This paper employs a standard Tobin-Markowitz framework to analyse the determinants of capital flows into the CIS countries. Using data from 1996-2006, we find that the Russian financial crisis of 1998 has had a profound impact on capital flows into the CIS (both directly and indirectly). Firstly, it introduced a structural shift in the investors' behaviour by shifting the focus from the external factors to the internal ones, e.g. domestic interest and GDP growth rates. Secondly, it also drastically changed the impact of a number of explanatory variables on capital flows into the CIS. Political risk was found to be the second most important determinant of capital flows into the CIS. Additionally, we report some strong evidence of co-movement between portfolio flows into the CIS and CEEC, coupled with strong complementarity between global stock market activity and portfolio inflows into the CIS. Interestingly, external factors tend to be of a higher significance than internal factors for the largest members (Russia, Ukraine and Kazakhstan) of the CIS; whereas domestic variables tend to have a greater impact on the capital flows into the smaller CIS countries.
Authored by: Oleksandr Lozovyi
Published in 2007
This paper examines the motives behind foreign direct investment (FDI) in a group of four CIS countries (Ukraine, Moldova, Georgia and Kyrgyzstan) based on a survey of 120 enterprises. The results indicate that non-oil multi-national enterprises (MNEs) are predominantly oriented at serving local markets. Most MNEs in the CIS operate as 'isolated players', maintaining strong links to their parent companies, while minimally cooperating with local CIS firms. The surveyed firms secure the majority of supplies from international sources. For this reason, the possibility for spillovers arising from cooperation with foreign-owned firms in the CIS is rather low at this time. The lack of efficiency-seeking investment poses further concern regarding the nature of FDI in the region. The most significant problems identified in the daily operations of the surveyed foreign firms are: the volatility of the political and economic environment, the ambiguity of the legal system and the high levels of corruption.
Authored by: Malgorzata Jakubiak
Published in 2008
This paper analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and nontradable sectors. Firstly, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependant on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of analysed shocks. Secondly, we conduct an empirical analysis of the behaviour of the tradable and nontradable sectors under different exchange rate regimes for seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.
Authored by: Przemyslaw Kowalski, Wojciech Paczynski, Łukasz Rawdanowicz
Published in 2003
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
The report reviews key issues in energy trade and cooperation between the EU and CIS countries. It describes historical trends of oil and gas demand in the EU, other European and CIS countries and offers demand forecasts until 2030. Recent developments in oil and gas production and exports from Russia and Caspian countries are covered in detail leading to the discussion of the likely export potential of these regions. The key factors determining the production outlook, trade-offs and competition related to energy resources transportation choices are also discussed. The report also covers the interests and role of transit countries in relations between producer and consumer regions. The analytical section leads to policy recommendations that focus mainly on the EU.
Authored by: Sabit Bagirov, Leonid Grigoriev, Wojciech Paczynski, Vladimer Papava, Marcel Salikhov, Michael Tokmazishvili
Published in 2009
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Authored by: Camilla Jensen
Published in 2014
This paper confronts the traditional balance-of-payments (BoP) analytical framework (with its dominant focus on the size of a given country’s current account imbalance and its external liabilities) with the contemporary realities of highly integrated international capital markets and cross-country capital mobility. Some key implicit assumptions of the traditional framework like those of a fixed residence of capital owners and home country bias are challenged and an alternative set of assumptions is offered. These reflect the unrestricted character of private capital flows (with no “home country bias” and fixed domicile) determined mostly by the expected rate of return. As a result, the importance of BoP constraints (in their “orthodox” interpretation) diminishes and they disappear completely with respect to individual member states within a highly integrated monetary union. This does not mean, however, immunization from other kinds of macroeconomic risks.
Authored by: Marek Dąbrowski
Published in 2006
This paper examines the motives behind foreign direct investment (FDI) in a group of four CIS countries (Ukraine, Moldova, Georgia and Kyrgyzstan) based on a survey of 120 enterprises. The results indicate that non-oil multi-national enterprises (MNEs) are predominantly oriented at serving local markets. Most MNEs in the CIS operate as 'isolated players', maintaining strong links to their parent companies, while minimally cooperating with local CIS firms. The surveyed firms secure the majority of supplies from international sources. For this reason, the possibility for spillovers arising from cooperation with foreign-owned firms in the CIS is rather low at this time. The lack of efficiency-seeking investment poses further concern regarding the nature of FDI in the region. The most significant problems identified in the daily operations of the surveyed foreign firms are: the volatility of the political and economic environment, the ambiguity of the legal system and the high levels of corruption.
Authored by: Malgorzata Jakubiak
Published in 2008
This paper analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and nontradable sectors. Firstly, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependant on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of analysed shocks. Secondly, we conduct an empirical analysis of the behaviour of the tradable and nontradable sectors under different exchange rate regimes for seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.
Authored by: Przemyslaw Kowalski, Wojciech Paczynski, Łukasz Rawdanowicz
Published in 2003
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
The report reviews key issues in energy trade and cooperation between the EU and CIS countries. It describes historical trends of oil and gas demand in the EU, other European and CIS countries and offers demand forecasts until 2030. Recent developments in oil and gas production and exports from Russia and Caspian countries are covered in detail leading to the discussion of the likely export potential of these regions. The key factors determining the production outlook, trade-offs and competition related to energy resources transportation choices are also discussed. The report also covers the interests and role of transit countries in relations between producer and consumer regions. The analytical section leads to policy recommendations that focus mainly on the EU.
Authored by: Sabit Bagirov, Leonid Grigoriev, Wojciech Paczynski, Vladimer Papava, Marcel Salikhov, Michael Tokmazishvili
Published in 2009
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Authored by: Camilla Jensen
Published in 2014
This paper confronts the traditional balance-of-payments (BoP) analytical framework (with its dominant focus on the size of a given country’s current account imbalance and its external liabilities) with the contemporary realities of highly integrated international capital markets and cross-country capital mobility. Some key implicit assumptions of the traditional framework like those of a fixed residence of capital owners and home country bias are challenged and an alternative set of assumptions is offered. These reflect the unrestricted character of private capital flows (with no “home country bias” and fixed domicile) determined mostly by the expected rate of return. As a result, the importance of BoP constraints (in their “orthodox” interpretation) diminishes and they disappear completely with respect to individual member states within a highly integrated monetary union. This does not mean, however, immunization from other kinds of macroeconomic risks.
Authored by: Marek Dąbrowski
Published in 2006
The CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
The aim of this paper is to examine the issues of gender disparities in the Commonwealth of Independent States (CIS) region, with a special focus given to countries covered by the European Neighbourhood Policy (ENP). The analysis is conducted in several dimensions: labour participation, economic opportunity, political empowerment, educational attainment, and health and demography. Beside the comparative study of "in region differentials" done for the CIS, I analyze the trends in gender disparities in comparison to EU-12 and EU-15, using data for the period 1985-2005.
The study confirms the existence of slightly different paths in which gender disparities have evolved over time. While in EU-15 women participation in labour market, their remuneration, and position in public life have significantly increased, in majority of the CIS countries a gradual decrease of female labour activity was reported. In addition female representation in politics and public life has shrunken after and during the transition period. On the other hand in such fields as secondary and tertiary education attainment, health, and demography male population in the CIS region has became more disadvantaged, which also leads to enlarging gender gap.
Authored by: Magdalena Rokicka
Published in 2008
The purpose of this paper is to analyze the sources, economic and social characteristics, of growth recovery, which followed the first period of output decline in two transition countries – Poland and Russia. They represent two different groups of transition countries (new EU member states vs. CIS) in terms of adopted transition strategy and accomplished results. Generally, fast reformers succeeded and slow reformers experienced a lot of troubles. Although eventually all former communist countries entered the path of economic growth, those which moved slowly lost sometimes the whole decade. Social costs of slow reforms were also dramatic: income degradation and rising inequalities, high level of poverty and corruption, various social and institutional distortions and pathologies, violation of human rights and civil and economic liberties, attempts of authoritarian restoration, etc.
Authored by: Marek Dabrowski, Oleksandr Rohozynsky, Irina Sinitsina
Published in 2004
The paper discusses the role of regional public goods vs. global goods in influencing postcommunist transition in Central and Eastern Europe and former USSR with special attention given to three particular factors: (i) external anchoring of national reform process; (ii) international trade arrangements and (iii) international financial stability.
