Latvia lies at the crossroads where east meets west on the shores of the Baltic Sea. At the beginning of 2003, the population of Latvia stood at just under two and a half million and its territory covered 64 589 km².
Due to its geographical position Latvia often fell victim to the aggression of its more powerful neighbours. Beginning in the 13th century, parts of Latvia were administered by the Teutonic Knights before coming under Polish and Swedish rule. In the 18th century Russia acquired the whole territory of Latvia. In 1918, Latvia was proclaimed an independent state. As a result of USSR military aggression, Latvia was incorporated into the Soviet empire in 1940. Following the re-establishment of independence in 1991, Latvia regained its status as an independent democratic republic where the popularly elected Saeima (Parliament) exercises supreme power, elects the State President and confirms the Cabinet of Ministers.
Since regaining independence Latvia made considerable progress in the stabilisation and restructuring of its economy. Economic activity in Latvia is rising since the middle of 1990s. Living standards of people go up and unemployment is decreasing. Growth rates in Latvia in the last few years have been among the highest in Europe. GDP, between 1996 and 2002, went up by 5.8% on average per year that is approximately twice faster than in the EU and one and half times faster than in accession countries. This is ensured by a high domestic demand and ability of businesses to adapt to changeable external conditions. Reforms accomplished in the previous decade have strengthened the private sector, there are growth promoting macroeconomic conditions and constantly improving business environment. Considerable changes took place in the structure of economy. The high domestic demand promotes development of services and especially trade and construction. Service sector, which contributed only 32% to the total value added in 1990, had more than doubled by 2002 to 71%. The dynamics of the domestic demand is stable and ensured by growth of income, stability of the financial system, widening of crediting facilities and relatively low inflation.
In the course of time administrative territorial divisions in Latvia have undergone substantial changes. Before the loss of independence in 1940, Latvia was divided into 5 regions (Riga, Vidzeme, Kurzeme, Zemgale and Latgale), which were further subdivided into 517 pagasts (civil parishes) and 60 towns. At the end of 2003, there were 7 cities under state jurisdiction (the area of these cities is not included in the territory of the administrative districts), 26 districts comprising 70 towns and 453 pagasts. In 1998, the Law on Administrative Territorial Reform was adopted. Until the completion of this reform, the country's division into 5 statistical regions (the Riga region including the cities of Riga and Jurmala and the district of Riga, plus the regions of Vidzeme, Kurzeme, Zemgale and Latgale) remains in force. This division aligns best with the NUTS level 3 regional criteria that are accepted in the European Union and it is closely based on the administrative territorial division of Latvia during the first period of independence. Accordingly, these regions form the basis of the analysis in this publication.
