European Transition Economies Research Articles

Do Financial Liberalization and Gender Inequality Moderate Trade Liberalization’s Impact on Growth in European Transition Economies?

ABSTRACT We assess the influence of trade liberalization on economic growth in European transition economies from 2000 to 2022. Both trade and financial liberalization contribute to economic growth. Financial liberalization facilitates the movement of internal and external assets, and encourages cross-border investments, strengthening the relationship between trade liberalization and economic growth. Our results support the notion that negative side effects of liberalization are not observed in European transition economies. However, gender inequality dampens the positive effect of trade liberalization on economic growth. As gender inequality is a social factor affecting economic growth, meaningful policies are needed to reduce it.

Impacts of trade and institutional quality on carbon emissions in transition economies

We examine the effects of trade and institutional quality on carbon emissions from European transition economies. Trade initially negatively impacts the environment through greater CO2 emissions but eventually contributes to a reduction of CO2 emissions beyond a certain threshold. Institutional quality including control of corruption contributes to CO2 emission reductions. Connecting trade with environmental solutions, we identify an inverted U-shaped relationship between trade volume and carbon emissions.

THE TEXTILE INDUSTRY TRADE COMPETITIVENESS OF SELECTED EUROPEAN TRANSITION COUNTRIES

The paper analyses the textile industry trade competitiveness of nine European transition economies (Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, North Macedonia, Romania, Serbia and Slovenia), in parts and in its entirety, by using the following indicators: Revealed comparative advantage (RCA), Competitiveness growth index (RCA1), Index of net business performance (RCA2), and Michaely index (MI). The analysis focuses on the period between 1995 and 2018. The results of the analysis show that the textile industry of Northern Macedonia is internationally competitive, and that most countries have revealed comparative advantages. The textile industry contributed to the surplus in trade balance in North Macedonia, Bulgaria and Romania, while North Macedonia, Romania, Bulgaria, Croatia, Bosnia and Herzegovina and Serbia achieved some level of production specialisation. It was also confirmed that these countries had statistically different levels of trade competitiveness. The top level of production finalisation accounted for the greatest average value of competitiveness indicators.

Relationship between project success factors, project success criteria and project success in SME: Evidence from selected European transitional economies

Relationship between project success factors, project success criteria and project success in SME: Evidence from selected European transitional economies

Agricultural frontiers and environment: a systematic literature review and research agenda for Emerging Countries

AbstractDespite having the largest land and water reserves for agriculture on the planet, intensive agricultural production in emerging countries has stimulated research around the world, especially due to the numerous environmental impacts caused by the expansion of agricultural frontiers. Motivated to analyze the literature on the transformations brought about by the development of intensive agriculture since the middle of the twentieth century, this study analyzes the main studies on the interference of agricultural frontiers on the environment in emerging countries over the last 30 years (1993–2022). To do so, the Systematic Literature Review methodology was used, with the CIMO planning approach and the Preferred Reporting Items for Systematic Review and Meta-Analysis Protocols (PRISMA-P) reporting guideline. The analysis initially included 14,366 scientific articles from a wide range of subjects in the social and natural sciences, available on the Web of Science (Clarivate Analytics), ScienceDirect (Elsevier), and Google Scholar databases. One of the most significant findings of this study is that there is no specific framework to analyze the relationship between the agricultural frontier and the environment in developing countries; however, literature has mainly been concerned with measuring the impact of intensive agriculture on natural resources, as well as verifying how local socio-economic factors and/or public policies affect populations’ behavior regarding this relationship between the environment and agricultural production. The data also revealed that Brazil is the “country of origin” of the literature on agricultural frontiers and the environment, especially due to studies on the Amazon rainforest, followed somewhat distantly by studies on South America in general and the island regions of Indonesia and Malaysia. There is also a lack of studies on European economies in transition, emerging African countries and Russia, or on the agri-environmental impact of the demand for food in populous countries such as India and China. Finally, in addition to country-specific suggestions, this systematic literature review suggests directions and implications for future research.

