Eastern European Transition Economies Research Articles

Delivery times in international competition: An empirical investigation

This paper investigates the role of timely delivery in international competition. Using a demand-side, industry-specific measure of time-sensitivity, we assess the effect of Chinese competition on the export performance of Eastern European transition economies into Western European (EU15) destination-product markets. Our empirical analysis relies on exploiting the increase of Chinese competition in global markets during the first decade of the 2000s. We find evidence of heterogeneous adjustments to Chinese competition among Eastern European exporters due to the differential importance of timely delivery across sectors (i.e. time-sensitivity). While we observe sizable real displacement effects, they appear to be at least 50 percent smaller for time-sensitive exports. Relying on firm-level customs data, we establish that this mechanism also plays a role for responses to Chinese competition within firms.

Informal Competition Effect on SMEs’ Innovation: Do Credit Constraints Matter? Evidence from Eastern European Countries

This paper examines the influence of informal competition on SME innovation in the Eastern European transition economies. Using the BEEPS VI, which covers the period from 2018–2020, we investigated the conditional mediation of credit constraints moderated by business plan elaboration. Looking at SMEs’ product innovation, process innovation, radical innovation, and green innovation, we find that informal competition’s direct effect enhances all the innovation proxies. Besides, the informal sector increases SMEs’ credit constraints, which indirectly leads to less corporate innovation. The negative indirect effect is alleviated by the business strategy development. Finally, using bootstrap resampling, we confirm the significant conditional mediation effect of credit constraints on the informal competition and the innovation proxies.

Returns to education in Central and Eastern European transition economies: The role of macroeconomic context

After the fall of communist regimes in Central and Eastern Europe, the returns to education were substantially growing over time. We summarise the existing literature conducting a meta-analysis of returns to education for economies of Central and Eastern Europe (CEE) and test for several mechanisms, which can explain the evolution of the returns over time and differences between countries of the region. The average estimated rate of return basing on more than 600 estimates is around 7%, but it shows variation depending on the methodology adopted, but also on countries’ characteristics. We find out a positive impact of the unemployment rate and negative impact of the enrolment rates into tertiary education. The first observation suggests we observe a countercyclicality of education returns while the latter shows that the dominance of supply of tertiary graduates reduced returns to schooling.

FDI forward spillover effects in emerging markets: A comparative meta-analysis of China and Eastern Europe

Using two unique datasets of 530 forward estimates from 19 studies on China and 942 forward estimates from 28 studies on Eastern European transition economies, this study quantitatively analyzes foreign direct investment forward spillover effects, accounting for various biases and firm attributes in existing empirical results using a meta-regression analysis. We find that aggregation bias, misspecification bias, endogeneity bias (including simultaneity bias and omitted-variable bias), and publication bias, as well as firm attributes, contribute to the heterogeneity in forward spillover estimates; and that the preferred forward spillover effects are positive but nonsignificant. Interestingly, the preferred forward spillover effect is likely to be much larger in Eastern European transition economies than in China.

INVESTIGATING THE HUNGARIAN MONEY DEMAND FUNCTION: POSSIBLE IMPLICATIONS FOR MONETARY POLICY

The Historically, research focusing on the money demand function developing economies (especially Eastern European transition economies) was a difficult undertaking because of under-developed financial systems and the unavailability of data. This study aims to assist in filling this gap in the literature by employing three different estimation techniques to estimate the M1 and M2 money demand functions for Hungary. The study uses quarterly data for an 18-year period, obtained from the IMF’s International Financial Statistics database. The results based on the bounds testing procedure as well as the other two approaches confirm that a stable, long-run relationship exists between the demand for money and its determinants. The results’ robustness is enhanced by the similarities between the results of the various approaches used in the study. The money demand function can therefore theoretically serve as a tool to measure the effect of monetary policy decisions and in determining what parameters of the money demand function to adjust in order to yield the required effects. It is suggested that, in the case of Hungary the M1 money demand function might be the most appropriate model on which monetary policy decisions should be based. Keywords: Money demand, Hungary, stability, ARDL, cointegration

“Infant” economies in South-Eastern Europe

Transition economies have responded quite differently to similar procedures and foreign economic and sociopolitical interventions. This is partly because of the exogenous (from the economic perspective) features of each country. In the present paper we focus on the economic explanation. Following an introductory discussion of the stylized facts of the deepening segregation within the Central and Eastern European transition economies, we proceed with a general equilibrium model of imperfect competition (a la Dixit-Stiglitz). We introduce (1) more than one imperfectly competitive manufacturing sectors and (2) capital as the ?pseudo? production factor that provokes economies of scale. Based on the abstract theoretical model, we argue that the supposed automatic, selfbalancing process for closing cross-country disparities may not appear, even if the noneconomic factors are neutralized. This is because there is a possibility of experiencing a virtuous cycle of endogenously reinforced attraction of foreign accumulated capital. Economies that do not have the necessary features for this to happen because they start from a comparatively inferior level of development and/or due to a lack of preexisting strong manufacturing - ?infant economies? according to our proposed terminology - will experience an endogenously justified, flatter path of development and may not find it easy to catch up with others.