Authored by: Marek Dabrowski, Artur Radziwill
Published in 2007
After a long period in which state-led development was the dominant economic paradigm, since the 1980s private sector development has been the focus for economic policy makers. It is probably no coincidence that economic growth, stagnant for a few decades in much of the developing world, took off in the 1990s after this policy shift, and has generally remained high (in spite of a wave of crises and recessions in the late 1990s and early 2000s). Privatization has made a great deal of progress in the developing world, particularly in Latin America, though the Middle East and North Africa (MENA) have lagged somewhat.
Authored by: Richard Woodward, Mehdi Safavi, Piotr Kozarzewski
Published in 2012
The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution.
The purpose of this paper is to analyze the state of the Ukrainian economy at the end of 2007 and reflect upon what kind of reform program the Ukrainian government should consider, regardless of its political color. The reforms suggested in this paper involve a broad agenda of macroeconomic, social, structural and institutional measures. This agenda goes beyond the purely economic sphere and also addresses issues of legal, administrative and political reforms. The politics and political economy of any future reform effort will not be easy because the country is deeply divided in political, cultural, regional and ethnic terms. In such an environment, crucial reforms and strategic decisions will require a wider cross-party political consensus.
Authored by: Marek Dąbrowski
Published in 2007
Implementation of the European internal market and East-West integration has been accompanied by dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe's economic geography. This suggests that the implementation of the European internal market or the Euro has "made Europe smaller". In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
Authored by: Arne Melchior
Published in 2009
This paper focuses on roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the governance structure of the Union in conjunction with radical changes in the regulation and supervision of financial markets. Financial intermediation has gone astray in recent decades and entailed a big bubble in the industrialized world. Waves of financial deregulation have enhanced systemic risks, via speculative behavior and growing inter-connectedness. Moreover, the EMU was sub-optimal from its debut and competitiveness gaps did not diminish against the backdrop of its inadequate policy and institutional design. The euro zone crisis is not related to fiscal negligence only; over-borrowing by the private sector and poor lending by banks, as well as a one-sided monetary policy, also explain this debacle. The EMU needs to complement its common monetary policy with solid fiscal/budget underpinnings. Fiscal rules and sanctions are necessary, but not sufficient. A common treasury (a federal budget) is needed in order to help the EMU absorb shocks and forestall confidence crises. A joint system of regulation and supervision of financial markets should operate. Emergency measures have to be comprehensive and acknowledge the necessity of a lender of last resort; they have to combat vicious circles. Structural reforms and EMU level policies are needed to enhance competitiveness in various countries and foster convergence. The EU has to work closely with the US and other G20 members in order to achieve a less unstable global financial system.
Authored by: Daniel Daianu
Published in 2012
The aim of the paper is to analyze theoretically and empirically the likely impact of the reduction in exchange rate uncertainty, due to the EMU accession, on the intensity of FDI inflow into candidate countries. Theoretical models give an ambiguous picture of how exchange rate uncertainty and volatility affect direction and magnitude of FDI inflows. The main contribution of this paper is in finding that exchange rate uncertainty and volatility may negatively influence the decision to locate investment in transition and accession countries. Nominal exchange rate uncertainty seems to particularly hamper FDI inflows in accession countries. The key finding of this paper is that euro adoption is likely to exert a positive influence on FDI inflows in accession countries.
Authored by: Michal Brzozowski
Published in 2003
Does European economic integration create more inequality between domestic regions, or is the opposite true? We show that a general answer to this question does not exist, and that the outcome depends on the liberalisation scenario. In order to examine the impact of European and international integration on the regions, the paper develops a numerical simulation model with nine countries and 90 regions. Eastward extension of European integration is beneficial for old as well as new member countries, but within countries the impact varies across regions. Reduction in distance-related trade costs is particularly good for the European peripheries. Each liberalisation scenario has a distinct impact on the spatial income distribution, and there is no general rule telling that integration causes more or less agglomeration.
Authored by Arne Melchior
Published in 2009
This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008.
Authored by: Marek Gora, Oleksandr Rohozynsky, Oksana Sinyavskaya
Published in 2010
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
The paper focuses on the social safety nets in Russian Federation and Ukraine in the view of changes on the labour market since the beginning of economic transition. The authors showed that many past phenomena (e.g. restructuring of the economy, wage and pension arrears, new groups at-risk-of-poverty, demographic transition) caused a need to change an old type social safety net (SSN) into the new one, better adapted to emerging more liberal economy problems.
Additionally, the authors analysed some gender specific issues related to social security that are caused mainly by inequalities in the labour market. Differences of earnings between men and women in Russia caused by sector segregation account for seem to be more important than the gap between gender earnings attributed to the position. In Ukraine the main contributors to gross gender differential of log earnings (that equals to 32%) explained by our model are sector segregation and occupation.
The authors also pointed out to future policy challenges in the area of social security systems in both countries. The retirement reforms introduced recently are a step in the right direction, although their impact will not be felt for a number of years. Other reforms, with more immediate results, are necessary. Social safety nets should be made more efficient and social benefits should be better targeted.
Authored by: Marek Gora, Grzegorz Kula, Oleksandr Rohozynsky, Magdalena Rokicka, Anna Ruzik-Sierdzinska
Published in 2009
In this paper we investigate the effects of EU enlargement on price convergence. The internal market is expected to boost integration and increase efficiency and welfare through a convergence of prices in product markets. Two principal drivers are crucial to explain price developments. On the one hand, higher competition exerts a downward pressure on prices because of lower mark ups. On the other hand, the catching up process of low income countries leads to a rise in the price levels and higher inflation over a transition period. Using comparative price levels for individual product categories price convergence can be established. However, the speed of convergence is rather slow, with half lives around 10 years. The enlargement has slightly stimulated the convergence process, and this impact is robust across different groups of countries. Moreover, the driving forces of convergence are explored. In line with theoretical predictions, the rise in competition exerts a downward pressure on prices, while catching up of low income countries leads to a rise in price levels.
Authored by: Christian Dreger, Konstantin Kholodilin, Kirsten Lommatzsch, Jirka Slacalek, Przemyslaw Wozniak
Published in 2007
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
The Eurozone crisis mobilises an appreciable amount of the attention of politicians and the public, with calls for a decisive defence of the euro, because the single currency’s demise is said to be the beginning of the end of the EU and Single European Market. In our view, preserving the euro may result in something completely different than expected: the disintegration of the EU and the Single European Market rather than their further strengthening. The fundamental problem with the common currency is individual countries’ inability to correct their external exchange rates, which normally constitutes a fast and efficient adjustment instrument, especially in crisis times.
Europe consists of nation states that constitute the major axes of national identity and major sources of government’s legitimisation. Staying within the euro zone may sentence some countries – which, for whatever reason, have lost or may lose competitiveness – to economic, social and civilizational degradation, and with no way out of this situation. This may disturb social and political cohesion in member countries, give birth to populist tendencies that endanger the democratic order, and hamper peaceful cooperation in Europe. The situation may get out of control and trigger a chaotic break-up of the euro zone,
threatening the future of the whole EU and Single European Market.
In order to return to the origins of European integration and avoid the chaotic break-up of the euro zone, the euro zone should be dismantled in a controlled manner. If a weak country were to leave the euro zone, it would entail panic and a banking system collapse. Therefore we opt for a different scenario, in which the euro area is slowly dismantled in such a way that the most competitive countries or group of such countries leave the euro zone. Such a step would create a new European currency regime based on national currencies or currencies serving groups of homogenous countries, and save EU institutions along with the Single European Market.
This paper has been also published in "German Economic Review" (Volume 14, Issue 1, pages 31–49, February 2013)
Authored by: Stefan Kawalec and Ernest Pytlarczyk
Demographic change (driven by the second demographic transition) led to an uncontrolled increase in scale of various social expenditure in the OECD area, especially in continental Europe. Costs of social transfers created fiscal pressure leading to the necessity of tax increases all over Europe, including the New Member States. Employment consequences of emerging higher tax wedge has become the topic of large body of research. However, surprisingly little evidence is known on distribution of that problem across workers. Is the effect of high tax wedge equally spread or certain groups of workers suffer more than others? More specifically, are low productivity workers exposed more to the problems caused by high tax wedge?
