Innovative clustering and its development factors as a source of Latvia’s competitiveness

Small countries with transition economies have to choose their own path of economic development. Nowadays, the economic model of the EU countries implies the volume of the venture capital of 0.3% of GDP per year, i.e. the required volume of venture capital in Latvia is EUR 90 million per year, which implies a tenfold increase. The authors consider the influence of intellectual potential, free economic zones and venture capital as development factors of innovative clustering in terms of Latvia’s competitiveness. The undertaken modelling confirms a stronger impact of the development of clusters on innovations and intellectual potential (IP) in comparison with the other positions. The positions of «Venture capital» and «Higher education and training», or IP, have a significant impact on the development of clusters, while the development of clusters impacts GDP and innovations which, in turn, affects the level of Latvia’s competitiveness.