Innovativeness and internationalization in SMEs: An empirical analysis in European countries

Innovation is essential to the knowledge economy and requires organizations to open to external markets. This paper delves into the influence of product innovation on internationalization in SMEs and elaborates an explanatory model of their innovative behavior. Analysis of the data of 123,395 surveys of firms in 13 European countries demonstrates that product innovation drives the firm's commercial expansion and favors its exportation activity, though with a non-linear relationship and decreasing performances as innovation level increases. It is also demonstrated that, in general terms, risk in geographic market extension does not vary in a relevant way when firms are more innovative. Significant differences were detected between countries in regard to the impact of innovation and its marginal utility, and in the evolution of risk in said market extension with increasing innovation. The comparative analysis reveals differences between more and less technological industries, and, on an aggregate level, between more developed economies in the Western and Eastern European transition economies, with less marked disparities from north to south. Analysis of the model reveals the prominence of internal variables in innovative behavior, as well as a certain disconnect between firms and the institutional context in the set of countries.

Measuring the M&A Value of Control and Synergy in Central and Eastern European Transition Economies with the Case of Avast - AVG Acquisition

We examine the valuation of synergies and control in mergers and acquisitions (M&A) in Central and Eastern European (CEE) transition economies. We determine this value based on comprehensive contemporaneous financial findings extracted from the Thomson Reuters database. Worldwide the market of mergers and acquisitions (M&A) is increasing, reaching in 2016 a value of 6.000 billion EUR globally. Among the CEE transition economies, the M&A total value in the same period was 50 billion EUR. It is widely accepted that between 60% and 80% of M&As are unsuccessful in value creation, so we further research evidences about an alternative framework to value the M&A also qualitatively. We develop a valuation model for prediction of the value of control and synergy in M&A deals. We suggest further directions for analysis in the field of M&A value creation, and recommend an alternative to the most used earning per share metric to enhance the predictability and transparency of valuation worldwide.

China’s rapid growth and real exchange rate appreciation: Measuring the Balassa-Samuelson effect

The real exchange rate of the Chinese yuan vis-à-vis the U.S. dollar appreciated by 4.6% per year from 2005 to 2015 after a period of stability (1996–2004). The fast appreciation may appear to be a classic case of the Balassa-Samuelson effect. China during this period was on a path of manufacturing-led rapid growth and technological catch-up. As expected, there was a large difference in total factor productivity growth between the tradable and nontradable sectors, which contributed to real exchange rate appreciation. However, a decomposition of the annual 4.6% real exchange rate appreciation reveals that the magnitude of the Balassa-Samuelson effect was relatively small at 1.2 percentage points. The more important factor was real appreciation in the price of tradables (a rise in the price of China’s tradables relative to U.S. tradables) at 4.4 percentage points. This pattern—a modest Balassa-Samuelson effect and a large real appreciation in the price of tradables—was also present in Japan and Central and Eastern European transition economies, all of which experienced long-term real exchange rate appreciation during their high growth periods. China’s recent case adds to evidence that the magnitude of the Balassa-Samuelson effect is usually modest and does not account for the bulk of observed rapid real exchange rate appreciation in high growth economies.

Management compensation systems in Central and Eastern Europe: a comparative analysis

Drawing upon a large scale comparative data-set we explore the preferred approaches to managerial compensation pursued by organizations operating in the Central and Eastern European (CEE) transition economies of Bulgaria, the Czech Republic, Estonia, Lithuania, Hungary, Slovenia, Slovakia and Serbia. In order to generate insights on the state of management compensation and the extent to which these transition economies are characterized by idiosyncratic elements, relative to their Western European counterparts, we compare management compensation practices in these CEE economies (N = 1147) with approaches pursued in more developed western European economies (N = 2698). Overall, our results suggest that organizations in the CEE region share some similarities with their western counterparts, most especially in terms of the individual level of determination of pay for managers. Within the CEE region, we find that financial participation is less common than performance-related pay in the composition of the overall managerial reward package, though there are some variations between countries. National culture does appear significant as a determinant of variations in the preferred approach to management compensation.

The Other Month Effect: Some Evidence from the Central and Eastern European Markets

January returns on stock markets can be used as a barometer for the subsequent 11-month holding period returns as documented by Cooper et al. (2006). We examine this apparent anomaly and analyze the effects of other holding periods of 1, 3, and 6 months in six Central and Eastern European transition economies from January 1991 through December 2013. Our results do not support the presence of the other January effect (OJE) in five of the six markets. Instead, the results reveal significant anomalies in non-January months and that such effects vary across markets. This latter evidence might reflect different characteristics in these economies, including diverse levels of market efficiency, local risk factors, and portfolio management among others. Furthermore, we construct a trading rule using the other month effect to illustrate the possibility of developing profitable investment strategies to earn abnormal returns.

