Working Paper Series

This paper was funded under the FP7 project “Growth– Innovation – Competitiveness: Fostering Cohesion

in Central and Eastern Europe (GRINCOH)” under the Programme SSH.2011.2.2-1: Addressing

cohesion challenges in Central and Eastern Europe; Area 8.2.2 Regional, territorial and social cohesion.

Project Nr. 290657

Serie 6

Spaces, Territories and Regions

*Lithuanian Social Research Centre

Paper No. 6.06.06

2014

www.grincoh.eu

Donatas Burneika*

Case Study Report: Vilnius Metropolitan Area

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Donatas Burneika, donatas.geo@gmail.com Lithuanian Social Research Centre http://www.lstc.lt Please cite as: Burneika D. (2014), ‘Case Study Report: Vilnius Metropolitan Area’, GRINCOH Working Paper Series, Paper No. 6.06.06

Case Study Report: Vilnius Metropolitan Area

Abstract

The report is devoted to the analysis of development of Vilnius metropolitan hinterland. The methodology of the research is similar to other case studies in the same 6th Work package of whole GRINCOH project. It was based on several methods. The empirical statistical analysis of available data at municipal and regional level was the first one. Mostly data of Department of Statistics were used, but also other indirect data were useful (Data of State Tax Inspection, Lithuanian Road Administration and other).

The in-depth interviews (18 in total – c.a. 11 in metropolis; 3- 4 in two specific locations in regional hinterland that represent both local success (Druskininkai and Utena) and failure (Ignalina); though it is quite difficult to unambiguously qualify any of these places as totally successful or totally failure cases. Both of those cities have positive and negative trends or features of development; however most statistical indicators in Ignalina are worse than average, while other cities have either quite good performance history or very positive recent changes (Druskininkai). Representatives of municipalities, planners, local development agencies, business leaders, researchers, higher education institutions and ministry departments were questioned.

Also experience and results of previous studies of author and other researchers were useful when achieving main objectives of this study.

Content

Part 1: Metropolitan region and its constituents....................................................................... 2

Part 2: Strengths and weaknesses of the metropolis and the region ........................................ 4

Part 3. Relationship between the metropolis and the region ................................................... 7

Part 4. Governance and local/regional development policies ................................................ 10

The main objective of this part is to assess the impact of local/regional policies and institutional system on metropolis-region relationship ........................................................... 10

Part 5. External interventions: national and eu policies .......................................................... 11

PART 6. Future prospects ......................................................................................................... 12

PART 7. Conclusions ................................................................................................................. 13

References ................................................................................................................................ 15

Appendix ................................................................................................................................... 16

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Part 1: Metropolitan region and its constituents

Main objective of the part – to identify regional context regarding the spheres of the city influence

and administrative structures

Vilnius city influence involves whole country. The city is dominant point of destination of migrants

throughout the country except those municipalities that are located close to other two gateway cities

of the country (Kaunas and Klaipeda). The peripheral geographical location of the city (30 km to

Belarus, with still have quite weak service sector) determines that it’s influence reaches beyond state

border and Vilnius serves as an important service centre for Belarus citizens (retailing, airport

services, tourism destination point, higher education (EHU university) etc).

The zone of influence of the city according to interviewed experts and some indirect statistical data

(redistribution of income tax, traffic intensity, suburban bus services) can be assessed as follows (fig

1):

A. Metropolitan area stretches up to 30 - 40 km from Vilnius centre – zone of “total” commuting

(absolute majority of residing working force is involved in commuting to Vilnius, or Vilnius residents

are commuting to newly established jobs located there).

B. Vilnius city region stretching up to 50 – 60 km from Vilnius centre, where substantial part of

population participate in commuting and Vilnius is very important working place, making decisive

impact on the development conditions and trends. Actually no one of local dwellers outside

metropolitan area perceives themselves as Vilnius residents in this zone.

C. Outer commuting range – up to 100 km from Vilnius, where commuting processes exist but more

like an exception than a rule and are not playing serious role for development.

D. Metropolitan region (dominant regional hinterland) – up to 180 km. Area (technically 3-4 Counties

of Eastern Lithuania) where the city is the most important destination point for permanent

migrations, studies and retailing).

E. Interregional hinterland - up to 300 km. As a capital city, Vilnius is important destination point of

migrations, studies, economic relations from all around the country and beyond. Economic relations

seek more distant areas. Vilnius serves as important retailing, wholesaling and leisure point for many

residents and enterprises in Latvia, Belarus and Kaliningrad area (IKEA, low-cost airport services,

international Gariunai market, shopping and entertainment centres attract visitors from

neighbouring countries).

3

Figure 1 Structure of Vilnius hinterland. Authors own elaboration based on (Burneika et all., 2012)

There is no common definition of Vilnius metropolitan area. Only few studies have been carried out

defining suburbanisation areas around the city. The General plan of Vilnius city defines structure of

the city, consisting of 3 structural parts (Central, middle and peripheral), which involve some areas

outside the city municipality. However those concepts are not accepted widely. And even peripheral

zone involves just a part of actual suburbs of the city. (http://www.vilnius.lt/index.php?3714327801)

There is no administrative or statistical counterpart reflecting the area of its influence. The Vilnius

County (NUTS 3 region) could be regarded as an area of direct influence of the city. It is an area,

which corresponds to the limits of more intense commuting zone the most accurately (though not

precisely). There were uncertain plans to establish 3- 6 new NUTS 2 level regions in Lithuania (mainly

in order to withdraw Vilnius from EU support schemes). So Vilnius NUTS 2 region could be possibly

established in the future, however these plans are very unsettled jet.

Existing administrative division of Lithuania does not correspond nor to the city metropolitan area

neither to its metropolitan region or hinterland. Metropolitan area is divided mainly by three

municipalities (Vilnius city, Vilnius district and Trakai district municipalities, though small parts of

metropolitan area could be found even more distant municipalities of Elektrenai, Salcininkai or

Sirvintos). Though, having in mind Vilnius’ capital status, whole Lithuania as a small country

consisting out of single NUTS 2 region could be regarded as a Vilnius influence (metropolitan) region.

Vilnius County (NUTS 3 region) mostly corresponds with Vilnius city region though its peripheral parts

have very weak daily relations with the city. Traditionally three eastern NUTS 3 regions (Alytus,

Vilnius and Utena Counties) or eastern Lithuania can be perceived as Vilnius metropolitan region.

Latest researches show that Panevezys County also could be included in to this area, because

Panevezys, the 5th biggest city, is not playing important role at interregional level anymore and

relations with the capital city here are more intense comparing with rival Kaunas city (Figure 1 and

2).

4

Figure 2 Distribution of unregistered labour migrants to 3 major cities in 2012 according to redistribution of residents’ income tax and wage differences in major cities (based on data of State Tax Inspection, 2013).

Part 2: Strengths and weaknesses of the metropolis and the region

The main objectives of this part:

a) to access a degree of dissimilarity between metropolis and its regional hinterland

b) to access what types of development factors are crucial for development of metropolitan region

Logically and according to the absolute majority of questioned experts the main and most important

strengths of the metropolis lays in its capital status and good human resources. It’s the only growing

city region. Good logistical situation was also mentioned as an advantage as well as leadership, more

proactive role of local government. We also may logically include here such local factors like huge

historical and architectural heritage (UNESCO World Heritage List), education and research facilities

and other factors common for capital cities.

The main factors, which have been the most important in development of metropolitan area in

recent years, according to questioned experts are quite common for all capital cities in CEE. It is its

capital status, foreign investments, human potential and entrance to the EU. Recent economic crisis

made serious negative impact but in the long run this may have also positive consequences (apart

from escalation of emigration, what can turn into long lasting disadvantage). Statistical analysis

reveals that growing export (in post crisis period), consumption (in most recent years), tourism also

are making positive influence on the city area.

The main strengths of the regional hinterland are related to the quality of environment and existing

natural resources according to questioned experts. Some notices availability of land, social

infrastructure and transport accessibility, which is better developed “per capita” than in fast growing

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Vilnius (at least some parts of it, such as proximity of schools, kindergartens, safety etc.). Other

advantages actually weren’t mentioned. The most important weakness, unsurprisingly, is related to

human resources, namely week demographic potential, mostly because of emigration of young

population. Low levels of entrepreneurship, high proportion of deprived people depending on social

aid, social exclusion of people in more distant rural areas are also among disadvantages of peripheral

hinterland. Poor or insufficient connection with metropolis in some places is an obstacle, for joining

its market. Notwithstanding high unemployment rate, there is a shortage of skilled and “willing to

work” people in many places.

The development of regional hinterland in recent years have been mostly influenced by

depopulation, related to emigration, lack of entrepreneurship, recent crisis, especially within

commuting distance from the city. Though statistical analysis show that depopulation rates were

more influenced by natural causes, related to aging population, but actually emigration is damaging

human potential more than natural decrease. Entrance to the EU and direct support for the

agriculture are perceived as main positive factors of development. Positive influence of EU support

for regional development is perceived as positive factor, though it mostly helped to improve

environmental quality and reduce spending on energy (renovation of housing stock and public

buildings).

Examples of successful local development in regional hinterland are very few. Places (towns), which

were able to use their tourism advantages because of more proactive and reasoned activities of local

politic leaders (mayors), are often perceived as a good examples of local development. Druskininkai

resort is a classic example, how targeted and proactive role of local political leaders (former

businessmen) helped to attract both EU and private investments into resort related activities and to

revive the city, which was in the deepest depression in Lithuania after collapse of Soviet Union, which

resulted in the loss of the majority of demand of its services.

The differences between the metropolitan area and regional hinterland regarding economic and

social development aspects are large. This can be illustrated both by the statistical data and by the

perceptions of those who participated in qualitative research. Vilnius has got the most positive socio-

economic indicators in Lithuania, while its hinterland Eastern Lithuania for a long period has got the

least positive trends of development. Most of the statistical indicators of the economic development

were the worst in the East Lithuania (except Vilnius city) since the early 1990s. The initial negative

impact of economic and political reforms on the East Lithuania and fast development of Vilnius city

resulted in the high differences of development levels. Vilnius was the most developed city

surrounded by the least developed municipalities in post reform period (Figure 3).