Authored by: Marek Gora, Artur Radziwill, Agnieszka Sowa, Mateusz Walewski
Published in 2006
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
This work is done as contribution to the Regional Human Development Report 2004 section 3.7 on “Labor Markets”. The paper focuses on discussing peculiarities of the labor market transition in CIS countries, features of unemployment, labor legislation, and role of the trade unions.
The paper gathers information on the labor markets of CIS and Eastern European countries that was available by summer 2004, and draws policy recommendations based on comparison between these two groups of countries. The main conclusion is that the transformation of labor markets is not complete in any of the CIS countries; most of the problems that prevailed in the early 1990s remain. These include: centralized wage setting in five CIS countries – Belarus, Moldova, Tajikistan, Turkmenistan, and Uzbekistan; extensive unemployment and underemployment, much of which is hidden; ineffective systems of labor relations and social protection; large mismatches between the labor market skills supplied and the skills demanded by new market economies; inadequate official labor market data.
Fortunately, the strong economic growth experienced by most CIS countries since 1999 has increased the demand for labor and is putting downward pressures on unemployment rates. This offers a window of opportunity for policy makers seeking to further transform labor markets, and to modernize labor relations and social protection systems. The above analysis suggests the policy recommendations to speed up further transformation.
Authored by: Olga Pavlova, Oleksandr Rohozynsky
Published in 2005
The CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
The aim of this paper is to examine the issues of gender disparities in the Commonwealth of Independent States (CIS) region, with a special focus given to countries covered by the European Neighbourhood Policy (ENP). The analysis is conducted in several dimensions: labour participation, economic opportunity, political empowerment, educational attainment, and health and demography. Beside the comparative study of "in region differentials" done for the CIS, I analyze the trends in gender disparities in comparison to EU-12 and EU-15, using data for the period 1985-2005.
The study confirms the existence of slightly different paths in which gender disparities have evolved over time. While in EU-15 women participation in labour market, their remuneration, and position in public life have significantly increased, in majority of the CIS countries a gradual decrease of female labour activity was reported. In addition female representation in politics and public life has shrunken after and during the transition period. On the other hand in such fields as secondary and tertiary education attainment, health, and demography male population in the CIS region has became more disadvantaged, which also leads to enlarging gender gap.
Authored by: Magdalena Rokicka
Published in 2008
The purpose of this paper is to analyze the sources, economic and social characteristics, of growth recovery, which followed the first period of output decline in two transition countries – Poland and Russia. They represent two different groups of transition countries (new EU member states vs. CIS) in terms of adopted transition strategy and accomplished results. Generally, fast reformers succeeded and slow reformers experienced a lot of troubles. Although eventually all former communist countries entered the path of economic growth, those which moved slowly lost sometimes the whole decade. Social costs of slow reforms were also dramatic: income degradation and rising inequalities, high level of poverty and corruption, various social and institutional distortions and pathologies, violation of human rights and civil and economic liberties, attempts of authoritarian restoration, etc.
Authored by: Marek Dabrowski, Oleksandr Rohozynsky, Irina Sinitsina
Published in 2004
The paper discusses the role of regional public goods vs. global goods in influencing postcommunist transition in Central and Eastern Europe and former USSR with special attention given to three particular factors: (i) external anchoring of national reform process; (ii) international trade arrangements and (iii) international financial stability.
Authored by: Marek Dabrowski, Artur Radziwill
Published in 2007
After a long period in which state-led development was the dominant economic paradigm, since the 1980s private sector development has been the focus for economic policy makers. It is probably no coincidence that economic growth, stagnant for a few decades in much of the developing world, took off in the 1990s after this policy shift, and has generally remained high (in spite of a wave of crises and recessions in the late 1990s and early 2000s). Privatization has made a great deal of progress in the developing world, particularly in Latin America, though the Middle East and North Africa (MENA) have lagged somewhat.
Authored by: Richard Woodward, Mehdi Safavi, Piotr Kozarzewski
Published in 2012
The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution.
The purpose of this paper is to analyze the state of the Ukrainian economy at the end of 2007 and reflect upon what kind of reform program the Ukrainian government should consider, regardless of its political color. The reforms suggested in this paper involve a broad agenda of macroeconomic, social, structural and institutional measures. This agenda goes beyond the purely economic sphere and also addresses issues of legal, administrative and political reforms. The politics and political economy of any future reform effort will not be easy because the country is deeply divided in political, cultural, regional and ethnic terms. In such an environment, crucial reforms and strategic decisions will require a wider cross-party political consensus.
Authored by: Marek Dąbrowski
Published in 2007
Implementation of the European internal market and East-West integration has been accompanied by dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe's economic geography. This suggests that the implementation of the European internal market or the Euro has "made Europe smaller". In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
Authored by: Arne Melchior
Published in 2009
This paper focuses on roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the governance structure of the Union in conjunction with radical changes in the regulation and supervision of financial markets. Financial intermediation has gone astray in recent decades and entailed a big bubble in the industrialized world. Waves of financial deregulation have enhanced systemic risks, via speculative behavior and growing inter-connectedness. Moreover, the EMU was sub-optimal from its debut and competitiveness gaps did not diminish against the backdrop of its inadequate policy and institutional design. The euro zone crisis is not related to fiscal negligence only; over-borrowing by the private sector and poor lending by banks, as well as a one-sided monetary policy, also explain this debacle. The EMU needs to complement its common monetary policy with solid fiscal/budget underpinnings. Fiscal rules and sanctions are necessary, but not sufficient. A common treasury (a federal budget) is needed in order to help the EMU absorb shocks and forestall confidence crises. A joint system of regulation and supervision of financial markets should operate. Emergency measures have to be comprehensive and acknowledge the necessity of a lender of last resort; they have to combat vicious circles. Structural reforms and EMU level policies are needed to enhance competitiveness in various countries and foster convergence. The EU has to work closely with the US and other G20 members in order to achieve a less unstable global financial system.
Authored by: Daniel Daianu
Published in 2012
The aim of the paper is to analyze theoretically and empirically the likely impact of the reduction in exchange rate uncertainty, due to the EMU accession, on the intensity of FDI inflow into candidate countries. Theoretical models give an ambiguous picture of how exchange rate uncertainty and volatility affect direction and magnitude of FDI inflows. The main contribution of this paper is in finding that exchange rate uncertainty and volatility may negatively influence the decision to locate investment in transition and accession countries. Nominal exchange rate uncertainty seems to particularly hamper FDI inflows in accession countries. The key finding of this paper is that euro adoption is likely to exert a positive influence on FDI inflows in accession countries.
Authored by: Michal Brzozowski
Published in 2003
Does European economic integration create more inequality between domestic regions, or is the opposite true? We show that a general answer to this question does not exist, and that the outcome depends on the liberalisation scenario. In order to examine the impact of European and international integration on the regions, the paper develops a numerical simulation model with nine countries and 90 regions. Eastward extension of European integration is beneficial for old as well as new member countries, but within countries the impact varies across regions. Reduction in distance-related trade costs is particularly good for the European peripheries. Each liberalisation scenario has a distinct impact on the spatial income distribution, and there is no general rule telling that integration causes more or less agglomeration.
Authored by Arne Melchior
Published in 2009
This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008.
Authored by: Marek Gora, Oleksandr Rohozynsky, Oksana Sinyavskaya
Published in 2010
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
The paper focuses on the social safety nets in Russian Federation and Ukraine in the view of changes on the labour market since the beginning of economic transition. The authors showed that many past phenomena (e.g. restructuring of the economy, wage and pension arrears, new groups at-risk-of-poverty, demographic transition) caused a need to change an old type social safety net (SSN) into the new one, better adapted to emerging more liberal economy problems.
Additionally, the authors analysed some gender specific issues related to social security that are caused mainly by inequalities in the labour market. Differences of earnings between men and women in Russia caused by sector segregation account for seem to be more important than the gap between gender earnings attributed to the position. In Ukraine the main contributors to gross gender differential of log earnings (that equals to 32%) explained by our model are sector segregation and occupation.
The authors also pointed out to future policy challenges in the area of social security systems in both countries. The retirement reforms introduced recently are a step in the right direction, although their impact will not be felt for a number of years. Other reforms, with more immediate results, are necessary. Social safety nets should be made more efficient and social benefits should be better targeted.
