European Transition Economies Research Articles

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.

Dividend Policies in Volatile Transitioning Markets

Abstract This paper examines the implicit impact of an individual company financial parameters on dividends payments. The empirical research is conducted within the environment that cross-examines fifteen European transition economies with shared traits of frontier to emerging capital markets development stage and exposure to exogenic global volatility from 2007/8 and Covid-19 economic crises spilling over at magnitude. The purpose of this paper is to test whether companies establish stable dividend policy. Dividends payments are sensitive to earnings and hence adjust imminently. The reason stems from uncertainty on future financial performance and on investor protection. Results yield negative link between solvency and dividends based on the fact that the weaker solvency position decreases the priority of dividends likelihood. Comparably dividends are less desirable if competing with company growth opportunities although investors are less willing to wait for future profits. Altogether transitioning markets are less responsive and structurally feature fewer corporate events.

Does Trade Facilitation Promote Export Technological Sophistication? Evidence From the European Transition Countries

In this paper, we examine the impact of trade facilitation on the export technological sophistication from the European transition economies over 2004 to 2020. It is found that, in terms of trend, the export technological sophistication of labor-intensive and traditional resource-intensive industries is primarily concentrated in a lower range. In contrast, the export technological sophistication of capital and technology-intensive industries is generally low. Trade facilitation in each country shows a slow upward trend. The regression results show that trade facilitation significantly impacts the export technological sophistication of transition economies in general. In terms of heterogeneity, the impact is significant only in the Baltics economies, upper-middle-income and above countries, and to varying degrees in all types of light and heavy industries, differentiated industries, and technology-type industries. The mechanism analysis shows that the “reconfiguration” effect, “pushback” effect, and “spillover” effect are virtual channels through which trade facilitation affects the export technological sophistication.

Job Tenure and Structural Change in the Transition Economies of Europe

Job Tenure and Structural Change in the Transition Economies of Europe

Implikacije pandemije Covid-19 na strane direktne investicije u evropskim tranzicionim ekonomijama

In early 2020, the world faced a serious crisis caused by the Covid-19 pandemic, and the application of restrictive measures to prevent and slow down the spread of the virus had a negative impact on economic flows, including foreign direct investment (FDI). The effects of the Covid-19 pandemic on global FDI flows have been devastating, resulting in a large drop in FDI. Flows to European transition countries have also been affected, but less than the world average. It is expected that the recovery of FDI from the shock of 2020 would be long and that it would be impossible to return to structural and geographical patterns before the pandemic. Having in mind the above, the aim of this paper was to analyze the dynamics of FDI before and during the pandemic in European transition countries in order to examine the effect of Covid-19 pandemic on FDI. The results of the research confirm the negative impact of the pandemic on the flows of FDI in European transition economies, except for Montenegro, Bulgaria, Hungary and Estonia, where an increase in the inflow of FDI was determined.

Firm’s strategy to innovate in a European transition economy

The aim of this paper is to investigate Albanian registered trademarks to understand the characteristics of a successful trademark in a transition economy. In order to verify the research hypothesis on the characteristics of the trademarks (Crass, Czarnitzki, & Toole, 2019) as key indicator of success, we use linear regression on a dataset set based on taxonomy of the legal status of applications and the registration of the trademarks in Albania. Our empirical analyses are based on data from the DPPI (Drejtoria e Përgjithshme e Pronësisë Industriale), Albanian Central Intellectual Property Office, for the period 1994–2019. The findings show evidence of the choice of the trademark name as a critical success factor as well as the characteristics of the activities, as the trademarks used in different product contests or corporate trademark strategies (Antwi, Carvalho, & Carmo, 2021). These results could be relevant both to firms implementing branding strategies and to analysts or policymakers analysing markets in transition economies.

The role of institutional quality in bank deposit growth In European transition economies

This study aims to investigate the influence of institutional quality on bank deposit growth besides bank-specific and macroeconomic variables in European transition economies. Generalized method of moments (GMM) is applied to analyze the panel data which is collected from the Global Financial Development and World Development Indicators of world Bank over the period 2000–2017. The results show that institutional quality strengthens the positive effect of deposit mobilization on bank deposit growth. Specifically, rule of law is found to have a positive correlation with bank deposit. In addition, macroeconomic factors including broad money supply (M2) and economic growth (rGDP) are also significant factors in bank deposit growth. However, bank-specific factors comprising bank efficiency and bank branch expansion do not influence bank deposit growth. Accordingly, the results of the study propose a core message that transition countries should recognize institutional quality indicators since these major indicators could promote and strengthen the resilience of bank funding.