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Figure 3. Relative differences of added value per capita created by employees in East Lithuanian municipalities in 1996 (Authors elaboration based on data of the Statistics Lithuania, 2013).

Trends of social (especially demographic) development have similar character. There are various

reasons for such a negative trends. First of all, historical-geographical reasons determine the

processes of peripherisation of this area. It is located on the boundary between East and West

Europe and it suffers from the negative processes like all other peripheral regions do. Eastern

Lithuania is a part of a bigger international peripheral problem region, which could be found in

environs of the East EU border. The eastern parts of Estonia, Latvia, Lithuania, Poland, Slovakia,

Hungary and most western, near border parts of European Russia, Belarus and Ukraine can be

described as less developed areas of their countries. Whole area, including Moldova, could be called

as a Middle European depression zone (Daugirdas and Burneika, 2006). Other reasons of the weak

economy of the region may lie on a pure historical context (delayed land use reforms in pre war

period, repatriation of most educated, “unreliable” for soviet regime persons in 1945-1946

(Eberhardt 2011)), human factor or poor resources of the region). The area has poor agricultural

resources, which used to make a background for the whole economy throughout the ages. Almost all

of the rural LAU2 regions of the -East Lithuania have status of ‘unfavourable’ for agriculture. The

total area of the unutilised lands increased from 1% till 24% between 1990 and 2007 here

(Aleknavičius and Aleknavičius 2010).

However the latest researches show, that the positive influence on economy and social development

(for example population change) from the Vilnius city is spreading into areas outside metropolitan

area, which were developing faster than Vilnius itself during recent years (Figure 4).

7

Figure 4 Relative differences of growth of added value per capita created by employees in Lithuanian municipalities in 1996 - 2011 (based on data of the Statistics Lithuania, 2013)

On the other hand, the influence of the city has got quite limited range (some 60 km) and more

distant municipalities are still economically developing more slowly than the city. The further

increase of differences between metropolis and its hinterland have been forecasted by all

questioned experts. The existing demographic trends and destinations of migration suggest that

social differences will increase as well. Deurbanisation trends of the city and migration to the

hinterland exists but its more exception than the rule at the moment, however this could have some

positive influence on slowing the depopulation processes here.

To identification of a relationship between strengths and weaknesses of the metropolitan area and

the metropolitan region is not an easy task. The concentration of positive economic and social

development factors in the city as well as resulting concentration of incomes (half of countries

income tax is being gathered in Vilnius, while it contains 17,5 % of its population) could help (and in

some cases is helping at present) to exploit one of the most important advantage of peripheral parts

– environmental quality. It helps to attract both new residents (tax payers) and tourists. However

due to many reasons (lack of entrepreneurship, good strategies, fast transportation links) this is not a

decisive development factor in most municipalities of Vilnius hinterland jet.

Part 3. Relationship between the metropolis and the region

The main objective of this part:

a) to assess changes in settlement system and its drivers;

b) to assess changes in regional production system and its drivers;

c) to access changes in labour commuting at regional level and its drivers.

The most important links between the metropolis and its surrounding region are related to migration

flows to the city. On the one hand it results in loss of human resources in the periphery but it also

8

results in reverse flow of money mostly due to the redistribution of income tax of those officially

residing in their home towns. This is quite usual type of behaviour because legal purchases of

dwellings are rarely a case for newcomers to the city. This results in increase of municipal budgets (.

Commuting flows to the city can be detected as far as 100 km from the city. On the other hand

Vilnius plays important role as labour market in settlement located some 60 km and less from the

city. Municipalities located inside this range “earn” more than 1/3 of their budgets in Vilnius (Figure

5)

Figure 5. Incomes of East Lithuania’s municipal budgets from residents’ income tax, gathered in Vilnius city municipality in 2007-2012 (based on data of the State Tax Inspection, www.vmi.lt)

Vilnius is the most important retailing centre for the residents of its hinterland (except most distant

municipalities, which are located closer to foreign regional centres Daugavpils in Zarasai case and

Suwalki in case of Lazdijai). This damages local retailing business a lot according to questioned

experts. On the other hand, tourists from Vilnius guarantee the existence of many small shopping

facilities and other retail services in peripheral municipalities. Local businessmen indicated that shops

in rural areas wouldn’t survive without increased demand in summer period.

The main changes in regional settlement system are related to the shrinkage of all types of

settlements in the hinterland of the city. The decrease is more related to the negative natural change

in rural agricultural areas. Emigration of younger population plays more important role in the case of

municipal centres and other towns. The decrease of rural population is the fastest and it is related to

the changing capacity of agricultural territories to provide jobs. Number of employees in agriculture

decreased more than 3 times since mid 90-ies in Lithuania. Other drivers are related mostly to

economic reasons and lack of well paid jobs. Negative expectances and bad prospective are also

among the reasons for mass emigration of school graduates and other younger population.

Other most obvious trend is related to the fast spread of the Vilnius city into Vilnius urban region

because of suburbanisation, which was actually nonexistent in Soviet times. This resulted into

9

spread of settlements surrounding Vilnius city, some of which increased several times. However,

according to some questioned experts, such spread results not in increase of previous settlements

but actually in creation of new ones, because old and new communities actually live separately and

have very different trends of social and economic development in many cases.

No essential changes in regional production system were noticed during the recent years according

to questioned experts. The agriculture is the main job provider in rural municipalities. Number of

employees is decreasing, but not so fast as during previous years. Tourism sector here become more

important some decade ago but situation during the most recent years is quite stable (partly due to

economic crisis but also because of the lack of entrepreneuriship, socially deprived and aging

population). The decrease of agriculture because of badly implemented agricultural reform in 1990-

ies, which ruined collective farming is being perceived as a main negative break point by most

experts. Industry is more important in regional centres (Alytus and Utena) but situation is quite

stable here too. Foreign investments are not being perceived as an important factor of change here.

Statistical analysis partly confirms expressed opinion though some increase of shares of agriculture

and services as well as relative decrease of industry (contrary to the central Vilnius County) is visible

during last 5 years. Similarly to whole East Lithuania construction sector was shrinking here as well

(Figure 6). The last economic crisis is the main driver of such trends. EU support for agriculture is at

least partly responsible for the positive changes in agriculture. The newest trends show some revival

of construction sector, especially in Vilnius metropolitan area (Statistics Lithuania, 2014).

Figure 6. Changes of employment in peripheral parts of Vilnius hinterland (Utena and Alytus Counties) in 2008 – 2012 (Statistics Lithuania, 2014).

Major part of Vilnius hinterland is involved in commuting flows to the capital city (approx. 100 km

from the city, according to interviewed experts), but the intensity of such flows is sharply decreasing

starting from 50 – 60 km range. Both experts and previous researches of the author confirm such

results. Regional centres of second level (County centres Utena and Alytus) generate commuting

flows up to 50 km. Smaller, municipal centres also generate commuting, though mostly inside their

own municipality (approx. 30 km). The lack of employment opportunities in rural settlements is

mostly responsible for such a type of behaviour. The higher level of the centre the higher supply of

better paid jobs is evident therefore the “acceptable” travelling distance is increasing. There are

examples (a very few of course) of reverse commuting, when higher class employers (managers

0

10

20

30

40

50

60

70

Agriculture and

forestry

Industry Construction Services

%

2008

2012

10

mostly) are commuting from Vilnius to regional centres because of a lack of skilled high class

employees in periphery.

Both cooperation and competition (rivalry) between public administrations of municipalities of

Vilnius metropolitan region exit. Everything depends on specific situation. The city and municipalities

are presented more or less equally (not according to number of population) in Regional Development

Councils, which are responsible for division of certain EU support for regional development (7 % of

total EU support was distributed through these councils in period 2007-2013. Mainly it was support

for improving local environment, housing quality and similar objectives). Therefore bigger number of

smaller municipalities sometimes dominated there. There are examples of cooperation among

municipalities as well (project – “The Country of Lakes” for promoting tourism in North eastern

Lithuania was developed together by few municipalities). However cooperation between

Metropolitan city Vilnius and surrounding municipalities is very limited. Only the projects from

central government (for instance construction of transportation links) are planned and implemented

for the whole region as one entity. According to the results of qualitative research, opinion that

“everything goes to Vilnius” exist in periphery as well as opposite image lives in Vilnius (the city

donates regions, common planning of the metropolitan area is actually non existing, neighbouring

municipalities ignore needs of the city, make obstacles for investments and etc..) This results in

unplanned and uncontrolled fast and fragmented sprawl of the city.

Part 4. Governance and local/regional development policies

The main objective of this part is to assess the impact of local/regional policies and institutional

system on metropolis-region relationship

Regional policy is not making serious impact on metropolis-region relationships, because regional

policy is almost non existent as well as regional governing. Local policies pursued by local

municipalities are making certain impact, because every player seeks it own immediate interests, as

some experts state. However this impact is very fragmented, fast changing and depends on certain

political and personal circumstances.

There was a very few actions taken in order to increase the positive influence of the metropolitan

centre on its surrounding region. The reform of relocation of gathered income tax, implemented just

before the last economic crisis, was devoted for relocation of financial resources from the municipal

budgets of cities (first of all Vilnius, which generates ½ of all gathered income tax) to more peripheral

municipalities, where many city employees officially live. Before the reforms, gathered income tax

was distributed to the municipality according to the place of job of employee instead of his place of

residence. This reform was not officially declared as a measure of regional policy but actually it made

a huge impact. According to calculation of an author, the number of “alien” employees in Vilnius is

the same as a number of all employees in third biggest city Klaipeda (or approx. 25 – 30 percent of all

employees officially do not live in the city municipality)

The was a very few actions taken in order to limit the negative impact of the metropolitan area on its

surrounding region as well. The same action, which was mentioned above, was taken for the

mitigation of seemingly (or perceived) negative impact of the city. The constant declarations of the

need to increase investments and to enhance development in the so called “regions”, is heard in the

media. Recently the head of one of business promoting agencies (“Invest in Lithuania”) was changed

also arguing that there was too little attention paid to the peripheral regions and actually all new

11

attracted investments came to Vilnius or other main cities. Approximately 10.5 % of all support under

“The National strategy for the use of European Union Structural Assistance for 2007-2013” (NS) was

devoted to tackle a problem of unbalanced territorial development of Lithuania under the

Programme for reducing social and economic differences in Lithuania, developed by the Department

of Regional development under the Ministry of Interior affairs (Department…..2014). The programme

foresees the support for development of secondary urban industrial centres (Alytus and Utena in our

case), 14 problem municipalities (those with long lasting unemployment) and Ignalina nuclear plant

region. The operational programme “Promotion of cohesion” of NS had certain priorities, which

were designed for development of less developed areas. Action priority “Local and urban

development”, was the major financial tool, where majority of measures were devoted for areas

outside 5 biggest cities. The main cities were virtually excluded from supporting schemes. The fact

that ruling parties in Lithuania are elected basically by voters from peripheral regions (3 biggest cities

are voting for different parties as a rule) is always playing a role at least in official political

declarations. On the other hand, actual measures for the solution of the main or at least the most

“popular” problem, namely outflow of population and money (to lesser extent) to the capital city, are

not being taken. According to many experts, there are no real ideas for reversing this widely

perceived negative trend of concentration. Such perceptions are very much related to exceptionally

positive image of equally developed urban network during Soviet regime. Therefore the collapse of

such network is perceived not as a normal transformation process or adaptation of a system to new

neo-liberal reality, but as a tragedy. Authors’ calculation show that the impact of the city on

surrounding areas is more positive than negative at least in the range up to 100 km. Diminishing of

the impact of such a real negative aspect like “export” of socially disadvantaged groups in to more

distant periphery (usually with worse local social and natural environment), is not under discussion,

though this problem is under the attention of media.

