ENTREPRENEURSHIP AND UNIVERSITY SEARCHING HARMONY
March 15, 2012, University of Tartu
Mindaugas DAPKUS, Jonė KALENDIENĖ
Vytautas Magnus University
EVALUATION OF BALTIC
ECONOMIES’
OVERHEATING: IDEA OF
STRUCTURAL DEVIATION
Overheating term
• Overheating of an economy occurs
when its productive capacity is unable to
keep pace with growing aggregate
demand.
• In this paper: overheating there are
imbalances between supply and demand,
capital and labor and it is followed by
transformations of production structure
(structural disbalances)
Introduction
• Question: how to evaluate the risk of
economy overheating?
• Level of exploration:
– Deviation of some indicators related with
overheating (inflation, current account,
unemployment,…)
– GDP Deviation from potential product (HP,
Kalman filtr)
• Problem: there is no reliable method
which could help to estimate the fact and
the moment of economy overheating.
Structural Convergence and
overheating evaluation idea
100%
A sector
SA
Actual
economy
structure in
developing
country
SB
SC
100%
0
SD*A
SA*
B sector
SB*
SD*B
C sector
SC*
SD*C
t*
T
Benchmark
: structure
of
developed
economies
Time, t
Estimation steps: methodology
1. Estimation of structural benchmark of
developed economies (1995-1998)
2. Calculation of average deviation of developed
economies structure (Denmark, Austria, Finland
and Norway)
3. Evaluation of initial Structural situation for
Baltic States (1995-1998)
4. Evaluation of the sustainable development
benchmark of Baltic States economies during
1999 – 2010
5. Calculation of the Overheating index for Baltic
States
Evaluation of initial Structural
situation for Baltic States and
aspirations
35.00
Baltic States economies' structure 1995-1998
30.00
25.00
A-B
20.00
C-E
%
F
15.00
G-I
J-K
10.00
L-P
5.00
0.00
Lithuania
Latvia
Estonia
Developed
Estimation of risk-free structural
deviation (RF) on the basis of
developed States
1 m
SD i   SDiC
m C 1
*
1 T
SDiC   SDiCt
T t 1
RFiCt  SDiCt  SDi*
RF  9,17
The sustainable development
benchmark of Baltic States
economies 1999 – 2010 *
SD i  S i 0
ki 
TK
S  Si 0  ki * t
*
it
1.20
1.00
Planed intensity of structural change in
Baltic States sectors
0.80
Lithuania
0.60
Latvia
Estonia
0.40
0.20
0.00
-0.20
-0.40
-0.60
A-B
C-E
F
G-I
J-K
L-P
Structural
adaptation
level
n
*
S

S
 it it  RF
i 1
RF
Structural Economy
Overheating Index (SOHI)
Dynamics of Baltic States Overheating index in
300.00
1999-2010
250.00
200.00
Estonia
Latvia
Lithuania
%
150.00
100.00
50.00
0.00
-50.00 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
-100.00
Internal structure deviations:
Lithuania
8.00
Lithuania's absolut structural deviations
from benchmark during 1999-2010
6.00
A-B
4.00
C-E
2.00
0.00
1998
-2.00
-4.00
-6.00
F
G-I
2000
2002
2004
2006
2008
2010
J-K
2012
L-P
Internal structure deviations:
Latvia
Latvia's absolut structural deviations from
benchmark during 1999-2010
8.00
6.00
4.00
2.00
0.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-2.00
-4.00
A-B
C-E
F
G-I
J-K
L-P
-6.00
-8.00
Internal structure deviations:
Estonia
Estonia's absolut structural deviations from
benchmark during 1999-2010
6.00
4.00
2.00
0.00
1999
2000
2001
2002
2003
2004 2005
2006
2007
2008
2009
2010
-2.00
-4.00
A-B
C-E
F
G-I
J-K
L-P
-6.00
The future…?
40.00
Baltic States economies' structure in 2010
35.00
30.00
A-B
25.00
C-E
20.00
F
15.00
G-I
10.00
J-K
5.00
L-P
0.00
Lithuania
Latvia
Estonia
Developed 20042007
ENTREPRENEURSHIP AND UNIVERSITY SEARCHING HARMONY
March 15, 2012, University of Tartu
Mindaugas DAPKUS, Jonė KALENDIENĖ
Vytautas Magnus University
EVALUATION OF BALTIC
ECONOMIES’
OVERHEATING: IDEA OF
STRUCTURAL DEVIATION