The Genuine Progress Indicator for the transition economies of the Baltic States: reflections on economic welfare and methodological choices

Abstract

The Baltic States of Estonia, Latvia, and Lithuania have experienced rapid Gross Domestic Product (GDP) growth since the collapse of the Soviet Union and subsequent transition from planned to market economy, reporting increasing levels of consumption and subjective wellbeing but persistent income inequality, which raises the question of whether economic expansion has translated into genuine welfare improvements. The study provides the first application of an updated Genuine Progress Indicator (GPI) framework to the Baltic States for the period 1995-2023. To assess the robustness of the results, a sensitivity analysis of the components with the greatest influence on GPI values was conducted: valuation of lei-sure time, the cost of carbon, and the income inequality adjustment. The analysis reveals that economic welfare measured by the GPI has generally exceeded GDP across all three countries in the study period, apart from 2023 in Estonia and Lithuania, offering indications that the welfare returns of additional economic growth might be diminishing. However, the extent to which the GPI exceeds or falls below GDP varies considerably depending on pa-rameter choices. The sensitivity of the GPI to assumptions regarding hourly wages, carbon cost, and inequality baselines highlights methodological challenges that makes cross-country comparisons difficult. These findings caution against uncritical use of the GPI in pol-icy settings and highlight the need for methodological standardisation and clearer valuation guidelines if the metric is to serve as a credible tool for assessing progress beyond GDP.