The coordination of actions of various actors coordinated within the metropolitan area or within the

metropolitan macroregion is very limited because there is almost no common governing and

planning of such structures. The metropolitan macro region does not exist in any documents at all.

Common planning is implemented only by the central government and its ministries (transportation,

health security) but those also are not dealing with metropolitan areas or macroregions, which

actually exists. The regional development plan of Vilnius County (region) basically is just a sum of

municipal plans. They are being perceived as a “more declaration kind of documents” by the

developers of such plans and by municipalities as well.

Actually there are no authorities at regional level in Lithuania.

Part 5. External interventions: national and eu policies

The main objective of this part is to assess the impact of external intervention on metropolis-region

relationship

The distribution of EU structural support keeps the main attention of questioned experts, when

discussing types of external interventions, which had the most significant impact on metropolis-

region relationship; however absolute majority of them were not able to specify some external

intervention, which noticeably effected metropolis – region relations. The distribution of the support

of EU structural support, concentrating funding for improvement of environment and related tourism

or different alternative rural activities could theoretically help peripheral region to offer more

services and attract more consumers from the metropolis so intensifying positive relationships.

12

Basically we may assume that the distribution of EU support according to principle that the support

for activities, which does not require exceptional human resources or high levels of entrepreneurship

or innovativeness (improvement of environment, housing quality, development of tourism activities,

local SME) was concentrated to peripheral regions was rational. Though this support did not make

essential differences in economic development of peripheral regions, but capacities to attract other

types of funding were limited according to questioned experts. The need to adjust infrastructure

(transportation first of all, but also higher level health care system, R&D infrastructure, etc.) as well

as abilities of development of new R&D activities and related economies was much greater in Vilnius.

Cohesion Policy implementation affects social well being in peripheral region to much higher extent

than its competitiveness. The situation is potentially opposite in Capital city, which proportionally

receives less money per capita, but they are concentrated more in activities with higher added value.

On the other hand, the final conclusions about the character of such impact are to be made in the

future.

The majority of EU support for regional development (7 % of whole support from EU, which actually

corresponds to almost whole support for regional development in Lithuania) was coordinated and

distributed through regional development councils, where the representatives from municipalities

had the decisive voice. Other support, which formally is not devoted for regional development but

for the whole country as one single NUTS 2 region, was coordinated and projects implemented

directly from the centre (central institutions based in Vilnius). Most experts and author of the report

suggest that this principle was logical in this case.

PART 6. Future prospects

There are no experts forecasting the diminishing of differences between city metropolis and

periphery. On the other hand, most of experts speak about development of economy or

demographic trends. Few experts indicated that “quality of life of many living in the periphery not

necessary is worse or will grew worse”. The main driver of concentration of economy in the cities will

be of economic kind. Better supply of jobs, human resources, demographic trends will keep playing

their role. However some statistical indicators, illustrating the depopulation trends and increasing

productivity and effectiveness of agriculture, forestry and tourism services suggest that quality of life

and economy per capita in peripheral regions could not grew worse in relation to Vilnius

metropolitan area.

There is very few recommendation for future objectives (spheres) of national development policy

regarding metropolis-region relationship but basically they involve more clear and “fair” distribution

of support for regional development (EU money mostly). More attention for improve of connections

with metropolis (e.g. fast train lines) are among suggestions for future policy priorities. One of

suggested future objectives - collaborative planning of metropolitan region but its hardly possible

without regional governance of some kind. The policy should seek diminish contraposition between

the metropolis (or namely the Vilnius city in the case of Lithuania) and remaining region. Antagonistic

worldviews are perceived as a main problem of relations between centre and periphery. Experts in

the peripheral part of the region mostly perceive Vilnius as “exploiter” draining human and financial

resources from the region, while Vilnius based experts feel the ignorance of requirements of the city,

lack of funding. They perceive the city as a financial donor for remaining parts of the region.

13

No clear recommendations for future objectives (spheres) of the EU Cohesion policy regarding

metropolis-region relationships were given in this case. Generally the attention for development of

communication links, expressed by most interviewed experts could facilitate more intense and

mutually useful relations between the metropolis and its hinterland.

PART 7. Conclusions

Vilnius, being quite a small city comparing with capital cities of neighbouring countries, initially (right

after reforms) was not playing role of important international regional centre nor in practice neither

in various urban visions or strategies of the region (for example VASAB vision, which foresaw only

secondary role for the city comparing with neighbouring capital cities (VASAB, 2014)

http://www.vasab.org/index.php/long-term-perspective )). Faster development comparing with rival

centres Riga and Minsk (where market economy is still quite centrally planned) enabled city to

become more important regionally and internationally. The city is important service centre not only

in Lithuania but also in Belarus, which suffers from limited supply of goods and services. It is playing

some, though much less important role for Kaliningrad area and some Latvian or even Polish towns.

The main drivers of relative success are related to historical reasons. Relatively small degree of

concentration of population and economy in Lithuania until 1990 resulted in fast metropolization and

spread of the city. In other words there was a potential for concentration and growth, comparing

with Riga or Tallinn. Proactive administration, foreign investments, skilled labour force, gained real

capital status (it was just a capital of province in USSR times), good transport connections, new

innovative branches of economy are among mentioned reasons for the relative success of the city.

No one related it to the existing East Lithuanian hinterland, which is the poorest area in Lithuania.

The growth of Vilnius in the middle of this depressed area confirms theory that metropolitan cities

are much more dependant on wider context than on their close hinterland.

Regional hinterland outside the zone of direct influence of the city (outside commuting zone,

basically) has been developing more slowly, especially at the beginning of the analysed period (early

and mid 1990 – ies). It still suffers from the big population decline (demographic indicators are

poorest in the country), shortage of skilled labour force, emigration of young population, low

entrepreneurship (levels of entrepreneurship are among the lowest in Lithuania) and innovativeness.

Problems of social exclusion are common for rural areas and towns. Outside secondary regional

centres (Utena and Alytus), which perform as a nods of traditional industry, region mostly rely on the

use of natural resources. On the other hand, Eastern Lithuania suffers from low quality soils so

agriculture is not a favourable land use form here. EU direct support is the main reason of some

revitalisation of this activity. Forestry, wood processing and tourism show more positive signs.

However the boom of rural tourism seems to be over, mostly because of lack of entrepreneurship of

those living in rural areas.

The role of migration processes in relation between metropolis and their region is quite one sided.

Out migrations of working age and young population is a dominating phenomenon. According to the

local experts, virtually all school graduates leave town and go to Vilnius for study or abroad for work.

There are examples of counter-migration but the extent is much lower and does not make decisive

impact on demographic situation locally. There are examples of young people (families) finding their

homes in rural settlements and towns but it is too early to predict the spread of this phenomenon

jet. There are also examples of elderly population leaving Vilnius to hinterland but this is also not a

wide spread activity making noticeable impact on socio-economic development in periphery. The

14

peripheral part of Vilnius region, just outside the zone of commuting, serves as a kind of social

trashcan of the city. Some socially deprived persons loosing their homes in the city move to

abandoned or cheap low quality houses. Usually they don’t participate in labour market relying

mostly of self sustaining agriculture and state (municipal) social donations so increasing social

problems in the region.

The most obvious phenomenon is reshaping of settlements from agricultural centres into season

tourism towns, reviving at summer time. The main driver of such process is related to expectation of

young people to find better opportunities in the city and quite mute images and understanding of

the life quality and perspectives in the province, which is not so worse than in the city. Social

infrastructure in many cases is closer and more accessible here and environment quality is much

higher. Representatives of local governments see the possibilities to transform their towns into

residential areas of those working in Vilnius in more “footloose” jobs.

Accessibility makes visible influence on development in hinterland inside commuting zone of Vilnius.

Growing accessibility increases “potentially” prosperous” area, suitable for residence of those

involved in rich Vilnius labour market. The new modernised transportation systems results in

appearance of centres of logistics in Vilnius region, facilitates tourism. Sometimes it makes negative

impact on retailing services in the periphery reducing local demand. One of potential strategies for

well being creation in hinterlands’ municipalities is related to attraction of metropolis residents less

dependant on permanent everyday work in the city.

In Vilnius hinterland case the main policies for development are related to use of wealth created in

Vilnius city by offering the best region could offer – e.g. recreational and natural resources. Experts

weren’t able and author as well did not notice any significant interplay between these policies. Every

interested party (players – in this case municipalities or central authority and its agencies) pursue

their own tasks and any interaction is rather stochastic.

From the point of view of coordinated planning and development it is necessary to have some

authorities at regional level. Though there were very different opinions expressed by different

experts, but generally some king of self-governing would be good, because most socio-economic

processes overpass existing municipal borders.

There were no experts stating that metropolis and its surrounding region mutually do not need each

other. Majority of them expressed that region needs Vilnius more, though generally they were

Vilnius residents. Many of those interviewed at periphery indicated that they equally dependant.