Authored by: Marek Gora, Grzegorz Kula, Oleksandr Rohozynsky, Magdalena Rokicka, Anna Ruzik-Sierdzinska
Published in 2009
In this paper we investigate the effects of EU enlargement on price convergence. The internal market is expected to boost integration and increase efficiency and welfare through a convergence of prices in product markets. Two principal drivers are crucial to explain price developments. On the one hand, higher competition exerts a downward pressure on prices because of lower mark ups. On the other hand, the catching up process of low income countries leads to a rise in the price levels and higher inflation over a transition period. Using comparative price levels for individual product categories price convergence can be established. However, the speed of convergence is rather slow, with half lives around 10 years. The enlargement has slightly stimulated the convergence process, and this impact is robust across different groups of countries. Moreover, the driving forces of convergence are explored. In line with theoretical predictions, the rise in competition exerts a downward pressure on prices, while catching up of low income countries leads to a rise in price levels.
Authored by: Christian Dreger, Konstantin Kholodilin, Kirsten Lommatzsch, Jirka Slacalek, Przemyslaw Wozniak
Published in 2007
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
The Eurozone crisis mobilises an appreciable amount of the attention of politicians and the public, with calls for a decisive defence of the euro, because the single currency’s demise is said to be the beginning of the end of the EU and Single European Market. In our view, preserving the euro may result in something completely different than expected: the disintegration of the EU and the Single European Market rather than their further strengthening. The fundamental problem with the common currency is individual countries’ inability to correct their external exchange rates, which normally constitutes a fast and efficient adjustment instrument, especially in crisis times.
Europe consists of nation states that constitute the major axes of national identity and major sources of government’s legitimisation. Staying within the euro zone may sentence some countries – which, for whatever reason, have lost or may lose competitiveness – to economic, social and civilizational degradation, and with no way out of this situation. This may disturb social and political cohesion in member countries, give birth to populist tendencies that endanger the democratic order, and hamper peaceful cooperation in Europe. The situation may get out of control and trigger a chaotic break-up of the euro zone,
threatening the future of the whole EU and Single European Market.
In order to return to the origins of European integration and avoid the chaotic break-up of the euro zone, the euro zone should be dismantled in a controlled manner. If a weak country were to leave the euro zone, it would entail panic and a banking system collapse. Therefore we opt for a different scenario, in which the euro area is slowly dismantled in such a way that the most competitive countries or group of such countries leave the euro zone. Such a step would create a new European currency regime based on national currencies or currencies serving groups of homogenous countries, and save EU institutions along with the Single European Market.
This paper has been also published in "German Economic Review" (Volume 14, Issue 1, pages 31–49, February 2013)
Authored by: Stefan Kawalec and Ernest Pytlarczyk
Demographic change (driven by the second demographic transition) led to an uncontrolled increase in scale of various social expenditure in the OECD area, especially in continental Europe. Costs of social transfers created fiscal pressure leading to the necessity of tax increases all over Europe, including the New Member States. Employment consequences of emerging higher tax wedge has become the topic of large body of research. However, surprisingly little evidence is known on distribution of that problem across workers. Is the effect of high tax wedge equally spread or certain groups of workers suffer more than others? More specifically, are low productivity workers exposed more to the problems caused by high tax wedge?
Authored by: Marek Gora, Artur Radziwill, Agnieszka Sowa, Mateusz Walewski
Published in 2006
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
This work is done as contribution to the Regional Human Development Report 2004 section 3.7 on “Labor Markets”. The paper focuses on discussing peculiarities of the labor market transition in CIS countries, features of unemployment, labor legislation, and role of the trade unions.
The paper gathers information on the labor markets of CIS and Eastern European countries that was available by summer 2004, and draws policy recommendations based on comparison between these two groups of countries. The main conclusion is that the transformation of labor markets is not complete in any of the CIS countries; most of the problems that prevailed in the early 1990s remain. These include: centralized wage setting in five CIS countries – Belarus, Moldova, Tajikistan, Turkmenistan, and Uzbekistan; extensive unemployment and underemployment, much of which is hidden; ineffective systems of labor relations and social protection; large mismatches between the labor market skills supplied and the skills demanded by new market economies; inadequate official labor market data.
Fortunately, the strong economic growth experienced by most CIS countries since 1999 has increased the demand for labor and is putting downward pressures on unemployment rates. This offers a window of opportunity for policy makers seeking to further transform labor markets, and to modernize labor relations and social protection systems. The above analysis suggests the policy recommendations to speed up further transformation.
Authored by: Olga Pavlova, Oleksandr Rohozynsky
Published in 2005
CRM Science - Dreamforce '14: Using the Google SOAP APICRMScienceKirk
In this session you will learn how to integrate Salesforce with Google APIs. This will include the required steps to configure a project in the Google Developer Console and setup the OAuth 2.0 authentication handshake. Through samples and code you will learn how to use an OAuth access token to communicate with the Google APIs.
The current fiscal imbalances and fragilities in the Southern and Eastern Mediterranean countries (SEMC) are the result of decades of instability, but have become more visible since 2008, when a combination of adverse economic and political shocks (the global and European financial crises, Arab Spring) hit the region. In an environment of slower growth and higher public expenditure pressures, fiscal deficits and public debts have increased rapidly. This has led to the deterioration of current accounts, a depletion of official reserves, the depreciation of some currencies and higher inflationary pressure.
To avoid the danger of public debt and a balance-of-payment crisis, comprehensive economic reforms, including fiscal adjustment, are urgently needed. These reforms should involve eliminating energy and food subsidies and replacing them with targeted social assistance, reducing the oversized public administration and privatizing public sector enterprises, improving the business climate, increasing trade and investment openness, and sector diversification. The SEMC may also benefit from a peace dividend if the numerous internal and regional conflicts are resolved.
However, the success of economic reforms will depend on the results of the political transition, i.e., the ability to build stable democratic regimes which can resist populist temptations and rally political support for more rational economic policies.
Authored by: Marek Dąbrowski
Published in 2014
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
Despite its many advantages, the Eastern and Southern Mediterranean region remains relatively backward in economic and social terms and is rightly considered a potential source of social and political instability. Its average GDP per capita lags behind the global average and is increasing slowly due to weak economic policies, poor governance and rapid population growth. The region suffers from high unemployment (especially among women and youth), poor education, high levels of income inequality, gender discrimination, underdeveloped infrastructure, continuous trade protectionism, and a poor business climate. To overcome these development obstacles, MED countries should conduct comprehensive reforms of their economic, social and political systems with the aim of ensuring macroeconomic stability, increasing trade and investment openness, improving the business climate and governance system, and upgrading infrastructure and human capital.
The main economic and political partners of the MED countries, especially the EU, can actively support this modernization agenda through liberalizing trade in some sensitive sectors (like agriculture and services), adopting a more flexible approach to MED labor migration, and cooperating in mitigating climate changes, improving educational outcomes, and promoting science and culture. This will require renewed initiatives with dedicated technical assistance and continued and enhanced financial assistance, particularly to improve infrastructure. There is also a lot of room for improvement in intra-MED cooperation but this requires resolving the protracted political conflicts in the region and taking bolder steps to remove trade and investment barriers.
Written by Marek Dąbrowski and Luc De Wulf. Published in January 2013.
PDF available on our website: http://www.case-research.eu/en/node/57925
This report is concerned with the analysis of privatization and private sector development for the eastern and southern Mediterranean countries partnered with the European Union and collectively known as MED-11. Noting that the analysis applies to the situation prior to the dislocations of the Arab Spring, we review the shift in the relative shares of the public and private sectors in these countries, as well as the business climate affecting the development of the private sector, examine a number of cultural factors that may influence the development of the private sector, and discuss some alternative scenarios for future developments. In the last 20 years, efforts have been made in all countries of the MED-11 to encourage private sector development and, to a greater or lesser extent, privatization of stateowned assets. However, there is a great deal of differentiation among the countries in the group. In the MED-11, Israel has not only the most business-friendly policy environment but also the most developed private sector, accounting for almost 80% of employment. The other countries of the region can be divided into two groups: one, including Algeria, Libya, and Syria, where reforms promoting privatization and private sector development have been very limited, and the rest, in which they have been much more extensive (the Palestine Authority is, for obvious reasons, a rather special case). A generally poor business environment makes for a large informal sector in almost every country in the region; however, generally speaking, we do not find the cultural factors we examine to be hostile to private sector development. Optimistic, reference and pessimistic scenarios are discussed; which of these is realized in any particular MED-11 country will depend greatly on the direction of change following the events of 2011’s Arab Spring.
