Post-communist Economies Research Articles

Assessing the sensitivity of consumption expenditure to inflation sentiment in post-communist economies

The aim of this article is to examine the influence of inflation sentiment on aggregate consumption. The study adds to the existing literature by i) emphasising the role of inflation perceptions and expectations in determining consumption patterns, ii) using structural VAR methodology that has not yet been applied in consumer studies, iii) employing an extensive dataset of eight individual post-communist countries (Czech Republic, Estonia, Hungary, Lithuania, Poland, Romania, Slovakia and Slovenia). Using innovation analysis it is shown that the theoretically expected conclusions are valid: consumers instantaneously decrease their consumption expenditure in response to shocks in perceived inflation, while their reaction to shocks in near-term inflation expectations is an abrupt (but temporary) consumption boost.

Institutional complementarity, economic performance and governance in the post-communist world

Our article presents an index of institutional complementarity for 27 post-communist economies, and evaluates a key claim of the Varieties of Capitalism paradigm. The empirical novelty of the index lies in its integration of informal institutions as well as its combination of macro-level and firm-level dimensions. Theoretically, we use the index to propose two boundary conditions for the theory of comparative institutional advantage whose empirical support has been mixed in the literature. We find that (1) the link between institutional complementarity and the measures of income, employment, and inflation is contingent on the quality of governance, and (2) institutional complementarity has no impact on life expectancy in the respective economies. We theorize the importance of governance quality as a crucial factor in the analysis of capitalist systems.

The impact of informal payments on quality and equality in the Chinese health care system: A study from the perspective of doctors

Informal payments are prevalent in the health care systems in the post-communist economies. Some scholars attribute the emergence of the phenomenon to the tension between patients’ rising expectations for quality and the shortages due to government failure, and accuse it of exacerbating inequality in health care. However, existing literature does not identify which part of medical services is affected by poor quality. Drawing on evidence from interviews with Chinese doctors, this research shows that the informal payment system has only limited impact on the technical core of medical procedures but can considerably improve the quality of the peripheral components of medical practice. It further argues that the influence of informal payments on inequality is also limited because evidence indicates that Chinese doctors maintain their professionalism.

The Fisher effect at the borders of the European Monetary Union: evidence from post-communist countries

This article aims to shed some light on the Fisher effect in six non-eurozone post-communist economies (the Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania). A Fisher-type interest rate equation is analysed using the PMG panel data estimator, with an early attempt to employ the Harmonised European Consumer Surveys in quantifying inflation expectations and uncertainty. The output gap is also considered as an explanatory variable. The results of the Hausman poolability test unambiguously confirm that, despite the differences in their monetary regimes and the development levels of their financial markets, all the countries observed are homogeneous in terms of the Fisher effect. It is shown that both inflation uncertainty and expectations positively and significantly feed into nominal interest rate fluctuations. The post-communist central banks seem to be the most strongly concerned about inflation uncertainty shocks, while their interest rate elasticity with regard to expected inflation is below unity. On the other hand, they do not significantly adjust their interest rates in response to demand-side pressure, assigning only a secondary role to boosting economic activity. As a robustness check, the results obtained remain rather similar when Sweden and the UK (as the remaining non-eurozone EU members) are included in the sample.

The impact of informal payments on quality and equality in the Chinese health care system: A study from the perspective of doctors

Informal payments are prevalent in the health care systems in the post-communist economies. Some scholars attribute the emergence of the phenomenon to the tension between patients’ rising expectations for quality and the shortages due to government failure, and accuse it of exacerbating inequality in health care. However, existing literature does not identify which part of medical services is affected by poor quality. Drawing on evidence from interviews with Chinese doctors, this research shows that the informal payment system has only limited impact on the technical core of medical procedures but can considerably improve the quality of the peripheral components of medical practice. It further argues that the influence of informal payments on inequality is also limited because evidence indicates that Chinese doctors maintain their professionalism.

On the Theory of Post-Communist Economic Transition to Market

The paper investigates the utility of economic theory for post-Communist economic transformation. It serves to explain the main reasons for market reform failure in different post-Communist countries. A literature review suggests that after the collapse of the Communist system there was no economic theory of transition to market. Whenever one considers the transition of post-Communist economies to a market system, it has to be placed on record, as this kind of transition has no precedent in history. There is as yet no special economic theory of post-Communist transformation and it is just developing.