The evolution of job tenure in transition economies

AbstractThis paper uses labour force survey data to analyse the dynamics of job tenure in seven transition economies of Europe and a comparator country (Türkiye) for an average 13 years per country during the period 1994–2020. The country‐specific age‐period‐cohort decomposition demonstrates that the job tenure of the cohort of workers entering the labour market in the 2000s is 4–9 years shorter than that of workers who started working in the 1970s. This difference is at least twice as large as the difference in job tenure observed among workers from the same cohorts in European Union countries. These trends in tenure persist after accounting for changes in cohort composition, but they are significantly attenuated by controlling for differences in individual worker characteristics. These results suggest that the evolution of tenure in the transition economies of Europe may still be driven by the transition‐induced structural change processes in the labour market.

Economic Consequences of the Cost of Government Borrowing in European Transition Economies

Abstract Given the need of transition economies to fund the investments necessary for development partly through borrowing, this paper investigates empirically the economic consequences of the government cost of borrowing for European transition economies during the period 2003-2016. The investigation analyses the impact of sovereign borrowing costs, in turn, on interest rates on loans to businesses and households, on the growth rates of investment and consumption, and, ultimately, on general economic activity. By utilizing a panel VAR technique our results indicate that consequent upon a positive shock to the cost of sovereign borrowing, the cost of borrowing for loans to both Non-Financial Corporations (NFCs) and households increases. We find that the price transmission from government borrowing costs to the private sector is at play with respect not only to borrowing rates but also to macroeconomic activity at large. Following an increase in sovereign borrowing costs, we observe substantial negative responses in the growth rates of investment, household consumption, and GDP growth. Also, while a price of borrowing increase for NFCs is found to negatively affect investment, household consumption is unaffected by an increase in household borrowing rates. These findings have valuable policy implications for policymakers and stakeholders in transition economies. Specifically, the results suggest that efforts to reduce the cost of sovereign borrowing could have a positive impact on the economy by lowering borrowing costs for households and businesses, promoting investment and consumption, and ultimately boosting economic growth.

Determinants of government bond spreads in European transition economies and implications for small and medium enterprises

Given the need for transition economies to finance some of the investment required for development through borrowing, this paper empirically examines the determinants of government bond spreads, focusing on institutional quality as a contextual dimension. The literature generally assumes that market assessments of sovereign risk - i.e., the probability of default - and hence the cost of sovereign borrowing over the risk-free rate are based on the borrower’s macroeconomic fundamentals, solvency, and liquidity indicators related to fiscal and financial variables, and indicators of external financial market volatility. Using fixed effect estimation, our findings suggest that government bond spreads in European transition economies are sensitive to domestic macroeconomic fundamentals and global financial market volatility. From macroeconomic fundamentals, fiscal deficit levels, inflation rates, and countries’ effective exchange rates emerge as the leading indicators determining bond spreads over the observed period. Moreover, our results suggest that financial markets consider the quality of institutions when assessing default probabilities; hence, the potential risks arising from the quality of institutions are factored into the cost of sovereign borrowing. These results are robust to various extensions and robustness tests.

Assessing digital divide in European transition economies: The application of multidimensional scaling to ICT-related data

As digitalisation has become increasingly crucial for economic growth, competitiveness and sustainable development, digital development and digital transformation have been of concern in the European Union for the last decades. The study aims to analyse the digital divide and classify the NUTS-2 regions of Central and South-East European transition economies according to similar digitalisation levels between 2016 and 2021. After setting out the necessary terminological background on digital divide and providing an overview on the key areas of action to promote digital development and transition in the EU, a database of seven ICT-related indicators from Eurostat was compiled for 49 regions and multidimensional scaling was applied for exploring the similarities and differences between them. An important conclusion is that there is still a sharp divide among the regions of the European transition economies. It is also found that regions belonging to the same country are more similar than different, and digitalisation characteristics have not changed in relative terms. The study may contribute to the deeper understanding, ongoing discussion, and fruitful debate of the situation of digitalisation on both European and sub-national levels.