THE RELATIONSHIPS BETWEEN GDP GROWTH, ENERGY CONSUMPTION, RENEWABLE ENERGY PRODUCTION AND CO2 EMISSIONS IN EUROPEAN TRANSITION ECONOMIES

The objective of the analysis is to study the relationships between GDP, energy consumption, renewable energy production, and CO2 emissions in some European transition economies in the period 1990-2018. We use the growth rates of per capita values, in a panel VAR approach where all variables are typically treated as endogenous, allowing some inference on the causality of the relationships. The decision to focus on European transition countries is motivated by the fact that a significant part of the future of the green economy in Europe depends on the environmental and energy policies that will be implemented by these countries. In the transition economies (and years) included in the analysis, our findings suggest that investing in energy efficiency is good for the competitiveness of economies (in terms of effects on GDP growth) and is good for the environment (in terms of diminishing CO2 emissions). Finally, an increasing production of renewable energies reduces CO2 emissions.

Are female-led firms disadvantaged in accessing bank credit? Evidence from transition economies

PurposeThe purpose of this paper is to provide empirical evidence on the presence of gender-based discrimination in formal credit markets during the global financial crisis. Specifically, the study tests for gender differences in the probability of being credit-rationed, in the likelihood of being a discouraged borrower and in the price conditions of bank financing.Design/methodology/approachThis paper uses the fifth wave of the Business Environment and Enterprise Performance Survey (BEEPS), which provides detailed micro data on firms from 26 transition economies in Europe and Central Asia. The empirical analysis employs linear and non-linear sample selection regression models and extended Blinder-Oaxaca decomposition techniques to assess gender differences in access to credit.FindingsControlling for a large set of observable firm characteristics and for endogenous selectivity, we find that female-led firms are more likely to face financing constraints and to be discouraged from applying for credit than their male counterparts. Conditional on having obtained a loan, female-led firms also face significantly higher interest rates. Furthermore, the observed gender gaps are mainly due to unexplained factors, supporting the hypothesis that banks discriminate against women-led firms in their credit-granting decision.Originality/valueThis study provides new insights on gender discrimination in formal credit markets, highlighting that gender differentials in access to credit significantly vary across countries and strongly depend upon the definition of the firm's gender structure. From a policy perspective, the evidence obtained stresses the need for policies aimed at promoting the role of women in the economic environment in order to reduce discrimination and raise competition in credit markets. Moreover, public interventions should support lending to creditworthy female enterprises in order to improve their perceptions about banks' willingness to grant credit and reduce their propensity to be discouraged from applying.

The Impact of Economic Freedom on Human Development in European Transition Economies

The Impact of Economic Freedom on Human Development in European Transition Economies

Institutional quality and access to financial services: evidence from European transition economies

PurposeThis paper outlines an analytical framework for estimating households' access to formal credit across European transition economies shortly after the onset of the global financial crisis. This study, along with the individual-level socio-economic and demographic characteristics also considers the perceived quality of the institutions. The author wants to assess whether an adequate policy-level intervention to promote financial inclusion should account for the individuals' subjective evaluation of the political situation in their own country as well as their personal experience of corruption.Design/methodology/approachThis paper identifies the main determinants of financial inclusion using European microdata (Life in Transition Survey II, LiTS II). In order to estimate individuals' access to formal financial markets, the author constructs a bivariate probit model to account for joint access to short-term and long-term credit products (Mohieldin and Wright, 2000).FindingsThe results show that improving people's access to financial markets across European regions requires a set of interventions at the institutional and local levels to link-up policies of financial inclusion and financial integrity.Originality/valueThe paper contributes to the existing literature by identifying a number of key causes of financial inclusion and the role of institutional (corruption crimes) factors in determining the levels of financial access in a country.

The Impact of the Investment Environment on Foreign Direct Investment (FDI) in the European Transition Economies

The main objective of this paper is to investigate the impact of the investment environment on FDI in transition economies in Europe, through the usage of dynamic panel methodology, due to the persistence of the endogeneity issues. Further, three main factors have been determined affecting the FDI in 15 developing countries through the time span 2009–2016 as Control of Corruption, Political Stability and Absence of Violence/Terrorism and Distance to frontier score (Doing Business) having positive and significant effect on attracting FDI in these transition countries. Also as pull factors are used GDP per capita, profit tax rate showing positive and significant effect on FDI flows, while unemployment rate was positive but does not have a significant role in the attraction of FDI flows in European transition countries. In addition, to our best knowledge this paper is among the first that attempts to investigate this relationship in this set of countries by employing the dynamic panel methodology using differenced GMM model as well as employing Distance to frontier score (Doing Business) as one of investment environment factors that impact FDI flows for this set of 15 countries. Furthermore, such findings will contribute to the existing literature by using these instruments to measure their impact on FDI attractiveness on European transition economies.

The impact of the Ease Doing Business Indicators on Foreign Direct Investment in the European transition economies

The objective (aim) of this paper is to explore the impact of the Ease of Doing Business Indicators on FDI on transition economies in Europe. Authors have used the dynamic panel methodology, by using three methods: Pooled Ordinary Least Square (POLS), Fixed Effect (FE), and Two Step-System Generalised Method of Moments (GMM) estimation techniques. By referring to the GMM technique, it can be seen that variables such as: Starting a Business, Registering property, Getting electricity and Resolving insolvency have a positive and significant impact in attracting FDI in 16 European transition countries, while variables as: Dealing with construction permits, Getting credit, Paying taxes, Protecting minority investors, have shown negative impact, whereas Trading Across Border and Enforcing contracts have not shown any impact on attracting FDIs in European transition countries. This paper contributes to the enrichment of existing literature in this field by using these three methods.

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.

János Kornai’s Evaluation of the Transitional Path: Recent trends in the economies and societies of hungary and some western balkans countries based on János Kornai’s insights

In this essay, we are trying to focus on and review Kornai’s reflections and observations regarding to the achievements of former socialist economies and their progress on the transitional path. Kornai was a witness to dramatic events that accompanied the collapse of socialism from its very beginnings. Therefore, he is very much competent to evaluate the outcomes of the “Great Transformation”, the process in which many hopes and expectations were invested. As a brave, honest and ever-present scientist, Kornai strives to objectively present and critically evaluate the achievements of Eastern European transitional economies. He does not limit his analysis of transition solely to the economic sphere, but critically considers the overall changes in the society, politics and economy. This paper relies on his insights and observations while studying Serbia and Bosnia & Herzegovina, in particular. It turns out that his assessments are absolutely relevant for those countries, the results of their transition being significantly lower than in other former socialist countries he analyzes, primarily because of the traumatic break-up of former Yugoslavia and continuous political instability that followed in its newly established states. Key words: János Kornai, transition, Great Transformation, transitional path, building capitalism , consequences of transition.

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.

DOES PUBLIC DEBT HAMPER ECONOMIC GROWTH: EVIDENCE FROM EUROPEAN TRANSITIONAL COUNTRIES

Lately, there has been an increased interest among policy makers and scholars regarding the nexus between public debt and economic growth, with emphasizes on its effects on transition economies, particularly after the last global financial crisis. This paper tries to investigate the impact of public debt on economic growth in the European transition economies, for the time spin 2000-2016, by using Pooled OLS, Fixed effects, Random effects and Hausman – Taylor Instrumental variable (IV). In addition, results reveal that public debt although has positive effect on per capita growth still is statistically insignificant, whereas debt square has negative effect on per capita GDP growth. Further, gross savings, final consumption and fixed capital formation have positive effect on per capita growth, while government expenditures do not show significant impact. Moreover, such results highlight important implications for fiscal policymakers in these countries in order to foster the economic growth in the context of public debt level.

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.

Trade liberalization and economic growth: a panel data analysis for transition economies in Europe

Purpose- In this study, the long-term and the short-term relationships between economic growth and trade liberalization for 13 transition countries in Europe were examined. Methodology- The dataset includes 303 observations from 1995 to 2016 for the variables of gross domestic product (GDP), export (EXP), import (IMP), gross fixed capital formation (GFCF), foreign direct investment (FDI) and human capital (HC). PLS Test, Pesaran (2004) CD-Test, Pesaran (2007) Unit Root Test, Swamy S Homogeneity Test conducted before causality and cointegration analysis. Dumitrescu & Hurlin (2012) Granger Panel Causality Test for short-term causality, and Westerlund ECM Panel Cointegration and PDOLS Estimator for long-term relationships analyses were employed. Findings- The short-term outcomes revealed that there is a bidirectional causality between (a) EXP and GDP, (b) GFCF and GDP, (c) FDI and GDP, (d) HC and GDP, and a unidirectional causality (e) from IMP to GDP. The long-term results show that (i) a 1% raise in EXP boosts GDP by 0.39%, (ii) a 1% raise in IMP boosts GDP by 0.11% (iii) a 1% raise in GFCF boosts GDP by 0.37% (iv) a 1% raise in FDI reduces GDP by 1.35%, (v) a 1% raise in HC boosts GDP by 0.54% in the long-term. Conclusion- Both in the short-term and the long-term trade liberalization has a positive impact on economic growth in mutual way between EXP, IMP and GDP as it is argued by the feed-back hypothesis.