Central European Transition Economies Research Articles

The Operating Performance of Newly Privatized Firms in Central European Transition Economies

The Operating Performance of Newly Privatized Firms in Central European Transition Economies

Winners or losers? Workers in transition economies under globalisation

ABSTRACT The objective of this study is to investigate if workers in transition economies have been winners or losers of globalisation. We base our key argument on the postulates of the Heckscher–Ohlin model, whereby countries benefit from the production and export of the good produced with the abundant factor of production. We analyse the period 1996–2016 in 25 transition economies of Central, Southeast Europe and the Commonwealth of Independent States. Globalisation is represented through the manufacturing export and FDI in GDP and is argued to be endogenous, at least partially, to workers’ conditions. Political stability and rule of law are used as exclusion restrictions. We rely on the conditional mixed process procedure to estimate the coefficients. Results suggest that workers in Central European transition economies are the winners of globalisation as it created mainly high-skill and well-paid jobs. Workers in the Commonwealth of Independent States are the losers of globalisation which likely happened through reducing wages, offering inadequate working conditions and dampening marketplace bargaining power. Finally, workers in Southeast Europe stand in the middle: they are winners as globalisation created expanded economic opportunities for them, but losers in the sense of workplace structure and wages.

Determinants of Insurance Industry Development in Transition Economies: Empirical Analysis of Visegrad Group Data

The private insurance industry represents an integral part of all advanced economies. However, in transition economies its role differs. Monopolisation of the industry as well as wide social systems in the era of communistic government, inter alia, led to the reduction in the needs and offers of private insurance. Its importance began to grow after the regime change in 1989. This paper focuses on the examination of areas and factors that influenced the development of the insurance industry in four Central European transition economies: the Czech Republic, Hungary, the Republic of Poland and the Slovak Republic, also known as the Visegrad Four (V4) countries. Based on the results obtained, we were able to confirm that between 1995 and 2010 in V4 countries, the development of insurance markets was fuelled by different determinants from those fuelling the insurance industry in advanced economies. Different results were found for determinants including inflation rate, the age dependency ratio, degree of urbanisation, the social security system and rate of criminality.

The effect of exchange rate volatility upon foreign trade of Hungarian agricultural products

This paper takes a new empirical look at the long-standing question of the effect of exchange rate volatility on international trade flows of transition economies in Central Europe by studying the case of Hungarian agricultural exports to their export destination countries between 1999 and 2008. Based on a gravity model that controls for other factors likely to determine bilateral trade, the results show that nominal exchange rate volatility has had a significant positive effect on agricultural trade over this period. This positive effect of exchange rate volatility on agricultural exports suggests that agri-food entrepreneurs are not interested in speeding up the process of joining Hungary to the euro zone.

The Effect of Exchange Rate Volatility upon Foreign Trade of Hungarian Agricultural Products

This paper takes a new empirical look at the long-standing question of the effect of exchange rate volatility on international trade flows of transition economies in Central Europe by studying the case of Hungarian agricultural exports to their export destination countries between 1999 and 2008. Based on a gravity model that controls for other factors likely to determine bilateral trade, the results show that nominal exchange rate volatility has had a significant positive effect on agricultural trade over this period. This positive effect of exchange rate volatility on agricultural exports suggests that agri-food entrepreneurs are not interested in speeding up the process of joining Hungary to the euro zone.

Tendency of exports technology structure and exports concentration in the Balkan economies 2000-2012

The aim of this paper is to define the quality of export and exports specialization in the Balkan economies from 2000 to 2012. The research results may contribute to the understanding of economic trends in the countries of the region and at the same time provide guidelines in estimating future economic trends. Quality of exports is measured through the share of goods of higher levels of processing. The methodology of research is based on the Export Concentration Ratio which reflects the degree to which a country's exports are concentrated on a small number of products. The research results showed that in spite of a tendency of mild improvement of the quality of exports of Balkan countries 2000-2012, the quality level of exports from Balkan economies lags greatly behind the countries in the EU and to a lesser extent the Central European economies in transition, with some signs of catching-up. The stagnant and relatively high levels of Export concentration ratio and low share of high processing goods are indicating that Balkan economies are increasingly specializing in price-sensitive markets. For export success it is of great importance to have the transfer of modern technology and investment, especially through FDI, in competitive sectors which would 'spread' export offer. One of the keys for Balkan countries weak export lies in absence of the mix of science, education and industrial policies, which should be able to promote innovation, product quality and higher technological standards.