Only two experts clearly indicated that Vilnius needs region more than region needs the city.

15

References

Aleknavičius, A., Aleknavičius, P. (2010). Žemės ūkio naudmenų ploto pokyčių perspektyvos Lietuvoje

[Perspectives of farming lands area preservation in Lithuania]. LZŪU mokslo darbai, 86 (39), 28-36.

Kaunas.

Burneika D., Ubarevičienė R., M. van Ham, 2012. The impact of growing Vilnius urban reigon on the

development of Eastern Lithuania. Evoliucija obščestveno geografičeskoj mysli, Rostov na Donu, p.

37-43.

Daugirdas, V. and Burneika, D. (2006). Patterns and problems of peripherality in Lithuania –

borderland of the EU. Europa XXI, 15, 119-133

Department of regional development under the Ministry of Interior Affairs of Republic of Lithuania,

2014, [downloaded: 05.2014]. http://www.nrp.vrm.lt/index.php?id=162.

Ministry of Finances of the Republic of Lithuania, 2014, [downloaded: 05.2014],

http://www.esparama.lt/2007-2013/en/eu-structural-assistance-to-lithuania

Statistics Lithuania, 2014. [downloaded: 05.2014]. http://osp.stat.gov.lt/temines-lenteles20

Statistics Lithuania, 2013. [downloaded: 11.2013]. http://db1.stat.gov.lt/

State Tax Inspection. (2013). [downloaded at 10, 2013]. www.vmi.lt,.

VASAB. (2014). [downloaded: 11.2013]. http://www.vasab.org/index.php/long-term-perspective

Vilnius municipality, 2014. [downloaded: 11.2013]. http://www.vilnius.lt/index.php?3714327801

16

Appendix

METHODOLOGY

The analysis is focused on the period after 1989, however with special attention to recent years. It is

focused on NUTS3 region considered as city-region (Vilnius County), so with special focus on capital

city. Some of the respondents were asked only on situation in the main city and not in the whole

region. The methodology of the research is similar to other case studies in the same 6th Work

package of whole GRINCOH project. It was based on several methods. The empirical statistical

analysis of available data at municipal and regional level was the first one. Mostly data of Lithuanian

Department of Statistics were used, but also other indirect data were useful (Data of State Tax

Inspection, Lithuanian Road Administration and other).

The 11 in-depth interviews were carried out. Representatives of municipalities, planners, business

leaders, researchers, higher education institutions and ministry departments, related to regional

development issues, were questioned.

Also experience and results of previous studies of author and other researchers were useful when

achieving main objectives of this study.

1. INTRODUCTION

Vilnius is the biggest city and capital of Lithuania and one of 10 County centres of the state. Counties

(regions) do not have any kind of self-governing and present basically statistical administrative units.

Vilnius municipality (one of 60 of Lithuanian only sub-national level decision making units) is

substantially smaller than Vilnius metropolitan area, which involves also parts of Vilnius district,

Trakai district municipalities and at lesser extent Salcininkai district and Sirvintos district

municipalities. The remaining (biggest) part of Vilnius County is not urbanised or suburbanised and

involves rural areas or medium towns (Ukmerge and Elektrenai most important of them). Traditional

Vilnius hinterland, where Vilnius role is more important than the one of other major cities involve 3

East Lithuanian counties (Vilnius, Utena and Alytus Counties).

History and location. Vilnius, the capital of Lithuania, lies in the south-east of the country close to

the border with the Republic of Belarus (30 km) and some 300 km from the Baltic Sea. The hilly

landscape and deep valleys of these rivers form the main features of the city landscape and

determine its urban structure. The location of the city between northern, eastern and central

European countries used to play both a positive role in its revitalisation and further development and

a negative one in less stable politically times. On the other hand, its smaller size and peripheral

location within the Baltic Republics (compared to Riga, in particular) are disadvantages in the

competition to attract mobile international capital.

The city is situated within the region with the lowest population density and the fastest rates of

depopulation throughout Lithuania. This can be illustrated by the statistical data from 1989, 2001

and 2011 Lithuanian Census. Most of the statistical indicators of the economic development were

the worst in the East Lithuania since the early 1990s (Burneika 2007). There are various reasons for

such a negative trends. First of all, historical-geographical reasons determine the processes of

peripherisation of this area. It is located in between East and West Europes and it suffers from the

negative processes like other peripheral regions do. Eastern Lithuania is a part of a bigger

international peripheral problem region, which could be found in an environs of the East EU border.

17

The location and history of Vilnius city and Vilnius region are closely interconnected. Many times

throughout the history city changed its functional role in the region, having more and less prosperous

times. The city is located at the very edge of Lithuania, some 30 km from the eastern EU border.

Historical events in the 20th century had a decisive impact on the present situation of the city and its

socio-economic structure. Those events actually annihilated almost the whole “labour” of previous

history in a few years. Frequent shifts in administrative and political possession of Vilnius city and its’

region (this territory belonged to Russia, Germany, Poland, the Soviet Union and Lithuania at various

timescales during the 20th century) determined the sudden changes in migration flows, number of

population and ethnic composition (Stanaitis and Česnavičius 2010). It also had influence on its

hinterland and hence on development conditions. At present big part of traditional hinterland of

Vilnius is on the other side of EU border, though it does not mean there are no socio-economic flows

between these areas.

The major demographic changes of the 20th century are closely related to the WWII. Population of

Vilnius city declined more than twice right after the war. There were two main reasons of these

alterations. First, the Jewish population, which played an exceptional role in Vilnius city, composing

25-40 % of its population at various timescales since the 14th century, decreased to only few

percentages (from 57 to 2 thousand) because of the Holocaust (Mendelsohn 1983). Second, the

repatriation of Polish people took place right after the WWII and 107 thousands former Polish

citizens left the city in 1945 – 1947. (Eberhardt 2011, Czerniakiewicz and Czerniakiewicz 2007). The

mass industrialization, which began soon after the entrance of the Soviet government, accelerated

the growth of Vilnius city and led to a rapid increase of its population, which rose 3.4 times during

1950-1989. Vilnius city was filled up by immigrants from other parts of Lithuania and from more

remote areas of the Soviet Union. The impact of the disturbances of the WWII and the later events

were much less significant on the surrounding quite poor region. The repatriation from the rural

areas, according to Eberhardt, was limited because of the fear of the Lithuanian SSR administration

that the depopulation and labour force shortage may occur here. These events determined present

multiethnic structure of the Vilnius metropolitan area and whole its hinterland. Such a situation

influences political field in the area and makes certain impact on collaboration and development of

various municipalities forming the region and metropolitan area in particular.

Lithuania inherited very uniform settlement system without clear dominance of one metropolitan

region in 1990. Vilnius was just slightly bigger (less than 20 percent) than Kaunas. The Soviet policy

wiped off the majority of granges and small villages concentrating their residents to bigger villages

and towns of several hundred residents (“central kolchoz settlements”). In parallel, the prevention of

the development of the biggest cities, especially Vilnius, and expansion of medium sized towns into

cities, giving them regional functions were carried out. As a result, Lithuania now has 10 Counties.

Two of these newly developed cities, at present centres of Counties, are located in Vilnius hinterland

– Utena and Alytus). Thus Lithuania became the land of medium towns and cities and it remains the

only small and medium sized European country without clear dominance of one metropolitan region,

which would serve as a main economic axis of the country and compete with similar ones abroad. As

a result, Lithuanian settlement system started to change fast right after the collapse of Soviet Union.

All this led to mass intra-national and international migrations. Present process of the rapid decline

of the population and its spatial redistribution within the country is at least partly the continuation of

the artificially constrained and reshaped processes. According to the statistics, the shrinkage of

medium sized cities was one of the main features of the development of Lithuanian urban network

18

during the last two decades (Statistics Lithuania, 2013). Vilnius city municipality lost 7.6% of its

population in 1996-2012, while all other cities lost more than 20% (Lithuanian average - 16%). On the

other hand, municipalities surrounding 3 biggest cities were the only areas gaining population during

the analysed period; therefore the real relative increase in the 3 metropolitan city regions (it was not

a case in other cities), especially Vilnius, was higher. As a result Lithuanian urban system was

transformed and at present we can distinguish few levels of urban structure:

1. Vilnius as national city

2. Vilnius, Kaunas and Klaipeda as macro-regional cities

3. 10 – 12 biggest regional cities (centres of counties)

4. Other self-governing cities (towns).

5. Centres of LAU 2 regions (settlements without self-government)

6. Other small settlements (smallest town and granges)

Accessibility. Motorways play the most important role in Lithuania's transport, though Vilnius

metropolitan region historically can be defined as a St. Petersburg – Warsaw railway (out of

operation at present because of Belarus borders mostly) region, cause apart from node Vilnius, the

railway axis used to play most important role for development of links inside the region. Vilnius has

domestic and international rail services at present, but the rail network is more important for freight

transport. The main transit line from Russia to the port of Klaipeda and the Russian enclave of

Kaliningrad passes through Vilnius. Recently the role of passenger rail transport increases in

international connections with Belarus as Vilnius plays more and more important role as centre of

retailing and other services for Belarus residents.

A major motor highway runs between Vilnius, Kaunas, the second-largest city in the country, and

Klaipeda, the main port of Lithuania. Another major highway runs 130 km north from Vilnius to meet

the international corridor Via Baltica, the transport corridor (now being modernised) that runs

between Helsinki, Tallinn, Riga and Warsaw. Motorways of good quality also connect Vilnius with

Belarus and Poland. The main road between the Russian enclave of Kaliningrad on the Baltic and

Moscow also runs through Vilnius ( Trans-European Corridor IX).

Vilnius International Airport is the main gateway for Lithuania. The airport is located only 6 km from

the centre of the city. Although there were a few fluctuation in airport activities the number of

passengers constantly grows. It has more than doubled since 2003 till in 2008, when it reached 2

million passengers. Mainly due to the global economic crisis and bankruptcy of the national air

carrier FlyLAL, the number of scheduled flights was nearly halved next year. However the main

indicators were growing by 20 -30 % since 2011 and airport had 2.3 m passengers in 2012. The low

cost airlains Wizz Air and Rayan Air started flights from Vilnius airport in spring of 2011.