There Is Poverty Convergence

Martin Ravallion (Why Don't We See Poverty Convergence? American Economic Review, 102(1): 504-23; 2012) presents evidence against the existence of convergence in global poverty rates despite convergence in household mean income levels and the close linkage between income growth and poverty reduction. We show that this finding is driven by a specification that demands more than simple convergence in poverty headcount rates and assumes a growth elasticity of poverty reduction, which is well-known to accelerate with low initial poverty levels. If we motivate the poverty convergence equation using an arguably superior growth semi-elasticity of poverty reduction, we find highly significant and robust evidence of convergence in absolute poverty headcount ratios and poverty gaps. Relatedly, we show that the results in Ravallion (2012) are driven by the special income growth and poverty dynamics in Central and Eastern European transition economies that started with low initial poverty rates and thus observed a high elasticity of poverty reduction. Once we control for their abnormal poverty dynamics, we again find robust evidence of global convergence in poverty, even in the original specification by Ravallion (2012). (authors' abstract)

The Effectiveness of Monetary Transmission Channels: The Case of Central and Eastern European Transition Economies

Many factors including government actions, the depth of financial markets, the structure of banking sector, capital movements, etc. affect the functioning of the monetary transmission mechanism. Thus, the determination of the channels playing an active role in the transmission mechanism is of vital importance for making policy decisions aimed at ensuring price stability. The present study aimed at investigating the effectiveness of the monetary transmission channels in Central and Eastern European (MDA) transition economies. In this regard, the study tested the effects of the monetary transmission channels in MDA transition economies in the 1995:01-2012:12 period on macroeconomic variables. Firstly, the Vector Autoregression Analysis (VAR) was carried out in order to determine the short-term dynamics of the effects of the transmission channels on macroeconomic variables. Secondly, the long-term dynamics of the effects of transmission channels on macroeconomic variables were searched via autoregressive distributed lag (ARDL) analysis. It was concluded in study that financial development and exchange rate were the most efficient channels on economic variables in most of the said economies.

Ownership Concentration, Institutional Development and Firm Performance in Central and Eastern Europe

This paper analyzes the relationship of ownership concentration and firm performance in the context of different institutional environments in 28 Central and Eastern European transition economies. We focus on private, non‐listed firms that have been largely neglected by the extant literature. Using the BEEPS data for the period from 2002 to 2009 we find an inverted u‐shaped relation of ownership concentration and firm performance for those firms that operate in non‐EU‐member countries as well as those firms that are situated in less developed institutional systems. We interpret these findings as evidence for a classic agency problem in the lower part of the ownership concentration distribution that is dominated by a ‘private benefits of control’ problem with rising ownership concentration. Copyright © 2015 John Wiley & Sons, Ltd.

Economic Development and Marketing Strategies: a Comparative Lens

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 We analyze two core models of economic development in emerging markets: socialism (i.e., the “visible hand” of the state in directing the country’s socio-economic life) and capitalism (i.e., the “invisible hand” of the markets implemented through pro-market reforms). We further distinguish between two types of socialist economic development: Soviet Communism (as experienced in the pre-1990s Central and Eastern European transition economies) and Fabian Socialism (as experiencedin pre-1991 India). We then suggest that companies can adapt to the evolution from socialism to capitalism in their countries through the implementation of more sophisticated marketing strategies that can ensure a sustainable competitive advantage. Thus, we study the marketing strategies of companies from emerging markets operating under both models of economic development. We analyze the opportunities and challenges that emerging market companies face under each model of economic development in terms of deploying various marketing strategies, and provide useful venues for future research.
 

Operationalising the Countercyclical Capital Buffer: Indicator Selection, Threshold Identification and Calibration Options

Operationalising the Countercyclical Capital Buffer: Indicator Selection, Threshold Identification and Calibration Options

A time-varying copula approach to oil and stock market dependence: The case of transition economies

We employ the time-varying copula approach to investigate the conditional dependence between the Brent crude oil price and stock markets in the Central and Eastern European (CEE) transition economies. Our results show evidence of a positive dependence between the oil and the stock markets of the six CEE countries, which is indicative of a contagion between those markets, regardless of the changes in the oil price or the CEE stock index. Moreover, the dependence patterns in both the center and left tails of the return distributions change over time, particularly during the heart of the financial crisis, and are best described by the Survival Gumbel copulas. The empirical evidence also suggests that the lower tail dependence is much stronger than that of the upper tail, highlighting the importance of contagion during severe contractionary business cycles. Among the sample markets, Poland is shown to be particularly sensitive in this regard, while Hungary and Slovenia are the least sensitive.

Behind the Eastern–Western European convergence path: the role of geography and trade liberalization

This paper proposes a 2-block 3-region economic geography model that can account for the most salient stylized facts experienced by Eastern European transition economies during the period 1990–2005. In contrast to the existing literature, which has favored technological explanations, trade liberalization is the only driving force. The model correctly predicts that in the first half of the period, trade liberalization led to divergence in GDP per capita, both between the West and the East and within the East. Consistent with the data, in the second half of the period, this process was reversed and convergence became the dominant force.

Globalization and Consumer Store Choice in Central and Eastern European Transition Economies

Globalization and Consumer Store Choice in Central and Eastern European Transition Economies

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.