Written by Mehdi Safavi and Richard Woodward. Published in October 2012.
PDF available on our website at: http://www.case-research.eu/en/node/57858
This paper proposes a new method for measuring the degree to which the domestic capital stock is self-financed. The main idea is to use the national accounts to construct a self-financing ratio, indicating what would have been the autarky stock of tangible capital supported by actual past domestic past saving, relative to the actual stock of capital. We use the constructed measure of self-financing to evaluate the impact of the growing global financial integration on the sources of financing domestic capital stocks in developing countries. On average, 90% of the stock of capital in developing countries is self financed, and this fraction was surprisingly stable throughout the 1990s. The greater integration of financial markets has not changed the dispersion of self-financing rates, and the correlation between changes in de-facto financial integration and changes in self-financing ratios is statistically insignificant. There is no evidence of any "growth bonus" associated with increasing the financing share of foreign savings. In fact, the evidence suggests the opposite: throughout the 1990s, countries with higher self-financing ratios grew significantly faster than countries with low self-financing ratios. This result persists even after controlling growth for the quality of institutions. We also find that higher volatility of the self-financing ratios is associated with lower growth rates, and that better institutions are associated with lower volatility of the self-financing ratios. These findings are consistent with the notion that financial integration may have facilitated diversification of assets and liabilities, but failed to offer new net sources of financing capital in developing countries.
Authored by: Joshua Aizenman, Brian Pinto, Artur Radziwill
Published in 2004
This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2015-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.
Authored by: Maciej Krzak and Grzegorz Poniatowski
Published in 2014
During the last two decades the CIS countries have received very significant amounts of technical assistance from international development organizations and bilateral donors. While this has played a positive and important role in the transformation of these societies, practically all stakeholders currently share the opinion that many problems have accumulated in the area of technical cooperation with CIS countries. This paper intends to outline these problems, analyze their underlying reasons - including the changing environment for technical cooperation in the CIS - and the interaction of the interests of beneficiaries, donors and providers in the process of implementing technical cooperation projects. The analysis suggests that a good understanding, recognition and coordination of the interests of all TC stakeholders and a reduction in the information gap between the various participants in the technical cooperation process are necessary for improving the effectiveness of technical cooperation.
Authored by: Aziz Atamanov, Roman Mogilevsky
Published in 2008
This paper analyses the public finance performance and the dynamics of government expenditures on education and health in the Kyrgyz Republic in 2007-2010, when the country was hit by the global economic crisis and then by an internal political crisis in 2010. Despite these crisis conditions, public health expenditures have increased substantially. In education, recurrent expenditures have been protected, while capital investments have been cut dramatically. Both sectors suffer from chronic under-financing, which results in an insufficient quality of services. The country's fiscal situation in the medium-term is going to be difficult, so efficiency-oriented reforms need to be implemented in health care and especially in education in order to sustain the development of these critical services in Kyrgyzstan.
Authored by: Roman Mogilevsky
Published in 2011
The paper discusses possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. The first section presents a summary of the economic and institutional background for development of the current size and structure of the socially driven tax wedge in both countries. The second section presents some theoretical considerations on the relationship between the social protection system, tax wedge, non-employment and finally, shadow employment. The third section contains an attempt to econometrically estimate the magnitude of the possible relationship between the tax wedge and total employment rates in both countries. In the fourth section, the authors try to discover the mechanism of influence of the last reform of the Ukrainian payroll tax system on the structure and size of shadow employment in the country. The last analytical section closes the circle leading the reader back from shadow employment to wages and finally to the issue of access to social security institutions. The last section concludes.
Authored by: Marek Gora, Oleksandr Rohozynsky, Irina Sinitsina, Mateusz Walewski
Published in 2009
The paper discusses possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. The first section presents a summary of the economic and institutional background for development of the current size and structure of the socially driven tax wedge in both countries. The second section presents some theoretical considerations on the relationship between the social protection system, tax wedge, non-employment and finally, shadow employment. The third section contains an attempt to econometrically estimate the magnitude of the possible relationship between the tax wedge and total employment rates in both countries. In the fourth section, the authors try to discover the mechanism of influence of the last reform of the Ukrainian payroll tax system on the structure and size of shadow employment in the country. The last analytical section closes the circle leading the reader back from shadow employment to wages and finally to the issue of access to social security institutions. The last section concludes.
Authored by: Marek Gora, Oleksandr Rohozynsky, Irina Sinitsina, Mateusz Walewski
Published in 2009
The report aims to identify major existing gaps in the five socio-economic dimensions (economic, human, openness, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Aziz Atamanov, Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Lukashova, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina
Published in 2008
Michael Tokmazishvili
The recent wave of financial innovation, particularly innovation related to the application of information and communication technologies, poses a serious challenge to the financial industry’s business model in both its banking and non-banking components. It has already revolutionised financial services and, most likely, will continue to do so in the future. If not responded to adequately and timely by regulators, it may create new risks to financial stability, as occurred before the global financial crisis of 2007-2009. However, financial innovation will not seriously affect the process of monetary policymaking and is unlikely to undermine the ability of central banks to perform their price stability mission. The recent wave of financial innovation, particularly innovation related to the application of information and communication technologies, poses a serious challenge to the financial industry’s business model in both its banking and non-banking components. It has already revolutionised financial services and, most likely, will continue to do so in the future. If not responded to adequately and timely by regulators, it may create new risks to financial stability, as occurred before the global financial crisis of 2007-2009. However, financial innovation will not seriously affect the process of monetary policymaking and is unlikely to undermine the ability of central banks to perform their price stability mission.
Current report aims to identify major existing gaps in the four socio-economic dimensions (economic, human, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina, Michael Tokmazishvili
Published in 2007
Migration of capital, transnationalization of the world economy jung boramiriotas
Translated version of International Economics Master thesis from the St. Petersburg State University of Economics & Finance in 2008.
(Original is in Russian)
English version is also available.
The paper discusses the issue of labor force mobility in a broad sense, and analyses how changes in social security policy and the structure of the social safety net (SSN) affects different aspects of labor force mobility. The text is structured as follows: Introduction, then follows Chapter 2, which provides an overview of the labor market and social safety net developments in Russian and Ukraine over the last decade, as well as discusses common features of these countries. The Chapter 3 establishes theoretical models for different aspects of labor force mobility, discusses the availability of data on Russia and Ukraine to test these models, and provides a statistical analysis of the data. The Chapter 4 discusses results of the statistical analysis. The final chapter discusses policy conclusions that can be derived from comparison of the effect of the SSN on labor mobility in these two countries, and extends them to all countries in transition.
Authored by: Marek Gora, Oleksander Rohozynsky
Published in 2009
Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. As with other innovations, virtual currencies pose a challenge to financial regulators, in particular because of their anonymity and trans-border character.
This study is part of the project entitled “Costs and Benefits of Labour Mobility between the EU and the Eastern Partnership Countries” for the European Commission1. The study was written by Luca Barbone (CASE) Mikhail Bonch- Osmolovskiy (CASE) and Matthias Luecke (CASE, Kiel). It is based on the six country studies for the Eastern Partnership countries commissioned under this project and prepared by Mihran Galstyan and Gagik Makaryan (Armenia), Azer Allahveranov and Emin Huseynov (Azerbaijan), Aleksander Chubrik and Aliaksei Kazlou (Belarus), Lasha Labadze and Mirjan Tukhashvili (Georgia), Vasile Cantarji and Georgeta Mincu (Moldova), Tom Coupé and Hanna Vakhitova (Ukraine). The authors would like to thank for their comments and suggestions Kathryn Anderson, Martin Kahanec, Costanza Biavaschi, Lucia Kurekova, Monica Bucurenciu, Borbala Szegeli, Giovanni Cremonini and Ummuhan Bardak, as well as the dbaretailed review provided by IOM. The views in this study are those of the authors’ only, and should not be interpreted as representing the official position of the European Commission and its institutions.
Written by Luca Barbone, Mikhail Bonch-Osmolovsky and Matthias Luecke. Published in September 2013.
PDF available on our website at: http://www.case-research.eu/en/node/58264
At the beginning of 1990s the Soviet successor states started to transform their financial sectors to meet the needs of the emerging market economies.