Vilnius is also the cultural, educational and scientific centre of the country. Because of its historic old

town (a UNESCO World Heritage site since 1995) Vilnius is the most visited place in Lithuania.

19

Basic socio-economic characteristics. Vilnius is the financial and corporate centre of Lithuania and

the location of most of Lithuania’s modern industry. Vilnius is also the cultural, educational and

scientific centre of the country. Since independence from the Soviet Union most of the traditional

industries that used to dominate the economy of Vilnius have shrunk, but manufacturing still bulks

large in the economy. Vilnius is the capital and financial centre of Lithuania. Most of Lithuania's

modern industry is located there. The vast majority of companies operating throughout Lithuania

have their headquarters in this city.

According to official statistics the population of the city of Vilnius at the beginning of 2013 was

537,152 or 17,5 % of the total population of Lithuania. The wider region of Vilnius (for which we give

the data in this chapter, because data at municipality level are very obscure) has a population of

806,308 at the beginning 2013, and the population of the region as well as of the city is fairly stable

comparing with Lithuanian average.

The total number of Vilnius residents actually living in metropolitan area is far higher than cities

official population. According to information from the State Tax Inspectorate (State Tax Inspectorate,

2013), at least 25 -30 % of the taxpayers working in Vilnius were residing not in the city municipality

(75 -80 thous. workers). Partly these are the commuters from Vilnius region, but majority of them

officially live in too distant municipalities to take part in the commuting. Taking into account also

students, which usually live in Vilnius unofficially and family members of “illegal” it is reasonable to

estimate that some 750,000 live in the city and its suburbs.

The population density of the city is very low, mainly because of the large green spaces within the

city's bounds. The green slopes of the deep valley of the river Neris also reduce the proportion of the

built-up area.

All the major cities of Central and Eastern Europe (CEE) have followed a similar path of rapid and

profound changes in their spatial organization since the demise of the Soviet Union (Novak and

Sýkora 2007; Ouředníček 2007; Nuissl and Rink 2005;). The most significant spatial changes in Vilnius

are related to the process of urban sprawl to the surrounding rural region that started right after

1990s. What makes Vilnius unusual in an international context is its peripheral location in the East

Lithuania region, which has the fastest pace of depopulation in Lithuania and one of the fastest in

whole Europe (Statistics of Lithuania, 2013) The lowest density of rural population is in the most

distant from Vilnius municipalities (Anyksciai, Ignalina, Zarasai, Svencionys, Varena municipalities) 8

of 13 most sparsely populated municipalities of Lithuania are located in Eastern Lithuania. The pace

of depopulation is increasing since 2000 in whole East Lithuania. The highest decrease is evident in

peripheral rural areas of Vilnius hinterland, which suffer from depopulation for several decades.

Ignalina municipality was losing more than 2 % of its population per year. The 8.5 % decrease of

number of population in Eastern Lithuania in 2001 – 2011 was lower than Lithuanian average (12.3%)

primarily because of growth of Vilnius urban region. The pace of decrease of residents in peripheral

parts of the hinterland was the highest in the state (15–20% and more) (Statistics Lithuania, 2013;).

Decrease of population is determined largely by emigration in the biggest cities and towns.

Importance of natural change prevails in rural areas. In Ignalina municipality negative natural change

caused 70 % of all decrease of the population. Eastern Lithuania (except biggest cities, centres of

Counties) has long lasting depopulation trend related to aging population, therefore proportion of

potential emigrants is very small. In some settlements age pensioners constitute more than half of

population. The only exception is Vilnius metropolitan area, which was strongly influenced by

20

intensive suburbanisation. These processes substantially influence demographic indicators of Vilnius

districts, Trakai district and partly Salcininkai and Sirvintos district municipalities. In fact, apart from

the Vilnius suburbanization effects, those municipalities suffer from the same processes as the

remaining East Lithuania. Analysing range of impact of Vilnius on depopulation pace, we may see that

the positive impact (though not necessary the decisive one) can be felt quite far. The most negative

trends are in most distant peripheral areas located more than 100 km from the city. Figure 1).

Figure 1 Impact of the cities on depopulation trends in Lithuania in 2001 – 2011 (based on data of Censuses of population, Statistics Lithuania, 2013)

Complicated history created quite unique ethnical landscape in Vilnius region (fig 2). City is

dominated by Lithuanians (65 percents), while Polish and Russian minorities are big enough to

constantly be represented by their political parties at city municipality. Remaining Vilnius

metropolitan area, where city sprawling processes are taking place are dominated by Polish

residents, composing up to 90 percent of population in some distant LAU 2 regions. More distant

from the city areas of Vilnius city region (40 – 50 km from city centre) are dominated by Lithuanian

population once again. Therefore the closest to the city Vilnius district municipality (some 60 percent

of population are poles) is under rule of Polish election party, the same like Salcininkai municipality,

where poles compose around 80 percents of population. City sprawling is changing such situation

and unsurprisingly this raises some tensions from Vilnius district municipality, which complicates

regulation and planning of city sprawl processes.

21

Figure 2. Polish minority in Vilnius city region in 2001 and 2011. (based on data of Censuses of

population, Statistics Lithuania, 2013)

Economic performance of Vilnius city is fairly good. It was the only municipality with quite stable

growth since 1992. The pace of growth of GDP per capita here exceeded Lithuanian average. At

present 40 % Lithuanian GDP is created in the Vilnius County. The last economic crisis was the only

exception, which damaged city economy more than the remaining country (Fig 3), but the

regeneration trends were faster here as well. The Vilnius region (County) consist of quite different

spaces. The most modern one, developing metropolitan area, determines the main statistical

indicators, but the peripheral parts of the region consist mainly of agricultural lands with very weakly

developed economy and quite weak links with the city. Growing (and sprawling) city is influencing

development of neighbouring municipalities, which started to develop even more fast than the city

itself since late 90-ies.

Figure 3 GDP per capita in Vilnius county and Lithuania. Current prices. (Statistics Lithuania, 2013)

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

tho

us

. E

uro

Lithuania

Vilnius region

22

Economic structure of Vilnius county is quite common for capital cities in EU. Service sector

dominates here and the last crisis made it relatively even more important in employment structure,

because the decrease of employment in other sectors was more serious. (Figure 4)

Figure 4. Employment in main economic sectors in Vilnius County in 2008 – 2012 (thous.). (Statistics Lithuania, 2013).

However the relative role of industry in GVA structure increased the most after the crisis (from 15,7

till 19,4 %) (Figure 5), what permits to make an assumption that finally the crisis made positive

influence on labour effectiveness in industry. Negative trend in important sector of business services

partly is explained by fast drop of real estate market and decreased financial system after bankruptcy

of one of the major banks “Snoras”.

Figure 5. Structure of GVA in Vilnius county in 2008 and 2012, %. (Statistics Lithuania, 2013)

Labour market. Employment has been growing strongly since 2001, with the result that there was

virtually no problem of unemployment till the end of 2008. The situation started to change at the

very end of the year and the increase in unemployment spread out from the construction sector.

The unemployment rate (i.e. those registered as unemployed at Labour exchange) in Vilnius was just

below 13% in March 2011. It was permanently dropping since then and reached 9 % in 2012 (Figure

6). Unemployment level based on population survey stood at 12.8 in 2012 or twice as big as in 2008

(6.3%).

2008

2012

2008

2012

23

Figure 6 Registered unemployment in Vilnius city and County (Statistics Lithuania, 2013)

Before the global financial crisis, when rates of unemployment in Vilnius were low and when there

were serious skills shortages, the demand for labour in Vilnius was partly met by increasing numbers

of immigrants from elsewhere in Lithuania and from other countries in Eastern Europe, above all

from countries of the former Soviet Union: Belarus, Ukraine, Russia and Moldova. However, these

trends were reversed in 2009. Situation in labour market at the end of 2013 is quite complicated. The

level of unemployment is decreasing but still there is quite a big unemployment problems especially

in peripheral parts of Vilnius region. The increase of emigration facilitated by the economic crisis now

results in shortage of labour force in many sectors. Many experts agree that there is no problem with

a lack of working places in metropolitan area. The problem is a shortage of well paid jobs.

Another consequence of the former imbalance between demand and supply in the labour market

was that average salaries had been increasing at a rate of 12% in each year since 2000. In 2007

wages rose by 19% and the average salary reached LTL 2,163, or €627 per month, substantially lower

than the EU15 average, but about 20% higher than the Lithuanian average. In 2009, however,

salaries fell as profits declined sharply at many companies and finance from the state to state-owned

enterprises was cut. Small increase again was recorded firstly at the end of 2010. The latest data of

department of statistics show the increase of salaries in 2013 by some 5 – 6 percent in Lithuania. The

gross salary in Vilnius County reached 704 Euro in 2012 and was 15 percent higher than Lithuanian

average. However substantial differences in Vilnius region exist. Average salary in Vilnius city

municipality was 732 Euro, while it was just 538 Euro in surrounding Vilnius district municipality

where major part of Vilnius metropolitan area is located. More distant Salcininkai municipality had

even smaller average salary – 427 Euro, while municipal centre is just 40 km from Vilnius centre.

Commuting flows in such situation are inevitable.

Since 1991 Lithuania has enjoyed periods of fast economic growth followed, occasionally, by

economic crises; economic policy has been fairly liberal and the state social policy has not been very

effective. The overall result has been a dramatic increase in social fragmentation in Vilnius region

and throughout the country.

High differences in education level can be illustrated by statistical data. Vilnius is the main high

education centre in Lithuanian and the only in whole Eastern Lithuania. The percent of population

with university education In Vilnius municipality is the highest as well. Almost 40 percent of all

Lithuanian population with the higher education live in Vilnius County. Many experts indicate that

2008

2012

24

the levels of entrepreneurship among population differ substantially in Vilnius metropolitan area and

remaining region or hinterland.

Administrative and governance context. Lithuania has got no regional self-government level. State

government and municipalities (60) are the only formal decision making levels in the state. The same

is true for organisation of most state policies and institutions (education, health care, police, etc).

Though some networks of social infrastructure have regional levels (e.g. healthcare, transportation,

etc) but their management is divided between central government and municipalities. The

organisation of the primary levels of healthcare system and secondary education, local transport

networks, public services and similar tasks is the role of municipalities. The higher level education,

higher level healthcare, state transportation systems, investment agencies as well as state land

ownership is in the hands of central government. An absence of land ownership rights at municipal

level is often regarded as a serious development obstacle from the municipal point of view.