Extending Dunning's Investment Development Path: The role of home country institutional determinants in explaining outward foreign direct investment

Recent years have seen an increase in outward foreign direct investment (OFDI) from emerging markets and post-communist economies alike. Given the specific institutional fabric of these countries, the question is whether mainstream theory can explain the drivers of foreign direct investment outflows or whether new theories are needed to explain this phenomenon. This paper aims to investigate the home country determinants of OFDI from post-communist economies. We augment the Investment Development Path (IDP) with explanations derived from institutional theory and explain the effects of home country institutional factors on the level of OFDI. We test our hypotheses using random effects estimations on a comprehensive panel dataset comprising of OFDI from 20 Central- and Eastern European countries. Our results support the IDP's main propositions but also highlight the importance of accounting for home country institutional factors when investigating the determinants of OFDI. In particular, we find that the inclusion of institutional variables increases the explanatory power of our models and that competition policy and overall institutional reforms play a crucial role in explaining OFDI from CEE countries with important implications for FDI theory.

CSR development in post‐communist economies: employees' expectations regarding corporate socially responsible behaviour – the case of Romania

Drawing on stakeholder theory and the evolutionary approach to institutions, this paper investigates the channels through which corporate social responsibility (CSR) is developed in post‐communist economies by focusing on the employee background factors that shape the employees' expectations with regard to corporate socially responsible behaviour. We identify three channels through which exogenous and endogenous CSR are developed: employees with work experience in multinational enterprises (MNEs) (leading to exogenous CSR), employees with CSR knowledge (leading to exogenous CSR) and employees with experience of the socialist system (leading to endogenous CSR). Furthermore, we argue that the interactions between these channels lead to hybrid CSR in transition economies. We use a questionnaire‐based survey with employees of domestic and MNEs in Romania and we conduct regression analysis. We find that employees with work experience in MNEs act as channels for exogenous CSR, while employees with experience of the socialist system act as channels for endogenous CSR. Furthermore, employees with experience of the socialist system and CSR knowledge or work experience in an MNE act as channels for hybrid CSR in transition economies. Based on our results, we put forward implications for theory, managers and policy makers.

Internationalisation of innovative SMEs in the Hungarian medical precision instruments industry

Competitive and innovative Hungarian SMEs in the medical precision instruments sector can be characterised by continuous development, special knowledge and innovation activity. These are the main factors behind their high level of competitiveness and higher than average level of internationalisation. Certain companies could become leading firms in worldwide comparison in niche segments, and there are a few companies which internationalised early in the company life cycle and can be called ‘emerging born globals’. Thus post-communist economies can also be homes to such companies. This article analyses the motivation of internationalisation, the choice of foreign location and the main barriers to internationalisation for SMEs in this sector in Hungary, pointing out the similarities and differences between problems faced by smaller companies in former transition economies and in more developed economies.

Information asymmetry and risk factors for stock returns in a post-communist transition economy: Empirical proof of the inefficiency of the Romanian stock market

The purpose of this study is to investigate various forms of market efficiency on Bucharest stock exchange. Using monthly data for a six years period (2002 to 2008) for 60 companies listed on the Romanian stock market, the study investigated the empirical validity of Fama’s (1970) efficient market hypothesis (EMH) in two directions: first, the relationship between stock returns and company-specific financial ratios is investigated; secondly, the subject of information asymmetry is empirically tested and an answer to the following question is provided: Are foreign investors better informed than the domestic ones and continually achieve higher rates of return on the Romanian stock market? To serve our purpose, a battery of econometric tests is employed. Results document that there are some risk factors that drive Romanian stock returns and also that information seems not to reach all investors equally as stated by EMH. Similar to other small emerging markets, the Romanian capital market seems to be primarily driven by foreign investors, which consistently manage to outperform the overall market. In addition, the time effect is significant on the Romanian market, and the two-way fixed effects model (TWFM) that allows for the intercept to vary both across companies and in time provides the optimum specification for explaining future stock returns on the Bucharest stock exchange. Key words: Market efficiency, information asymmetry, firm-specific factors, panel regressions, Romanian stock market.

Persistent Economic Divergence and Institutional Dysfunction in Post-Communist Economies: An Alternative Synthesis

This paper seeks to explain the continuing lack of economic convergence and the persistence of market dysfunctionality, or wild capitalism, in post-communist transformation. An overview of key statistics on economic convergence and market failure are presented. The paper then analyses the causes of malaise through the lens of institutionalist and radical perspectives. In doing so key data are assembled and presented from documents of the international financial institutions and other agencies monitoring crime and corruption. The paper concludes that, rather than encourage convergence and tame dysfunctionality, neoliberalism and its offspring of labour market reform have created the conditions for continuing economic divergence and for wild capitalism to survive and thrive.

Současné dilema ekonomie: vyšší etika, nebo širší regulace?