Following a decade of transition, results differ. Although the Baltic States were able to build quite successful financial systems, in the CIS countries financial systems remain a major obstacle to economic growth. The hyperinflations of the early 1990s, the financial scandals that followed the collapse of monobank systems, and subsequent incomplete progress in constructing non-bank financial institutions and effective regulatory structures have had adverse consequences. These include weak bank balances sheets, high real interest rates, and poor access to capital for small enterprises and start ups. With a few exceptions, nontransparent regulation, inadequate disclosure frameworks, and weak protection of shareholders rights continue to limit investor participation in CIS financial markets. The absence of effective threepillar pension systems further limits the demand for domestic debt and equities.
Fortunately, there are signs of improvement. Bank lending and deposits are growing in many CIS economies, the proportion of bad debt in bank credit portfolio is falling, and lending and deposit interest rate spreads are diminishing. The solid economic growth recorded since 1999 in many CIS countries is helping memories of the 1998 financial crisis to fade, and stock exchanges in some CIS countries are currently at or near record levels. Financial systems in CIS economies may be moving toward the successful frameworks put in place in the new EU member states. However, because they have not benefited from the extensive foreign direct investment that recapitalised banks in Central Europe, financial stability in many CIS countries remains open to question.
Authored by: Elena Golodniuk
Published in 2005
Similar to CASE Network Studies and Analyses 354 - Determinants of Portfolio Flows into CIS Countries (20)
The report examines the social and economic drivers and impact of circular migration between Belarus and Poland, Slovakia, and the Czech Republic. The core question the authors sought to address was how managing circular migration could, in the long term, help to optimise labour resources in both the country of origin and the destination countries. In the pages that follow, the authors of the report present the current and forecasted labour market and demographic situation in their respective countries as well as the dynamics and characteristics of short-term labour migration flows between Belarus and Poland, Slovakia, and the Czech Republic, concentrating on the period since 2010. They also outline and discuss related policy responses and evaluate prospects for cooperation on circular migration.
Podręcznik został opracowany w celu przekazania trenerom i nauczycielom podstawowej wiedzy, która może być przydatna w prowadzeniu szkoleń promujących pracę rejestrowaną. Prezentuje on z jednej strony korzyści z pracy rejestrowanej, z drugiej – potencjalne koszty związane z pracą nierejestrowaną. W pierwszej kolejności informacje te przedstawiono w odniesieniu do pracowników najemnych (rozdział 2), podkreślając w sposób szczególny to, że negatywne konsekwencje pracy nierejestrowanej są ponoszone przez całe życie. Ze względu na specyficzną sytuację cudzoziemców pracujących w Polsce konsekwencje ponoszone przez tę grupę opisano oddzielnie (rozdział 3). Ponadto zaprezentowano skutki dotyczące pracodawców z szarej strefy z wyodrębnieniem tych, którzy zatrudniają cudzoziemców (rozdział 4). Uzupełnieniem przedstawionych informacji jest opis działań podejmowanych przez państwo w celu ograniczenia zjawiska pracy nierejestrowanej w Polsce (rozdział 5) oraz prowadzonych w Wielkiej Brytanii, czyli w kraju będącym liderem w walce z szarą strefą (rozdział 6).
European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
One of the key instruments applied toward these goals is the retirement age. Formally it is a legally established boundary: once people have crossed it – on average – they significantly lose their ability to perform work (the so-called old-age risk). But since the 1970s, in many developed countries the retirement age has become an instrument of social and labor-market policy. Specifically, in the 1970s and ‘80s, an early retirement age was perceived as a solution allowing a reduction in the supply of labor, particularly among people with relatively low competencies who were approaching retirement age, which is called the lump of labor fallacy. It was often believed that people taking early retirement freed up jobs for the young. But a range of economic evidence shows that the number of jobs is not fixed, and those who retire don’t in fact free up jobs. On the contrary, because of higher spending by pension systems, labor costs rise, which limits the supply of jobs. In general, a good situation on the labor market supports employment of both the youngest and the oldest labor force participants. Additionally, a lower retirement age for women was maintained, which resulted to a high degree from cultural conditions and norms that are typical for traditional societies.
Until now, the banking sector has been one of the strong points of Poland’s economy. In contrast to banks in the U.S. and leading Western European economies, lenders in Poland came through the 2008 global financial crisis without a scratch, without needing state financial support. But in recent years the industry’s problems have been growing, creating a threat to economic growth and gains in living standards.
For an economy’s productivity to increase, funds can’t go to all companies evenly, and definitely shouldn’t go to those that are most lacking in funds, but to those that will use them most efficiently. This is true of total external financing, and thus funding both from the banking sector and from parabanks, the capital market and funds from public institutions. In Poland, in light of the relatively modest scale of the capital market, banks play a clearly dominant role in external financing of companies. This is why the author of this text focuses on the bank credit allocation efficiency.
The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West.
The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.
This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland.
Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009–2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of
individuals into informal employment, I use a rich set of control variables representing several individual characteristics.
Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is
stable over the analysed time period (2009–2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland.
Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
The rule of law, by securing civil and economic rights, directly contributes to social prosperity and is one of our societies’ greatest achievements. In the European Union (EU), the rule of law is enshrined in the Treaties of its founding and is recognised not just as a necessary condition of a liberal democratic society, but also as an important requirement for a stable, effective, and sustainable market economy. In fact, it was the stability and equality of opportunity provided by the rule of law that enabled the post-war Wirtschaftswunder in Germany and the post-Communist resuscitation of the economy in Poland.
But the rule of law is a living concept that is constantly evolving – both in its formal, de jure dimension, embodied in legislation, and its de facto dimension, or its reception by society. In Poland, in particular, according to the EU, the rule of law has been heavily challenged by government since 2015 and has evolved amid continued pressure exerted on the institutions which execute laws. More recently, the outbreak of the COVID-19 pandemic transformed the perception of the rule of law and its boundaries throughout the EU and beyond (Marzocchi, 2020).
This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported.
In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
Of the EU-28, the smallest Gaps were observed in Sweden (0.7 percent), Croatia (3.5 percent), and Finland (3.6 percent), the largest – in Romania (33.8 percent), Greece (30.1 percent), and Lithuania (25.9 percent). Overall, half of the EU-28 MS recorded a Gap above 9.2 percent. In nominal terms, the largest Gaps were recorded in Italy (EUR 35.4 billion), the United Kingdom (EUR 23.5 billion), and Germany (EUR 22 billion).
The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic.
A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation.
"Many brilliant prophecies have appeared for the future of the EU and our entire planet. I believe that Europe, in its own style, will draw pragmatic conclusions from the crisis, not revolutionary ones; conclusions that will allow us to continue enjoying a Europe without borders. Brussels will demonstrate its usefulness; it will react ably and flexibly. First of all, contrary to the deceitful statements of members of the Polish government, the EU warned of the threats already in 2021. Secondly, already in mid-March EU assistance programs were ready, i.e. earlier than the PiS government’s “shield” program. The conclusion from the crisis will be a strengthening of all the preventive mechanisms that allow us to recognize threats and react in time of need. Research programs will be more strongly directed toward diagnosing and treating infectious diseases. Europe will gain greater self-sufficiency in the area of medical equipment and drugs, and the EU – greater competencies in the area of the health service, thus far entrusted to the member states. The 2021-27 budget must be reconstructed, to supplement the priority of the Green Deal with economic stimulus programs. In this way structural funds, which have the greatest multiplier effect for investment and the labor market, may return to favor. So once again: an addition, as a conclusion from the crisis, and not a reinvention of the EU," writes Dr. Janusz Lewandowski the author of the 162nd mBank-CASE seminar Proceeding.
Dla wielu rodaków europejskość Polski jest oczywista, trudno jest im nawet wyobrazić sobie, jak kształtowałyby się losy naszego kraju bez uczestnictwa w integracji europejskiej. Szczególnie młode pokolenie traktuje osiągnięty przez nas dzięki uczestnictwie w Unii ogromny postęp cywilizacyjny jako coś danego i naturalnego. Jednak świadomość tego, jaki był nasz punkt wyjścia, jaką przeszliśmy drogę i jak przyczyniły się do tego unijne działania oraz jakie wynikały z tego korzyści powinna nam stale towarzyszyć. Bez tej świadomości, starannego weryfikowania faktów i docenienia naszych osiągnięć grozi nam uleganie niesprawdzonym argumentom przeciwników integracji europejskiej i popełnienie nieodwracalnych błędów. Dla tych, którzy chcą poznać te fakty, przygotowany został raport "Nasza Europa. 15 lat Polski w Unii Europejskiej". Podjęto w nim ocenę 15 lat członkostwa Polski z perspektywy doświadczeń procesu integracji, z jego barierami i sukcesami, a także wyzwaniami przyszłości.