Capital Market Development in Eastern and Central European Transition Economies

While the paper touches upon the experience of most transition economies in Eastern and Central Europe, it focuses on the creation and functioning of capital market development in four countries in the region, namely, the Czech Republic, Hungary, Poland and Slovenia. Capital market in these four countries were already created or reestablished in the beginning of 1990s and government securities markets have been actively developed. These countries’ capital market development has been closely related to their choice of privatization methods. While success has been observed, many problems remain in achieving desired levels of market efficiency and transparency.

The impact of current and founding institutions on strength of competitive aspirations in transition economies

AbstractNorthian institutional theory argues that firms adapt to their current institutional environments. Organizational imprinting theory argues that firms will be constrained by their founding institutional environments. We explore the combined influence of these two institutional environments on the strength of competitive aspirations using a unique dataset of firms in the shifted institutional environment of Central European transition economies. Our results indicate founding institutional environments temper adaptation to current institutional environments for certain competitive aspirations and this effect increases as the size of the shift between current and founding institutional environments increases. Copyright © 2011 John Wiley & Sons, Ltd.

The Operating Performance of Newly Privatised Firms in Central European Transition Economies

Abstract This study examines the operating performance of privatised firms in three Central European Transition Economies between 1990 and 1998. Overall, we find no evidence of a significant improvement in operating performance for the first six years after privatisation. Contrary to the increasing empirical evidence for non‐transition economies, our privatised firms experience no improvement in profitability, capital investments, efficiency, and output, a significant drop in employment, as well as a significant increase in leverage. The most important determinants of the performance changes following privatisation were country effects, timing of the privatisation sales, industry classification, and state ownership after privatisation. Our findings are consistent with the empirical evidence that the transition process proved to be more difficult than expected and that, although necessary, privatisations do not necessarily produce equal efficiency gains in transition economies (Megginson, 2005; Havrylyshyn and McGettigan, 1999).

The effects of transition and political instability on foreign direct investment inflows

AbstractThis paper examines the effects of transition and of political instability on foreign direct investment (FDI) flows to the transition economies of Central Europe, the Baltics and the Balkans. We find that FDI flows to transition economies unaffected by conflict and political instability exceed those that would be expected for comparable West European countries. Success with stabilization and reform increased the volume of FDI inflows. In the case of Balkan counties, conflict and instability reduced FDI inflows below what one would expect for comparable West European countries, and reform and stabilization failures further reduced FDI to the region. Thus, we find that the economic costs of instability in the Balkans in terms of foregone FDI have been quite high.

Operating Performance of Newly Privatized Firms in Central European Transition Economies

This study examines the operating performance of privatised firms in three Central European Transition Economies between 1990 and 1998. Overall, we find no evidence of a significant improvement in operating performance for the first six years after privatisation. Contrary to the increasing empirical evidence for non-transition economies, our privatised firms experience no improvement in profitability, capital investments, efficiency, and output, a significant drop in employment, as well as a significant increase in leverage. The most important determinants of the performance changes following privatisation were country effects, timing of the privatisation sales, industry classification, and state ownership after privatisation. Our findings are consistent with the empirical evidence that the transition process proved to be more difficult than expected and that, although necessary, privatisations do not necessarily produce equal efficiency gains in transition economies (Megginson, 2005; Havrylyshyn and McGettigan, 1999).

The Effects of Transition and Political Instability on Foreign Direct Investment Inflows: Central Europe and the Balkans

This paper examines the effect of transition and of political instability on FDI flows to the transition economies of Central Europe, the Baltics and the Balkans. We find that FDI to transition economies unaffected by conflict and political instability exceed those that would be expected for comparable West European countries. Success with stabilization and reform tends to increase FDI inflows. In the case of Balkan counties, conflict and instability have reduced FDI inflows below what one would expect for comparable West European countries, and reform and stabilization failures have further reduced FDI to the region. Thus the economic costs of instability in the Balkans have been quite high.

Regional Disparities and Migration: Linear and Switching Model Estimations for Poland

Mainardi S. (2004) Regional disparities and migration: linear and switching model estimations for Poland, Regional Studies38, 767-781. Along with capital mobility and fiscal instruments as local poverty alleviation targeting, internal migration can contribute to a partial absorption of external shocks, with improved allocation efficiency and budget savings. In transition economies in Central Europe, the need for adjustment is further motivated by the severe post-Communist transition shocks, and the envisaged asymmetric impact across regions of the process of economic integration with the European Union. This paper first reviews the main hypotheses and estimation problems concerning internal migration models. Specific attention is addressed to unobserved heterogeneity and latent migration demand, with implications for welfare equilibrium at a regional level, particularly in a transition economy setting. Single and multiple equation methods are then applied to linear and switching model specifications on 19...

