Latvia was a constituent republic of the USSR from 1940 to 1991. As such it was fully absorbed into the Soviet economic system. The country was forcibly industrialized, resulting in environmental degradation and rapid urbanization as people from across the USSR were resettled in Latvia to work in the factories. Since achieving independence Latvia has aspired to reintegrate with Europe. This widely held goal allowed the country’s leaders to early on initiate economic reforms intended to establish a market economy such as found in western European nations. These policies allowed prices for goods to be set without government involvement; restrained government spending; and privatized agricultural land, small businesses, and banking institutions.

The principal mineral resources are sand, dolomite, limestone, gypsum, clay, and peat. Oil has been discovered in the Kurzeme Peninsula, and exploration of reserves is being undertaken.

In 2000, Latvia's transitional economy recovered from the 1998 Russian financial crisis, largely due to the SKELE government's budget stringency and a gradual reorientation of exports toward EU countries, lessening Latvia's trade dependency on Russia. Latvia officially joined the World Trade Organization in February 1999 - the first Baltic state to join - and was invited at the Helsinki EU Summit in December 1999 to begin accession talks in early 2000. Unemployment fell to 7.8% in 2000, down from 9.6% in 1999, and 9.2% in 1998. Privatization of large state-owned utilities and the shipping industry faced more delays in 2000, and political instability will continue to delay completion of the privatization process over the next year. Latvia projects 6% GDP growth, 2.5%-3.0% inflation, and a 1.7% fiscal deficit in 2001. Preparing for EU membership over the next few years remains a top foreign policy goal.