Raport jest wynikiem pracy zbiorowej licznych ekspertów z różnych dziedzin, od wielu lat analizujących wielowymiarowe efekty działania instytucji UE oraz współpracy z krajami członkowskimi na podstawie europejskich wartości i mechanizmów. Autorzy podsumowują korzyści członkostwa Polski w Unii Europejskiej na podstawie faktów, nie stroniąc jednakże od własnych ocen i refleksji.
This report is the result of the joint work of a number of experts from various fields who have been - for many years – analysing the multidimensional effects of EU institutions and cooperation with Member States pursuant to European values and mechanisms. The authors summarise the benefits of Poland’s membership in the EU based on facts; however, they do not hide their own views and reflections. They also demonstrate the barriers and challenges to further European integration.
This report was prepared by CASE, one of the oldest independent think tanks in Central and Eastern Europe, utilising its nearly 30 years of experience in providing objective analyses and recommendations with respect to socioeconomic topics. It is both an expression of concern about Poland’s future in the EU, as well as the authors’ contribution to the debate on further European integration.
Poland’s new Employee Capital Plans (PPK) scheme, which is mandatory for employers, started to be implemented in July 2019. The article looks at the systemic solutions applied in the programme from the perspective of the concept of the simultaneous reconstruction of the retirement pension system. The aim is to present arguments for and against the project from the point of view of various actors, and to assess the chances of success for the new system. The article offers a detailed study of legal solutions, an analysis of the literature on the subject, and reports of institutions that supervise pension funds. The results of this analysis point to the lack of cohesion between certain solutions of the 1999 pension reform and expose a lack of consistency in how the reform was carried out, which led to the eventual removal of the capital part of the pension system. The study shows that additional saving for old age is advisable in the country’s current demographic situation and necessary for both economic and social reasons. However, the systemic solutions offered by the government appear to be chiefly designated to serve short-term state interests and do not create sufficient incentives for pension plan participants to join the programme.
Belarus was among the few post-communist countries to resign from comprehensive market reforms and attempt to improve the efficiency of the economy through administrative means, leaving market mechanisms only an auxiliary role. Since its inception, the ‘Belarusian economic model’ has undergone several revisions of a de-statisation and de-regulation kind, but still the Belarusian economy remains dominated by the state. This paper analyses the characteristic features of the Belarusian economic system – especially those related to the public sector – as well as its evolution over time during the period following its independence. The paper concludes that during the post-Soviet period, the Belarusian economy evolved from a quasi-Soviet system based on state property, state planning, support to inefficient enterprises and the massive redistribution of funds to a more flexible hybrid model where the public sector still remains the core of the economy. The case of Belarus shows that presently there is no appropriate theoretical perspective which, in an unmodified form, could be applied to study this type of economic system. Therefore, a new perspective based on an already existing but updated approach or a multidisciplinary approach that incorporates the duality of the Belarusian economy is required.
Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991.
As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
The trade war between the U.S. and China began in March 2018. The American side raised import duties on aluminum and steel from China, which were later extended to other countries, including Canada, Mexico and the EU member states. This drew a negative reaction from those countries and bilateral negotiations with the U.S. In June 2018 America, referring to Section 301 of its 1974 Trade Act, raised tariffs to 25% on 818 groups of products imported from China, arguing that the tariff increase was a response to years of theft of American intellectual property and dishonest trade practices, which has caused the U.S. trade deficit.
Will this trade war mean the collapse of the multilateral trading system and a transition to bilateral relationships? What are the possibilities for increasing tariffs in light of World Trade Organization rules? Can the conflict be resolved using the WTO dispute-resolution mechanism? What are the consequences of the trade war for American consumers and producers, and for suppliers from other countries? How high will tariffs climb as a result of a global trade war? How far can trade volumes and GDP fall if the worst-case scenario comes to pass? Professor Jan J. Michałek and Dr. Przemysław Woźniak give answers to these questions in the mBank-CASE Seminar Proceeding No. 161.
This Report has been prepared for the European Commission, DG TAXUD under contract TAXUD/2017/DE/329, “Study and Reports on the VAT Gap in the EU-28 Member States” and serves as a follow-up to the six reports published between 2013 and 2018.
This Study contains new estimates of the Value Added Tax (VAT) Gap for 2017, as well as updated estimates for 2013-2016. As a novelty in this series of reports, so called “fast VAT Gap estimates” are also presented the year immediately preceding the analysis, namely for 2018. In addition, the study reports the results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). It also scrutinises the Policy Gap in 2017 as well as the contribution that reduced rates and exemptions made to the theoretical VAT revenue losses.
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Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
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BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
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The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
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3. This report is part of the CASE Network Studies and Analyses series.
The CASE Network is a group of economic and social research centers in Poland, Kyrgyzstan,
Ukraine, Georgia, Moldova, and Belarus. Organizations in the network regularly conduct
joint research and advisory projects. The research covers a wide spectrum of economic and
social issues, including economic effects of the European integration process, economic
relations between the EU and CIS, monetary policy and euro-accession, innovation and
competitiveness, and labour markets and social policy. The network aims to increase the
range and quality of economic research and information available to policy-makers and civil
society, and takes an active role in on-going debates on how to meet the economic challenges
facing the EU, post-transition countries and the global economy.
The CASE network consists of:
• CASE – Center for Social and Economic Research, Warsaw, est. 1991,
www.case-research.eu
• CASE – Center for Social and Economic Research – Kyrgyzstan, est. 1998,
www.case.elcat.kg
• Center for Social and Economic Research – CASE Ukraine, est. 1999,
www.case-ukraine.kiev.ua
• CASE – Transcaucasus Center for Social and Economic Research, est. 2000,
www.case-transcaucasus.org.ge
• Foundation for Social and Economic Research CASE Moldova, est. 2003,
www.case.com.md
• CASE Belarus – Center for Social and Economic Research Belarus, est. 2007.
Studies & Analyses No 354 3
5. Abstract
This paper employs a standard Tobin-Markowitz framework to analyse the
determinants of capital flows into the CIS countries. Using data from 1996-2006, we
find that the Russian financial crisis of 1998 has had a profound impact on capital
flows into the CIS (both directly and indirectly). Firstly, it introduced a structural shift
in the investors' behaviour by shifting the focus from the external factors to the internal
ones, e.g. domestic interest and GDP growth rates. Secondly, it also drastically
changed the impact of a number of explanatory variables on capital flows into the CIS.
Political risk was found to be the second most important determinant of capital flows
into the CIS. Additionally, we report some strong evidence of co-movement between
portfolio flows into the CIS and CEEC, coupled with strong complementarity between
global stock market activity and portfolio inflows into the CIS. Interestingly, external
factors tend to be of a higher significance than internal factors for the largest members
(Russia, Ukraine and Kazakhstan) of the CIS; whereas domestic variables tend to have
a greater impact on the capital flows into the smaller CIS countries.
5
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
6. Alexander Lozovyi is an economist at CASE Ukraine. He specializes in issues related
to monetary policy, inflation, financial markets and foreign exchange markets.
Alexander holds a Master's degree in Economics from the Economic Education and
Research Consortium (EERC). His research interests are primarily related to
monetary policy, international capital movements, and transition economics.
Alina Kudina is a lecturer of International Business at Warwick Business School
(University of Warwick), and an Associate of CASE and the U.K.'s Advanced Institute
of Management Research. After finishing her PhD at Sa?d Business School, University
of Oxford, she was a lecturer at University College London before coming to Warwick.
Alina has also held fixed term appointments with the International Monetary Fund
and the World Bank. Alina's research focuses on the issues related to public policy,
foreign direct investment, portfolio investment and internationalisation strategies of
multinational corporations.
6
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
7. Introduction
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Private capital flows to developing countries have massively increased in recent
years. From 2002-2005 alone, total private capital flows to the emerging markets and
developing economies increased roughly 2.7 times as compared with 1998-20011.
