Latvia has transformed its formerly state-run economy, inherited from its years as a Soviet republic, into a market economy. Most government-owned businesses and financial institutions have been privatized, and the country has encouraged foreign investment. Rapid economic growth, however, contributed to an especially sharp contraction during the global recession that began in 2008, resulting by 2010 in the highest unemployment rate in the European Union. The economy has improved since then, but economic inequality remains among the highest in the EU. Dairying and stock raising remain integral to the agricultural sector, which employs almost 15% of the labor force. Grain, sugar beets, potatoes, and vegetables are also important. The nation has valuable timber resources.
Latvia is an important industrial center; industry employs about 20% of the workforce. The nation's industries are extremely diversified and include food processing and the manufacture of buses, vans, street and railroad cars, synthetic fibers, agricultural machinery, fertilizers, electrical appliances, electronics, pharmaceuticals, and textiles. Distilling and shipbuilding are also significant, and tourism has developed as a source of foreign income. Exports include wood and wood products, machinery, metals, textiles, and foodstuffs. Raw materials, equipment, chemicals, fuels, and vehicles are imported. Trade is primarily with Lithuania, Germany, Estonia, and Russia.