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

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

The effect of a currency board arrangement on subjective assessments of a country's economic performance

We present a novel approach to evaluating the effect of a monetary exchange rate regime on economic performance, focusing on countries with a currency board arrangement (CBA). This approach is designed to evaluate the impact of the regime on the perceptions and expectations of a population. We utilise seemingly unrelated regressions to analyse data from large-sample surveys conducted by the Austrian National Bank over the period 2007-2016 in ten European transition economies. The analysis indicates that the probability of the economic situation in a country being perceived as good by its citizens is lower in countries with a currency board arrangement. However, this negative effect almost disappears among respondents who do not trust their government and when there is a significant recession in the country. These findings suggest that a CBA should be maintained for its stabilising effects: 1) when the economic situation is unfavourable, although it might not be beneficial once the situation is stabilised; 2) in countries with low levels of trust in government.

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.

EMIGRATION AND ECONOMIC GROWTH IN EUROPEAN TRANSITION ECONOMIES: EVIDENCE FROM A BOOTSTRAP PANEL CAUSALITY TEST IN ROLLING WINDOWS

The relationship between migration and economic growth has long been a matter of discussion in theoretical and empirical domains. Previous studies which explored the link between variables suggested an estimation for an unchanging parameter. Despite that; prevailing economic and political circumstances, effective contracts and agreements, implemented policies, ongoing crises or shocks can cause a shift in the relationship across variables in due course. This study analyses the relationship between emigration and economic growth in transition economies in Europe for the period between 1995-2019 by administering time-varying causality test. Findings obtained from the bootstrap panel causality test suggest that there is a bidirectional causality relationship between emigration and economic growth only in Estonia but results of bootstrap panel rolling window causality analysis reveal that for the subperiods, there exist hidden causal relationships within Hungary, Lithuania, Poland, Slovakia and Slovenia.

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.

Determinants of Syndicated Loan Spreads in Central, Eastern and South-Eastern European Countries

Despite the importance of the syndicated loan market as a source of international financing there is limited evidence on factors influencing syndicated loan pricing in European developing economies. Focusing in one particular region reduces the problem of cross-country heterogeneity and provides more specific policy recommendations for reducing the cost of funding for firms, in an environment where capital markets are less developed, and banks are seen as the main source of funding. This study investigates the determinants of syndicated loan spreads in a sample of 1004 syndicated loans from the Thomson One Banker database, granted to borrowers from 12 Central, Eastern and South-Eastern European countries. The results show that loan and country characteristics are the most significant determinants of syndicated loan spreads. Lenders seem to price loan characteristics in European transition economies in accordance with the existing academic literature – riskier loans are charged higher spreads. Augmenting the Thomson One Banker with the Worldscope database, we further find that borrower characteristics are generally significant determinants of syndicated loan spreads however their significance weakens once country characteristics are taken into account. Lender characteristics are found not to be significant determinants of syndicated loan spreads in European transition economies. The implication of these results is that governments of European transition countries have a major role to play in providing a macro-economic and legal infrastructure that will enable borrowing firms to get access to funding sources at lower spreads. Keywords: syndicated loans, spreads, emerging Europe, Thomson One Banker, Worldscope DOI: 10.7176/JESD/13-18-02 Publication date: September 30 th 2022

Themes in Southeast European Banking: A Review of Literature

In this paper we review the literature around three main research questions: the impact of foreign bank entry on net interest margins, financial system stability and credit supply. We also motivate the focus on Southeast European (SEE) countries. SEE economies although under the umbrella of European transition economies exhibit different macroeconomic and financial sector features from these countries and as such could benefit from a more focused empirical investigation. This could tailor and improve the recommendations given to policymakers in these countries which will help promote financial and economic development. Other countries in the world that share similar macroeconomic and financial sector features could benefit from the results as well. In addition, it is argued that SEE countries offer a unique laboratory for the proposed research questions because of the dramatic increase of foreign bank presence in these countries and their low level of financial and economic development. Keywords: foreign bank entry, Southeast Europe, net interest margins, financial system stability, credit supply DOI: 10.7176/EJBM/14-18-07 Publication date: September 30 th 2022

Factors of the Shadow Economy in Market and Transition Economies during the Post-Crisis Period: is there a Difference?