Some of this capital has been heading to the CIS, a region whose prospects have
improved considerably since the 1998 Russian financial crisis. Although the amount
of capital flows into the CIS had been largely insignificant before the crisis and shortly
thereafter, the share of the CIS countries in global private capital flows has averaged
a more impressive 13% from 2002-2005. Attracted by strong economic growth in the
majority of the CIS countries in the new millennium, international investors have
begun investing in the CIS to exploit potentially lucrative investment opportunities.
Yet this investment has been primarily direct investment, due to the undeveloped CIS
financial markets coupled with a poor governance environment, Li (2005).
The focus of this paper, nevertheless, is on portfolio flows to the CIS, which are less
researched (as compared to direct flows), yet are not a less important component of
capital flows. Although short-term capital flows might have a destabilising impact on
the economy (as in the case of the Asian crisis), the benefits of the influx of foreign
capital are also numerous. Fortunately, the portfolio flows into the CIS have picked up
considerably since 2005, launching a healthier trend in the region. Nevertheless, the
CIS economies are still highly vulnerable to sudden changes in investors’ sentiments.
An abrupt withdrawal of capital from the region may bring severe consequences to the
emerging CIS markets given the small relative size of all CIS economies (excluding
Russia) coupled with low market capitalization. Hypothetically, the consequences of
capital withdrawal could be even more severe than those that occurred late in 1998, as
financial sectors now account for larger portions of the respective economies.
Therefore, it is of vital importance to understand what guides portfolio investors, as
well as the corresponding risks, if any, faced by the host economies.
Consequently, the main goal of this research is to identify factors which drive
portfolio flows in the CIS countries, as well as to assess their relative importance. In
studies on developing countries, the authors typically include a wide range of possible
explanatory variables which are assumed to be important for portfolio flows
(Garibaldi et al, 2001). However, this research uses a more concise set of factors.
According to the standard Tobin-Markowitz framework, the determinants of portfolio
inflows may be divided into four broad categories (Calderon, Loayza and Serven,
2003): (i) investment return in home country relative to abroad, (ii) perceived risk of
1 World Economic Outlook: a survey by the staff of the International Monetary Fund, September 2006, IMF.
Studies & Analyses No 354 7
8. investments, (iii) degree of co-movement between international returns (which
sometimes may take the form of a contagion effect), and (iv) diversification motive.
While being short, this set of factors will enable us to produce a comprehensive
analysis of determinants of portfolio flows in the CIS.
Equivalently, these determinants may be grouped into global and country-specific
factors. The relative importance of these determinants is an important indicator for policy
decision making. Specifically, the sensitivity of portfolio flows to external factors will
indicate the vulnerability of the CIS economies to global capital market developments. If
this reliance is high, shocks in the world financial markets will require an appropriate
adjustment plan to be developed in order to keep the target economic indicators within
their ranges. At the same time, higher independence of a country from global financial
swings will point towards strong domestic fundamentals and sound economic policy.
Special attention in this paper is paid to contagion effects, as their significance was
evident in the aftermath of the Russian crisis of 1998. Given that the CIS region is still
closely integrated (as can be seen from individual countries’ growth patterns), we
need to be able to better understand the potential impact of regional contagion on
portfolio investment. Hence, the paper tests for the possibility of contagion effects by
considering trade-related contagion channels and channels based on macroeconomic
similarities between the countries.
Apart from the above-mentioned objectives, this paper enlarges the existing body
of research on the determinants of portfolio investment in developing countries (as
most of the attention of empirical literature on capital flows is largely devoted to
developed countries). In the developed countries setting, scholars have been focusing
on either optimal portfolio theory, in which the return and risk were the main factors
determining allocation of portfolio flows (Grubel, 1968), or the stock-equilibrium
approach (Miller and Whitman, 1970; Kreicher, 1981), which assumes that there
exists an optimal allocation of portfolio flows among countries and that actual flows
reflect adjustment to the equilibrium.
In the context of developing countries, however, much of the attention is devoted to
the analysis of capital flows during the currency crises. Calvo (1993) launched an
exploration of determinants responsible for capital flows into developing countries,
while Chuhan, Claessens and Mamingi (1993) split the determinants of short-term
capital flows in the developing countries into domestic and external, or global.
However, there is still no empirical agreement with respect to the relative significance
of domestic and global factors for capital flows into developing countries.
Unsurprisingly, different factors come into play in various country/time contexts. For
example, in the CIS countries, portfolio flows have been identified as moving in
accordance with a limited number of factors, e.g. LIBOR and foreign currency reserves
(Claessens, Oks, Polastri, 1998; Garibaldi, Mora, Sahay and Zettlemeyer, 2001).
8
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
9. As a result, this paper not only contributes to our understanding of portfolio
investment in the CIS countries, but it is also set to offer some insights in a broader,
developing countries context in a non-currency crisis setting.
The paper is organized in the following way. We begin by giving a brief overview
of the capital flows into the CIS region after the break-up of the Soviet Union. Then
we discuss theoretical and empirical work devoted to the analysis of capital flows in
the context of developed and developing/emerging economies. Later, we present the
methods we use in our analysis, followed by a discussion of the data employed.
Econometric results are presented in the subsequent section, which are discussed in
more detail in the final section. Some concluding remarks close the study.
1. Portfolio Investment Flows in the CIS
Since the breakdown of the Soviet Union and the beginning of integration with the
global economy, the CIS countries have experienced swings in their short-term
foreign capital flows. While the period from the mid-1990s to 1998 can be
characterized by a net capital inflow, the Russian financial crisis that quickly spilled
over to neighbouring countries significantly altered the overall pattern. Capital flight
had persisted for a few years and the CIS countries were cut-off from foreign
resources for some time. However, following strong growth in the CIS region and
further development of its financial markets, portfolio capital flows slowly began
picking up in 2002 (please see Figure 1).
9
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Figure 1. Portfolio investment inflows in the CIS countries, million USD
15000
12000
9000
6000
3000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: International Financial Statistics.
Studies & Analyses No 354
10. At the beginning of the 1990s, official capital flows were crucial for CIS
development, whereas the volume of private investments was negligible. Official
capital flows were primarily the result of borrowing from international financial
institutions (e.g. the IMF and World Bank) and were aimed to assist the CIS countries
in reforming their economies.
The major obstacles to portfolio flows in the CIS region were as follows:
underdeveloped financial systems, poor protection of property rights, capital account
restrictions, and lack of reliable financial instruments for foreign investors to invest
in. Portfolio flows began to increase once some basic financial institutions and
legislative systems were put in place (see Figure 2). First, the bond market began
developing (government borrowings and later corporate borrowing), followed by the
developing of the stock market.
National stock exchanges in the CIS were created in the second half of the 1990s.
The Russian stock market index RTS was launched in September of 1995, while the
corresponding Ukrainian equivalent (PFTS) was brought into existence in November
1997. Still, despite the creation of stock exchanges, the equity flows into the CIS were
extremely small, particularly due to the underdeveloped financial markets and
dominance of the banking sector among other financial institutions. Equity flows
increased considerably in 2005-2006. Beginning in the first quarter of 2005 and until
the third quarter of 2006, total equity liabilities of CIS countries were augmented by
USD 10bn, while debt liabilities grew by USD 6bn. Almost all equity flows into the CIS
from 2005-2006 were directed to Russia. The share directed to other CIS countries
was minor and amounted to only 0.7% of the total flows.
10
Oleksandr Lozovyi and Alina Kudina
Figure 2. Private Portfolio flows to Emerging Markets and Developing Countries, USD bn
1998 1999 2000 2001 2002 2003 2004 2005 2006
Emerging and Developing Countries CEEC CIS
Studies & Analyses No 354
70
50
30
10
-10
-30
-50
-70
-90
-110
Source: International Financial Statistics.
11. The total amount of capital inflows into the CIS economies since the beginning of
1995 and until the first half of 2006 adds up to a sizeable USD 83.2bn, which, however,
falls short of the capital inflows into other Central and Eastern European countries.
Figure 2 offers a comparison of portfolio flows to Central and Eastern European
countries, the CIS, and other emerging markets in the after-crises period (1998-2006).
Unsurprisingly, Kazakhstan, Russia and Ukraine account for almost all portfolio
flows into the CIS region, with Russia standing out considerably (see Figure 3). