become lackluster.
Persisting firm-level constraints—lack of access to credit, low spending in R&D, and limited availability of workers with sufficient digital skills—help explain low rates of corporate investment, productivity, and innovation.
Targeted structural reforms are identified as essential to support a lasting recovery in labor productivity growth.

Income convergence was strong historically but has recently stagnated.
Capital deepening contribution to labor productivity growth is weak.
TFP growth contribution to labor productivity growth is weak.
Firm constraints impeding productivity and innovation:
- Lack of access to credit.
- Low spending in R&D.
- Limited availability of workers with sufficient digital skills.

Labor market and education reforms to reduce skill mismatches and improve labor quality.
Financial sector reforms to allow for deeper capital markets and improved access to credit for firms.
Reforms to accelerate the transition to a digitalized economy and to support more comprehensive AI preparedness.

Subject areas: Labor, Labor markets, Labor productivity, Macrostructural analysis, Production, Productivity, Structural reforms, Total factor productivity.
Keywords present in the source: AI, Baltics, Europe, Growth, IMF country, IMF staff, issues paper, Labor markets, Labor productivity, Lithuania, Productivity, skill mismatch, structural reform, Structural Reforms, Total factor productivity.

The Evolving Growth Model of Lithuania: Republic of Lithuania — IMF Selected Issues Paper (landing page).