The authors of the article point out that economic theory has failed to yield a solid theoretical background in critical situations such as the current financial and economic crisis and the transformation of post-communist economies. Mainly the present crisis opens the question of the unsatisfactory status of economic science. While classical liberal or Keynesian concepts are failing, theorists cannot look to mathematical modelling for help. It seems that traditional concepts malfunction, and the financial market is particularly predisposed for this process. The application of mathematical models is overvalued. The article calls attention to the possible influence and adequacy of regulatory attitudes on a return to equilibrium. It seems that the part of ethics must be upgraded decidedly. The challenge for today´s theoretical economists is to find a new paradigm of economic science for today´s global era.

Causes and Effects of Crises on Financial System Stability in Emerging Countries

Former socialist countries are characterized by an early transition recession transformation and faced several destabilizing events such as: high levels of inflation, the relative immobility of production factors (primarily labor), incorrect or ambiguous definition of property rights; preponderance of sector unemployment; evidence of discrepancies between the revenue rising population, the existence of an underground economy of higher dimensions. Major emerging economies from Central and Eastern Europe are post- communist countries that faced transition after adopting market-based economy and become emerging markets. An important issue during transition was the creation of a two-pillar banking system (e.g. Central Bank and commercial banks), while bank restructuring involves not only profit performing banks but, more importantly, changes in lending practice. The difficulty of restructuring and the magnitude of recapitalization slowed significantly the achievement of independent governance by privatization in state-owned banks. After a short period of market-based economy, emerging countries had been affected by the crisis started in the developed countries (characterized by lower growth, higher unemployment and poverty, and changes in inequality). Through several channels, crisis had affected also emerging countries differently, depending on the extent to which they are vulnerable to particular canals. Romania's status in the context of transition bears the characteristics determined by the situation inherited from the centralized economy and the options of political forces after 1989. The starting point was unfavorable both from an economic perspective, but also social, economic inefficiency due to the existence of industrial projects and sometimes senseless economic, profound structural economic imbalances, sizing of industries and alarming social indicators. Developing countries were affected by the crisis that began in developed countries, characterized by low economic growth, boost unemployment and poverty and inequality changes. A number of transmission channels of the crisis also affected differently, also developing countries, according to the extent that they are vulnerable to certain channels. Emerging economies in Central and Eastern Europe are the post-communist economies that have experienced the transition, after the adoption of market-based economy. In the last part of the paper we are looking for some transmission channels of crisis and some possible effects on post- communist countries during crisis, using dummy variables and some OLS estimators of the major factors identified as transmission channels using a dataset from EBRD databases.

Contemporary Czech space policy and its future prospects

Czechoslovakia was the third nation to have a citizen in space when Vladimir Remek flew in 1978. It was present at the formulation of international space law principles and ran some space-related projects within Intercosmos. The Czech Republic reassumed this tradition after Czechoslovakia was dissolved in 1993. There are no special funds to support space R&D. Hence, participants must compete for R&D resources with companies from other areas of industry. This improves their competitiveness. Czech society is broadly interested in space-related activities. The graduate system structure reflects this. Not only can one study space-related courses at technical universities but international space law is an obligatory part of international public law courses in the Czech Republic. Strong support for space activities is mirrored in the institutional fragmentation of this sphere. Competences in space applications are distributed among some 20 institutions and organizations. This status harms the Czech potential in space activities and R&D. The Czech Republic became a member of ESA in 2008 but Czech companies have not taken advantage of the full potential of membership. Participation in international projects is very important for a small post-communist economy because economic growth is based on convergence towards developed countries, which may dissipate after 2020. Now is the right time to strengthen the primary research that will establish a strong foundation for innovation-based economic growth.

Growth, Poverty, and Inequality: Evidence from Post-Communist Economies

This article empirically examines the relationship between growth, poverty, and income inequality in 10 Commonwealth of Independent States (CIS) countries between 1991 and 2006 with a special focus given to the three most successful economies within this group: Russia, Kazakhstan, and Azerbaijan. Largely, by means of panel techniques, results support the pro-poor growth hypothesis as the author confirms that countries' increased aggregate income contributes to poverty reduction. Moreover, some evidence has been found supporting a Kuznets' type inverted-U shape amongst the 10 CIS countries, once a number of variables have been controlled for. The author found that initial conditions (particularly, initial inequality) play an important role in explaining differences in growth patterns. Oil-producing/exporting countries have benefited from that condition in terms of reducing domestic inequalities. Finally, no statistically significant causal relation was found between real gross domestic product and poverty or between real gross domestic product and inequality (in both causality directions).