The shadow economy (SE) is a global phenomenon that affects every country. However, its forms and mechanisms may differ depending on a country's socio-economic characteristics. The major characteristic is a country’s economic system. Hence, market and transition economies can be affected differently. Given that the size of the SE directly affects the level of tax revenue, it is particularly important to investigate the factors of the SE during the post-crisis period, when policymakers need sufficient budgetary funds to implement anti-crisis measures. In that sense, this paper aims to identify the differences in the factors that boosted the SE in 17 market and 19 transition economies in Europe between 2009-2014. The research is based on the PLS-SEM method. A country’s wealth and development, market openness, tax system and political environment are employed as the major SE factors. These factors are the most common in previous literature when investigating the issues of the shadow economy and are most appropriate for this research. The results suggest that particular factors of the SE differently affect market and transition economies. In transition economies, a favourable political environment, greater wealth and development, as well as a lower tax burden contribute to a smaller size of the SE, whereas greater market openness and a higher tax burden lead to a larger size of the SE. The links between market openness, tax system and the SE are not, however, statistically significant. Like transition economies, market economies are characterized by the positive impact of political environment and wealth and development when combating the SE. Unlike in transition economies, the size of the SE in market economies is reduced by a high tax burden and greater market openness. In the latter case, there is only one statistically insignificant path coefficient – it represents the relationship between the SE and market openness. The Multi-Group Analysis (MGA) method was employed to compare the path coefficients estimated for the country groups under consideration. The results indicate that the only difference in the path coefficients representing the relationship between market openness and the SE is not statistically significant. Based on the research results, some recommendations for policymakers in transition and market economies are provided in the conclusion.

Exchange rates and purchasing power parity: the case of Central European

Introduction. The question of how exchange rates adjust is central to exchange rate policy, since countries with fixed exchange rates need to know what the equilibrium exchange rate is likely to be and countries with variable exchange rates would like to know what level and variation in real and nominal exchange rates they should expect. In broader terms, the question of whether exchange rates adjust toward a level established by purchasing power parity helps to determine the extent to which the international macroeconomic system is self-equilibrating Analysis of recent researches and publications has shown that the published up to date papers aren’t systematic and can’t claim to be a complete analysis in the chosen field. The aim is to test the validity of PPP hypothesis in the long run in former and current European transitional economies. Methods. General scientific methods such as the systematic approach, theo­retical generalization and comparison, analysis, synthesis and the Levin–Lin–Chu (LLC) panel unit root test have been used in the research. Research results. This paper tests the validity of purchasing power parity (PPP) hypothesis in the long run in selected European transitional economies. The database used in this paper contains monthly data on real effective exchange rate (REER) observed over 23 years, from March 1995 till November 2017. To test the hypothesis, the Levin–Lin–Chu (LLC) panel unit root test was employed. The results confirm that PPP holds both for Central European and Western Balkan states in the long run. Conclusions. The equilibrium exchange rate question is central question to exchange rate policy. Purchasing power parity hypothesis was tested on the sample of 14 European countries form the Central and Eastern Europe and Western Balkan region. The database used in this paper contains monthly data on real effective exchange rate –REER observed over 23 years, from March 1995 till November 2017. As PPP holds if the real exchange rate reverts to its equilibrium value over time, the unit root test was applied on panel REER dataset. The results of applied Levin–Lin–Chu (LLC) panel unit root tests confirmed that the PPP hypothesis holds for selected countries during the observed period. Additionaly, results confirmed that PPP hypothesis holds both for CEE and Western Balkan countries separately.

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.