Commercial Bank Lending to SMEs in Poland

This paper explores the processes of financial intermediation that are used by commercial banks in their interactions with SMEs in Poland. The paper develops an argument for examining the empirical realities of commercial bank involvement with the SME sector within the context of economic transformation by suggesting that the connection between them influences the trajectories of economic change within transition. The paper provides a history of re-organisation of the commercial banking sector in Poland, paying particular attention to the involvement of foreign capital and foreign banks as the trend towards increasing foreign participation is apparent in the Central European transition economies. The findings from this research suggest that there are some significant variations within the commercial banking sector in the approach to, and practices for, lending to the SME sector.

Interest Rate Pass-Through in Romania and Other Central European Economies

Interest rate pass-through from policy interest rates to market rates and inflation has been hypothesized to play a lesser role in Romania than in other Central European transition economies. This paper tests this hypothesis and concludes that it cannot be supported by the data. Hence pass-through in Romania is concluded to be in line with that in comparable economies in the region. Moreover, the interest rate pass-through has become more pronounced over time.

Interest Rate Pass-Through in Romania and Other Central European Economies

Interest rate pass-through from policy interest rates to market rates and inflation has been hypothesized to play a lesser role in Romania than in other Central European transition economies. This paper tests this hypothesis and concludes that it cannot be supported by the data. Hence pass-through in Romania is concluded to be in line with that in comparable economies in the region. Moreover, the interest rate pass-through has become more pronounced over time.

Efficiency development of Czech foreign trade in high-technology products and high-value agricultural products

High efficiency of foreign trade is achieved in export of the commodities that are not only price competitive. The high-technology manufactures usually have the highest value added. The same is true for high-value agricultural products. The article concentrates on the comparison of exports of the Czech economy and other selected transition economies of Central Europe with economies of the European Union members, the United States and Japan using the coefficient of transformation output and the relative specialisation ratio on high-technology intensive commodities and high-value agricultural products. We can conclude that the efficiency gap of Czech economy and of the selected economies of Central Europe increased in the first half of the nineties. The trends of the second half of the nineties are quite different. The gap in efficiency of foreign trade is slowly decreasing and the analysed transition economies overcame the weakest economies of the EU members.

Market orientation in the service sector of the transition economies of central Europe

The Narver and Slater market orientation scale is tested in the context of service firms in the transition economies of central Europe and found to be both valid and reliable. The survey examined levels of market orientation in 205 business to business services companies and 141 consumer services companies in Hungary, Poland and Slovenia. As predicted by the predominantly western marketing literature, those service firms with higher levels of market orientation; were more often found in turbulent, rapidly changing markets; were more likely to pursue longer term market building goals rather than short term efficiency objectives; more likely to pursue differentiated positioning through offering superior levels of service compared to competitors; and also performed better on both financial and market based criteria. A number of different business approaches, however, are evident in the transition economies suggesting that other business orientations may co‐exist with a market orientation creating a richer and more complex set of organizational drivers.

Dealing with the bad loans of the Chinese banks

Chinese banks suffer from serious financial fragility manifested by high proportions of nonperforming loans and low capital-adequacy ratios. A key policy introduced recently by the Chinese government to reduce financial risks is the establishment of four asset management companies (AMCs) for dealing with bad loans. Drawing on the experiences of the Resolution Trust Corporation in the United States and bank restructuring in the Central European transition economies, we argue that the original AMC design will not be successful in resolving the existing nonperforming loans, nor will it prevent the creation of new bad loans. We recommend a modification of the current proposal that redefines the relationships between the parent banks and the AMCs by transferring the deposits of problem enterprises along with their nonperforming loans from parent banks to AMCs.

Random‐walk and efficiency tests of Central European equity markets

The existence of weak‐form efficiency in the equity markets of the three main Central European transition economies (the Czech Republic, Hungary, and Poland) is examined for the period July 1995 through September 2000, using weekly Investable and Comprehensive indexes developed by the International Finance Corporation. Several different approaches are used. Univariate and multivariate tests provide some evidence that stock prices in these exchanges exhibit a random walk, which constitutes evidence for weakform efficiency. This differs in some cases from studies using data for the initial years of these markets. The variance ratio test (VR) of Lo and MacKinlay (1988) yields somewhat mixed results concerning the random‐walk properties of the indexes. A modelcomparison test compares forecasts from a NAÏVE model with ARIMA and GARCH alternatives. Results from the model‐comparison approach are consistent in rejecting the random‐walk hypothesis for the three Central European equity markets.