Impact of economic conditions on the secondary sex ratio in a post-communist economy

According to the Trivers–Willard hypothesis the secondary sex ratio (SSR, the ratio of male to female newborns [M/F]) should be positively related to the parents’ living conditions. This also means that if in some population parents experience environmental (e.g. economic) stress, the SSR should be relatively low. If this holds true, the fluctuations in the SSR of offspring could be one of the ways the human population reacts to environmental (and also socio-economic) changes. Although confirmed for many human populations, such a relationship was not observed in the populations living in the communist-era planned-economy countries until recently. We test the hypothesis that economic stress in Poland after the communist era is also related to the SSR decrease. Using quarterly data from the years 1995–2007 about the total number of live male (M) and female (F) newborns born in central Poland (sample size = 310,532), we calculated the time series of the SSR. The quarterly economic conditions of the studied population within the period under consideration constituted the time series of the percentage change in private consumption at constant prices of the year 2000. The relationship between the SSR and the economic conditions in the analyzed 47 quarters of the year was tested with the use of the ARMA models. We have found that four quarters (one year) after the occurrence of economic stress there was a decline in the SSR. This result is consistent with the Trivers–Willard hypothesis at the population level in a modern free-trade economy of a post-communist country.

Time and Size - The Hidden Dimensions of Corporate Governance

In the recent literature on corporate governance (CG), the dominant view is that the underlying problem is simple. Managers of Enron in the US or Parmalat in Italy were simply unethical, corrupt or both. They all knew what should have been the right behavior. The rules of CG were good, but the bad guys transgressed them. By cheating, they deliberately betrayed the interest of outside shareholders. The conclusion: more stringent enforcement rules and more vigilance will solve all the problems.This paper offers a different conclusion. First, it will be argued that in the context of modern corporations, the distinction between insiders and outsiders is much more complicated than usually thought. Second, we will show that there is no such thing as “good” CG rules. It is simply not true that adherence to modified CG rules, can guarantee good business. The second message of this paper is that size matters more than good CG. In the globalized world of business, size is the real guarantee of success. Preaching CG to the post-communist economies and promising that their companies can also grow into size at par with GE or IBM is grossly misleading. The third message is that the assumption, according to which stock prices reflect fundamentals and thus in the absence of CG ‘noise’ they must display stability, does not hold water. It is a mistake to promise that good CG will help to attenuate macroeconomic fluctuations: the volatility of asset markets is an intrinsic feature of the capitalist system. Booms and busts, including bubbles, will stay with us in the near future.

The Joint Vienna Institute

How does the intellectual role played by international training organisations fit into the contemporary architecture of global governance? The international diffusion of economic policy ideas represents one of the core dimensions of contemporary global governance, which has generated heated controversy in recent years with international institutions such as the International Monetary Fund (IMF) and the World Bank castigated for championing a ‘one-size-fits-all’ brand of neoliberal economic reform. Yet while substantial scholarly attention has focused on analysing the effects of the formal compliance mechanisms that the IMF and the World Bank rely on to implement neoliberal policy changes in borrowing countries, such as loan conditionality, less attention has been devoted to exploring the intermediate avenues through which neoliberal ideas travel from global governance institutions to national governance contexts. This article aims to address this gap in the study of contemporary global governance and neoliberal policy diffusion through critically examining the evolving role of the Joint Vienna Institute (JVI), an international training organisation set up after the end of the Cold War to transmit global ‘best practice’ economic policy ideas to national officials in post-communist economies.

Informal social networks and spatial mobility: the enduring impact of communist history in Eastern Germany

Individuals' preferences in transition regions are still shaped by the former communist system. We test this ‘communist legacy’ hypothesis by examining the impact of acculturation in a communist regime on social network participation and, as a consequence, on preferences for spatial mobility. We focus on the paradigmatic case of Eastern Germany, where mobility intentions seem to be substantially weaker than in the Western part. Applying an IV ordered probit approach we first find that Eastern people acculturated in a communist system are more invested in locally bounded informal social capital than Western people. Second, we confirm that membership in such locally bounded social networks reduces the intention to move away. Third, after controlling for the social network effect the mobility gap between East and West is substantially reduced. Low spatial mobility of the Eastern population, we conclude, is to an important extent attributable to a social capital endowment characteristic of post-communist economies.

Problémy obecné metodologie věd ovlivňují neuspokojivý stav ekonomické vědy

The authors of the article point out that the theory of economics has failed to yield a solid theoretical background in such critical situations as the period of the current fi nancial and economic crisis and the transformation period of post-communist economies. Mainly present crisis opens the question of unsatisfactory status of economic science. While classical liberal or Keynesian concepts are failing, theorists cannot look to mathematical modelling for help. It seems that traditional concepts are malfunctioning. Financial market is particularly predisposed for this process. The use of mathematical model is overvalued. The article calls attention on asymmetry of information problem and possible influence and adequacy of regulatory attitudes on return to equilibrium level, particularly in EU. The challenge for today's theoretical economists is to find a new concept for today's global era.