Former County (NUTS3) governors’ offices (10 regional agencies of Lithuanian government) were

annihilated in 2011. Department of Regional Development at Ministry of Inferior affairs exists and

has got its regional divisions, but they play very limited role as planners and facilitators of regional

development. They are responsible for preparation of Region development plans but actually, as

several experts stated, its the simple amalgamation of municipal plans. And the implementation of

such plans is in fact fully in the hands of municipalities constituting the region (County). The

cooperation among municipalities in this implementation is hardly visible. At present 10 Counties

actually represent just statistical administrative division of the country. The only legal body, which

represents regions (NUTS3 level) as single units, is Regional development agency (10), whose role is

very limited. They are formed by the representatives of municipalities constituting the County and

formally are involved in process of formation and implementation of regional policy as consulting

organisations. However their most important role is related to distribution of EU funding for regional

development (7 % of total EU support in period 2007 - 2012) between municipalities. The major role

in this field is played by the various ministries and agencies of state level.

Actually municipalities, constituting Counties (regularly 5 – 7) play as independent actors and

collaboration or competition between them depends basically on local interests and on fast changing

political situation. Administrative reform, which was started at the end of XX century and aimed to

increase of number of municipalities (Lithuania has one of the biggest municipalities in EU, what

often is regarded as disadvantage from the point of view of democracy building) was not finished

neither it was cancelled. Few new municipalities were established by the way of division of old ones.

Therefore Lithuania has got 3 types of municipalities with basically the same rights but different

structures and sizes. Those are: city municipalities (6 biggest cities and 4 resorts), district

municipalities (central town of 6 – 30 thous. residents and vast mostly rural areas around) and

municipalities (without indicating their rural or urban status. They consist of central town of 3 – 15

thous. residents with smaller rural areas around).

Municipal budgets are mostly formed by the income tax of residents of municipalities, not depending

on their actual place of work. Therefore situation, when municipalities are not so much interested in

attracting business as tax payers is quite common (especially in case of metropolitan regions).

Elected municipal councils are responsible for local policy formations. They form administrations of

municipalities (local government) and elect mayors (political leaders) of municipalities.

25

Vilnius metropolitan region informally consists of 3 Counties and 18 municipalities (or 4 Counties

and 23 municipalities, according to the latest trends). Vilnius city municipality, Vilnius district

municipality and Trakai municipality are mostly involved in city sprawling processes. However even in

more distant municipalities of Salcininkai and Sirvintos some processes of suburbanisation and

periurbanization could be observed. Though technically zone of commuting ranges some 100 km

around Vilnius, but it plays more important role just in range of 50 – 60 km from city centre (some

2/3 of Vilnius County).

New municipality of Vilnius was elected in 2011. The ruling coalition is not so firm, available

resources limited and debt of the city exceeds 1/3 of its annual budget. The main thrust of the new

Vilnius strategic plan (2010-20) is to create city, which is “one of top 3 choices to see, live and work in

the Baltic Sea Region. It is a friendly and cosy city, that embraces change and innovation, cherishes its

traditions and culture, and promotes continuous progress and perfection. The foremost aim for the

coming decade is to make the capital of Lithuania unique for its people: intelligent, intellectual,

innovative, inventive, interesting, inspiring, and insightful”. The tentative funding needs for the

implementation of Vilnius City Strategic Plan 2010–2020 add up to Euro 2,3 billion. This amount

specifies the total financial resources including the Municipal budget funds, the European Union

funds, funds of private investors, and other financial sources needed to implement the planned

strategic action. The biggest part this funding would be allocated to sustainable development of

urban territories and infrastructure (1,4 billion Euro, most of which should be invested into

transportation projects). The old strategic plan included ideas to move commercial and office centre

from the old city on the left bank of the Neris to the right bank. This goal was at least partly achieved.

Public housing developments and restoration are located in all parts of the city, but more on the right

bank of the river. Private initiatives (weakly coordinated and planned) in house building tends to be

concentrated in the suburbs. Many of those initiatives results in the formal statistical growth of

farmers in Vilnius district municipality, because becoming farmers eases procedures of permission for

house building in your land of agricultural destination essentially.

2. TRAJECTORIES OF ECONOMIC DEVELOPMENT AND STRUCTURAL CHANGE, SOCIAL COHESION

The main objective of this part:

a) to analyse development trajectory and structural changes in different sub-periods of

transformation)

b) to analysis different aspects of social cohesion in the region

Vilnius' economy was dominated by manufacturing during the communist era but since that time

most of the old factories have either become bankrupt or have been relocated out of the city centre.

Thus Vilnius has lost many activities that used to be the bedrock of its economy: traditional

machinery, electronics, brewing, metals, food and clothing. Some traditional industries have,

however, survived: plastic goods, construction materials, furniture and some types of food

processing. Since the beginning of 2000 some new industries have been created in the city and

suburbs (brewery, packing materials, biochemistry, production of medical equipment, electronics

and other). Industry now constitutes 1/5 of Vilnius county economy.

The recent history and the immediate prospects for the economies of Lithuania and Vilnius are

heavily dependent on trade flows and the demand for Lithuanian exports. This demand is also

affected by political relations with Russia and Belarus.

26

Vilnius was also the principal location of the overheated construction industry and was

proportionately more affected by the collapse in the housing market and in construction during last

economic crisis. Real estate prices tripled between 2002 and 2008 and the construction sector came

to account for about 10% of Lithuania’s total GVA and its growth rates far outstripped rates of

economic growth of the whole economy. The collapse of the boom in house construction at the end

of 2008 led to a fall of nearly 49% in construction activity in Lithuania in 2009. Most of the

construction activity in Lithuania took place in Vilnius, and so the city bore the brunt of the collapse

in this sector. Vinlius city region suffered even more, because big part of commuting was related to

the jobs in this highly paid sector.

Consequently the share of construction in Vilnius economy dropped from 10 till 5 % in 2012. First

signs of revival of this sector appeared only at the second half of 2010.

Vilnius, as the principal retailing centre in Lithuania (and partly in Belarus), was also seriously

affected by the sharp decline in household consumption. There were some signs of recovery in this

sector at the second half of 2010. Annual increase of retail trade in at the beginning of 2011 reached

21% and consumption began to play major role for GVA grow in 2013.

Vilnius has made concerted efforts to develop high-tech industries on the back of the city's eight

universities and several research institutes. These efforts have been fairly successful in biosciences,

lasers, ICT equipment and precision machinery.

At present there are ten science and technology parks in Lithuania and four of them are located in

Vilnius. Their aim is to attract companies and institutions involved in applied research, innovation

and advanced technologies. Most of these parks have been created near existing research institutes

and universities and compose parts of science-technology and business centers (so called “valleys”),

which have been receiving substantial support from EU recently.

Direct foreign investments from Sweden grew steadily and the country became the largest foreign

investor in Vilnius in 2008, when its investments almost reached €1.04bn. At present (2012) Sweden

FDI in Vilnius county stands at 8.8 bn and this is almost 4 times higher than the investments from

second biggest investment country Germany (2.8 bn). During the financial crisis the ranking of

inward investors changed, Germany rising to second and Norway to 3rd place (2.1 bn). Estonia, Latvia,

Finland, France are other 4 countries, which investments exceeded 1 bn LTL in 2012 (3.45 LTL = 1

Euro).

Labour market. It is hard to give exact numbers but at least 10% of the Lithuanian labour force is

employed in foreign countries, mostly England, Ireland and Norway. The biggest problem in

Lithuania’s labour market is related to structural unemployment. There is a shortage of workers in

traditional services and manufacturing, which appears mostly to low salaries in this sector (workers

prefer not to work, at least officially, or to emigrate). Often there is a little sense to work (especially

to commute to work) for minimal salary (1000 LTL since 2013), when various state subsidies guaranty

almost similar incomes. The increase minimal salary caused some problems for smaller business

especially in rural areas. Also growing immigration from Eastern countries is being discussed as some

future inevitability periodically by the economists and business makers.

27

This is another way, apart from international trade, in which the recovery in Lithuania is very

dependent on developments in other countries (private persons have transferred to Lithuania €1.2

billion in 2011, what equals to almost ¼ of total net earnings earned in Lithuania)

The economic performance of the region can basically be assessed ambiguously. There are great

differences of economic development in the city and metropolitan area, which suffered greater

depression at the beginning of reforms. However the trajectory of development is regarded as

successful both by most participants of qualitative research and basic statistical data confirms this.

Many experts indicate that Vilnius city is the most successful area in the sense of economic

performance, though there are some aspects which could have been made better (e.g privatisation

of industry and agricultural reform). Experts indicate that this is the reason why many “quite

competitive plants were simply sold for metal, and many objects of economic infrastructure were

lost”.

Absolute majority of experts agree that transformation process is basically over though some

remaining of socialist system could be found. One actual remaining is related to unfinished land

restitution in the Vilnius region. This is causing both economic problems (minimising land supply) and

social tensions. Some mental and spatial structures have their inertia but basically economically and

politically region is fully transformed. Some remaining of soviet system could be felt in the economy

and society. One expert related this with still quite high part of dark economy, corruption and etc.

Some former soviet spaces (like garage areas, factory fields) still exist unchanged. Experts estimate

that transformation in the city took place by 6-7 years faster than in the remaining region.

The main trend of structural changes in the region is increasing role of services in the city. The rise of

business sector is mentioned as an important one, though latest events (namely last crisis and

problems in banking sector) made negative impact. The positive signs are related to investment in

R&D related industries and IT sector in the city. Investments in new industrial activities outside city

(e.g. factory of agricultural machinery or manufactory of packing materials) positively are changing

economical structure in Vilnius region. Increasing role of transport economy, logistics is indicated as

one of important recent changes. The decrease of industry is mentioned as one of the trends, though

statistical indicators show relative revival of the sector during last 5 years. The most peripheral parts

of region still mainly remain agriculturally dependant, though employment in this sector is dropping

(except the last 2013 year, when it increased once again, Statistics Lithuania, 2014). More and more

unused lands are going back to economy with the help of EU support. One expert indicated that the

support increased a role of crop-raising, though poor soils are better suited for stock-raising. Region

is losing remaining infrastructure from bankrupted industry and agriculture.

External factors and EU membership first of all played important role mostly due to improved

condition for export related industries (“it opened new markets”, as one expert indicated),

improvement of state image (and attractiveness for FDI) and tourism. A few experts indicated

possible future negative economic consequences of growing emigration, which will cause shortage of

labour force and related social problems in the region. The economic crisis was mentioned and

actually it made the biggest negative impact on city and surrounding region during the last years,

though it may appear to be a positive one in the long run, because the effectiveness of economy

rose, new export markets and investment spheres were found. “Entrepreneurs started to look for a

new niches, new markets”, indicated one of experts. Prior to the crisis, investment in real estate

were so profitable, that other sectors were losing attention in many cases.

28

Generally majority of interviewed experts do not see essential negative problems in regional labour

market. “Employment is reaching 75 %in the city region”, as one of experts said. The social inequality

between the city and remaining region are high and last crisis made very negative consequences,

because many residents were involved in commuting to Vilnius related to construction sectors.

Dropping demand and later salaries made commuting much less affordable. The less mobile

population is suffering from social and territorial exclusion. Jobs in the mostly rural region are scarce

and much less paid. Crisis facilitated emigration of more skilled workers and this is resulting in

shortage of certain labour force in reviving economy. “Supply does not meet demand”. The recent

growth of demand for labour force could result in growing social cohesion in commuting zone,

though the impact for more distant areas will be minimal. Experts foresee future growth of

differences between metropolis and periphery. The social differences in society will not start to

change if the states’ economy doesn’t grow fast and social policy doesn’t change.

The accessibility of public services is generally perceived as fairly good in Vilnius region with some

exceptions. Sprawling residential dwellings were not followed by sprawling objects of social kind.

Actually due to the decreasing rural population and saving of public spending networks of schools in

rural settlements and network of hospitals in the centre of city were shrinking. Therefore there is

some shortage of public kindergartens in the city, schools in the suburbs, healthcare establishments

in more peripheral parts. Some experts from peripheral part of the region indicated that social

infrastructure in municipal centres is even better than in Vilnius, because dropping numbers of

population result in relative oversupply of various objects (like schools, kindergartens, etc), while

situation in Vilnius is opposite. However other experts indicated that situation in periphery is not so

good, infrastructure is shrinking and many important objects are not existent in such towns (like

better hospital services, cinemas, retailing centres.. etc..)

The main social problems that usually are mentioned are related to low incomes (or better pain

jobs). Housing problem for young families is among topical problem. Big social (and territorial)

stratification, big share of deprived persons usually are mentioned among topical problems in

Lithuania. The main general source of social inequalities is related to quite liberal (neo-liberal) state

policy and laws regulating wage amounts. Lithuania is redistributing the smallest or one of the

smallest parts of GDP via national budget. Economy is weak. There are many people with illegal or

semi-legal incomes and many persons in need of support. Consequently system of social security is

weak, social spending, pensions, etc. are minimal. On the other hand existing system of permanent

support does not ensures those deprived persons outside labour market or outside legal labour

market (especially in more distant areas) to join it, because difference between minimal salary and

social support is minimal. Other reasons lay in interrelated high differences of human resources,

education levels, entrepreneurship, language skills, historical pathways, public leadership, poor

agricultural resources, badly implemented post soviet reforms, which created big initial differences

between formerly quite even population groups.

3. DEVELOPMENT FACTORS

The main objective - to identify the most important factors of regional development)

Many factors, which have played key role in development of the region in recent years are similar to

those affecting whole country. Because Lithuanian is a small state with an open economy largely

driven by exports and imports, it is very exposed to developments in the global economy and to

developments in the Baltic region. In recent years the value of Lithuanian exports amounted to

29

around ¾ of the country’s total GDP. Therefore any analysis of the Lithuanian economy must take

these wider contexts into account.

The fall in demand for Lithuanian exports was one of the principal causes of the recession that

started in 2008. This was a global phenomenon exacerbated by the financial crisis in Latvia and

shrinking consumption in Russia, which were among Lithuania’s major export partners. The Russian

market, however, is also affected by the practice of banning imports of selected products

(particularly types of food) from Lithuania, for a variety of reasons. This makes it difficult to predict

the development of this market. The revitalisation of export markets is by far the most important

factor of economy growth in most recent period. There are no doubts that growing foreign trade is

the most important driving factor of economy development since the beginning of 2010 till 2012.

Inner consumption regained its role since 2013. All the forecasts of Lithuania’s economy

development are as reliable as export markets are.

The cross-border retailing makes also quite important influence on Lithuanian economy because its

quite small country. The steep depreciation of the Polish currency led to a sharp fall in retail sales to

Poland in 2009. The potential of retail trade with Russia and Belarus is greatly restricted by strict

controls imposed by the Russian and Belarus authorities. Belarus, in particular, is less than 20 km

from Vilnius metropolitan area and so it is a part of the city’s hinterland. On the other hand, the strict

border controls imposed by the Russian and Belarus authorities also prevent the Lithuanian market

from being widely opened to the commodities available at much lower prices from these two

countries (mostly those with high excise taxes). Though even at those conditions is estimated, that

proportion of consumption of illegally sold cigarettes stands at 50 % in Lithuania.

While a revival of export demand and of world trade was a major force behind recovery in Lithuania

and Vilnius, relations with Russia and Belarus are always complicating factors.

One of the key factors in Lithuania’s import performance is the country’s need to import energy. The

closure of the Ignalina nuclear power station in 2009 made Lithuania an importer of electricity. This

means that Lithuania is almost totally dependent on imported energy. The supply and price of the

electricity is unpredictable in some cases. Moreover, the country is still quite inefficient in its energy

use, both in the residential sector and in manufacturing. Consequently, energy prices have a direct

and substantial impact on the level of Lithuania’s imports. Growing oil prices always could play

negative impact on countries economy. However, growing oil prices increases consuming in Russia,

traditionally one of most important destination of Lithuanian goods.

Among other key factors, which were making very positive impact on Vilnius regions’ economy

during most recent years, was raise on new IT related sectors due to the investment of worldwide

companies (such as CSC, Barclays, Western Union and other) in opening of their regional divisions in

Vilnius. Several thousand workers are employed here and these numbers are increasing fast.

The main obstacles that hinder the development process in the region are, according to questioned

experts, diminishing human potential (due to demographic processes and emigration) and

diminishing inherited industrial infrastructure. They were mentioned as a possible threat for future

development. One of the obstacles, mentioned by experts is inability to cooperatively plan and work

in attracting investments in Vilnius and surrounding region. The lack of labour force of certain

qualification (IT specialists, for example) is already making negative impact. Soviet heritage (namely

30

avoiding legal business), lack of funding for investment, lack of reasoned strategies in public sector

have been mentioned among specific obstacles for development. Complicated spatial planning

system was also mentioned as an obstacle for development especially in some areas.

Exogenous growth factors. All economy of Lithuania is export oriented, though a few experts

indicated, that export is not so important in Vilnius area. Statistically export of goods of Lithuanian

origin constituted 18 % of Vilnius county GDP in 2012 and was substantially lower than Lithuanian

average (48%); however the export of goods of Lithuanian origin from Vilnius County increased till

7.3 bn. LTL in 2012 comparing to 4.7 bn. in 2008. These growing trends, which were much faster than

in the whole country, illustrate the expanding role of the export notwithstanding the impact of the

last crisis. The growing productivity is the main driver of such trends. The level of innovativeness of

Vilnius city economy was assessed by experts quite well comparing with Lithuanian average; however

nobody mentioned this factor as decisive one, determining growth of export or the economy in

general.

It is the most attractive region for FDI in Lithuania, though many of experts were quite sceptical

about its role for present development trends. Generally foreign investments were concentrated

very much in Vilnius metropolitan area; therefore the development of the remaining region was not

positively influenced by the FDI to noticeable extent. However there is no doubt, that foreign

investments are playing very positive role in development of Vilnius metropolitan area. Most of

activities of new branches of economy with high value added production wouldn’t appear without

FDI.

Endogenous growth factors. Innovativeness of Vilnius regional economy is quite difficult to assess.

The existing R&D developments are the best developed in Vilnius city and virtually all R&D related

economy of the country (laser technologies, biotechnology, biochemistry, components for solar

energy production) is concentrated in Vilnius. Some experts say that it is very innovative, some doubt

this. Anyway, comparing with the remaining Lithuania, of course it is very innovative and levels of

entrepreneurship are the highest in Lithuanian. However the innovativeness and entrepreneurship

are very low in the peripheral parts of Vilnius city region. Many of new R&D related producers are

concentrated in so called “science and business valleys” established near or with the higher

education institutions.

SME’s are perceived as a main driver and future factor of development outside metropolitan area.

“Small 10 – 20 employer, enterprise in every town and we will solve all social problems in the

municipality. That’s everything we need” stated one of the mayors of Vilnius region municipalities.

The role of SME’s in the city is important and it is expressed in various visions and strategies

developed in various public authorities or agencies. However few experts mentioned SME as a

decisive sector for city development.

Main clusters appear in the peripheral part of the city (inside its legal limits), where business and

science parks have been established or are under development. “Santara valley” for example is a

concentration of research institutes and producers of chemistry and biochemistry, ICT related

enterprices. “Sunrise valley” concentrated physics and related industries. These new (though quite

small jet) business clusters appear at the Northern part of the city, which also is a main side for city

sprawl. Southern district of the city remains devoted more for traditional industry, wholesaling,

logistics and similar “transport infrastructure dependant” activities. No business clusters outside the

city are visible jet.

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4. GOVERNANCE AND LOCAL/REGIONAL DEVELOPMENT POLICIES

Main objective - to assess the impact of local/regional policies and institutional system on regional

development

Formal regional policy is relatively new and weakly developed branch of state policy in Lithuania. Its’

present origins can be traced to the period of negotiation with EU, when Lithuanian had to prove

that it has Regional policy. At present Lithuanian regional policy is sharply oriented in the support for

special targeted territories, which have special kind of problems or “potential” and it is very much

dependant on EU structural funding. 14 problem municipalities were selected as problem territories

because of high unemployment levels mostly. 7 urban centres with potential of being development

nodes for surrounding region were selected (basically 6 – 12th biggest cities of Lithuania were taken

for granted as a potential development nodes). The special problem area – “Region of former

Ignalina nuclear power plant” was established. Those 3 types of areas receive higher funding from EU

structural support. One of such problem municipalities is located inside Vilnius region (Salcininkai). 4

other municipalities as well as 3 urban centres are located in Vilnius metropolitan hinterland.

The regional development councils are involved in redistribution of EU support for regional

development. Mostly those are projects for improvement of environment, housing renovation and

similar activities in non urban (big city) municipalities.

Regional development strategy is actually irrelevant. Regional development plan prepared at the

Ministry of interior affairs is mostly a sum of local municipal plans and its implementation is

fragmented among municipalities pursuing their local interests. Experts assessed those plans as

“mostly type of declaration”.

The existing governance model in the region basically has not been effective and efficient. Though

municipalities forming region can cooperate at certain cases, but mostly it’s more an exception than

the rule. Regional authorities actually don’t exist. Existing departments at ministry of Interior affair

can develop general principles and strategies for regional development but they can make very little

influence on the activities of independent municipalities. Though experts indicated that

municipalities have learned how to divide “decently” EU money for regional support, but common

regional planning and development actually does not exist.

The main outcome of recent state regional policy is withdrawal of EU support for regional

development money from Vilnius municipality. This resulted in the improvement of environment in

non-metropolitan areas but did not make any decisive impact on economical development (parks,

streets, squares, waste water treatment sites, sewage systems, houses, etc. were renovated, but very

few new jobs created). Local policy made different impact on development of various municipalities,

though their role is quite limited. For example the Vilnius district municipality is criticized by experts

for making obstacles for suburbanisation of Vilnius industry. While Vilnius city proactive managers

managed to make city more attractive for investment and were able to regulated renovation of the

city, including development of new right river bank city CBD. Most agree that the proactive role of a

mayor of more distant Druskininkai municipality (located in peripheral part of Vilnius hinterland,

outside Vilnius metropolitan area) was the decisive factor renovating economy of this resort but

successful local policies in municipalities in Vilnius metropolitan area were not mentioned.

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5. EXTERNAL INTERVENTIONS: NATIONAL POLICIES AND EU COHESION POLICY

The main objective of this part was to assess the impact of external intervention on regional

development)

Assessing impact of various types of policies (regional, sectoral, horizontal policies) on regional

development in recent years we found quite unambiguous answers. No one of interviewed experts

indicated that regional policy had more important role than structural policies. Many even did not

know any measures of regional policy at all. The general economic and social policy of Lithuanian as

well as active or passive role of local municipalities was making most important impact in Vilnius

region (especially in Vilnius metropolitan region, which is usually criticized in media for taking

“everything” from remaining country). Most experts indicated that the municipalities have significant

role on attractiveness of their areas for FDI, development of export, innovativeness and

entrepreneurship, social cohesion but many municipalities did not made sufficient efforts for

improvement of these fields. And they do not work together in the region. Once again big differences

between Vilnius city and remaining municipalities were indicated.

The external interventions, which are nor regulated or perceived as measures for regional

development and which are centrally planned and managed at various state institutions (e.g.

investment in transportation, R&D) generally addresses regional needs according to questioned

experts (e.g. bypasses of Vilnius city, reconstruction of roads, railways, support for agriculture and

rural development, etc.). Mangers of more peripheral municipalities stated, that in many cases

supported activities are too complicated too sophisticated for small and quite traditional rural

business.

The Cohesion Policy resulted in the improvement of economic potential and competitiveness in some

cases, mostly in Vilnius. It also resulted in changing ways of thinking in periphery, which started to

think more about new ideas rather on simple support for primal needs (e.g. renovation of roof or

saunas), as one of experts said. But basically the impact on social well being (or rather quality of

environment) in rural areas was much more serious than impact on competitiveness.

6. FUTURE PROSPECTS

The main threats for the development of the region that were mentioned: extern instability (export

markets, political issues in the east), energy supply, demographic development, aging population,

lack of labour force, absence of reasoned clear development vision (both in Lithuania and in the

region), shrinking economic infrastructure in many parts. Having in mind the latest events, we also

could include instable political field in Eastern Europe among the threats complicating future

development in Lithuania.

The main opportunities, which were mentioned: tourism, innovativeness, research – these fields

could give more use; The opportunity to become interregional centre, mere intencce interregional

cooperation in the Baltics, Eastern markets (and threat also), east-west bridge functions, while local

entrepreneurs know eastern market peculiarities.

The experts had quite different opinion in the city and in periphery on recommended future

objectives (spheres) of national development policy. The idea of concentration of efforts, funding for

competitiveness and innovative, R&D related industries in metropolitan areas prevail in Vilnius. At

the same moment guaranteeing spread of the well being created here to more peripheral region,

which cannot gain, “absorb” or master funding for innovative activities. Experts from the peripheral

33

parts state that they should more freely use funding, and decide what activities are to be supported

by themselves. Te money should be concentrated in periphery, which is losing population. “We

should create jobs here, where we have social infrastructure, space and unemployment, but don’t

have traffic jams, polluted air, etc… ”. East European countries should be more active (possibly with

the support of EU) attracting and relocating business from the west Europe. “Developing new

products and industries, western companies, should open factories producing components for those

industries in the CEE countries”.

Interviewed experts struggled giving recommendations for future objectives on EU cohesion policy.

Few recommendations however are to be mentioned here. “Even higher mobility for people and

other flows (money)”.”More attention for metropolitan regions” ; “Development of communication

networks, especially energetic ones” ; “Development of new jobs should be a priority”, “Policy should

be more country specific. We should find different specialisations for different CEE

countries”.”Regional support should guaranty that people would stay in their region”.

7. CONCLUSIONS

The main trends in restructuring the regional economy are related to changes, which are generated

in Vilnius city. New economic sectors appear in city economy, which have higher value added

production (ICT and R&D related). Though they relative weight in metropolitan economy is not great

(a few thousand employees out of approx. 270) but they guarantees well paid jobs, lack of which is

the main problem of the region. Other trends are related to still spreading relative importance of

services. The decreasing Industry started to get more important after the crisis, when more export

oriented types of production gained pace. The collapse of the construction service, made a huge

momentary negative impact on the economy of whole metropolitan region damaging one of the best

paid jobs and related industries. At present the revival of this sector is visible, but it still was almost

twice smaller in 2012 than before the crisis.

Exogenous factors create main context of development of the economy in whole Lithuania defining

main trends of development in all its regions. However locally, actual trends of development in every

place are determined by endogenous ones (human potential, skills, leadership, local political

situation, status, site factors, images of different places, natural resources), therefore differences of

GVA in different municipalities reach a few times. Because the main source of economic

development and wealth is very highly concentrated in Vilnius city, locational factor is of the highest

importance for the development of remaining municipalities of Vilnius region.

The productivity growth has been related to the increase of the innovative capacity of the region,

though to quite a limited degree, which is hard to evaluate (at least concerning progressive, radical

innovations). It is even more difficult to estimate the changes of innovation capacity concerning small

(incremental) innovations. The dominance of the city and the spread of new “innovation dependent”

sectors theoretically confirm the importance of this factor. Though the support for R&D

infrastructure is increasing (basically because of EU support), it is hard to evaluate how it changed

innovation capacity of business sector.

The mutual dependence of economic growth (decline) and changing social disparities is obvious,

however it is hard to estimate its values. The pre crisis boom in construction created a demand for

well paid and relatively low qualified jobs. This resulted in the actual disappearance of

unemployment and reduced social disparities in the vast commuting zone. Overheated economy

resulted in fast increase of states social spending. However crisis resulted in collapse of labour

34

market, increase of unemployment and decrease of social spending. There was a lot of speculation in

mass media that many companies and entrepreneurs were keen to reduce employment and salaries

even if they were not having troubles. The salaries of the highest level managers were not reduced

the same as profits of many companies. On the other hand, the growth of economy for several years

did not result in growing wages or pensions; therefore we may assume that benefits of the growth

also went not to the most deprived persons or even middle class workers. There is a little doubt, that

the last crisis, similarly to previous ones, resulted in increase of social disparities both structurally

and spatially (at least in Vilnius region, because some other regions of the country, with much more

intense agriculture and related industries, weren’t damaged so heavily).

Regional policy was not successful at all in the sense of economic development (if there was one at

all in the case of Vilnius region). Local policies in Vilnius city municipality, which were targeted to

attraction of foreign capital in to new branches of economy, into revitalisation of central urban

spaces and into improving image of the city, pursued by some leaders of the city, were fairly

successful. However generally it is hard to mention some local policies which have made decisive

positive impact on development in remaining part of Vilnius metropolitan region. Most local policies

are concentrated on sustaining of existing situation, are not pro-active and concentrated on

implementation of various “hard” projects making little if any impact on innovativeness,

entrepreneurship, attractiveness for business of their places.

The impact of FDI and EU support were the main sources of external interventions , which made

serious impact on the development trends of Vilnius metropolitan region. The EU intervention was

important, because it permitted to keep at least some levels of public investments after the crisis.

The states’ investment programme was actually cancelled right after the crisis struck the economy,

so EU money was the only source for keeping construction sector at leas a little bit alive. EU money

helped to renovate infrastructure and environment so reducing state spending on this sector and

improving environmental quality. This could make a positive influence on the possibilities to attract

new economies and people in depopulating places. The EU money was important attracting other

important sources of external interventions. New FDI into ICT and other sectors of industry in

metropolitan area were related to EU support. Many investors stated that EU support (together with

other factors) was one of decisive factors for choosing Vilnius instead of other locations in different

countries.

Summarising one must state, that though FDI was not so important in Vilnius and Lithuanian cases

like in other Baltic states (majority of the 20 biggest companies in Lithuania and Vilnius are of

Lithuanian capital) they made one of most important role not only creating new jobs but also

bringing new ways of doing, learning and behaving in business sector. The Scandinavian companies,

which are most important investors made huge impact on labour relations even in Lithuanian

companies. Those investments included Vilnius into Baltic Sea business space.

Though general trends of development of Vilnius region since 1990 reforms were probably more

determined by internal factors, but present economic situation would have been much different

without FDI and EU support to lesser extent.

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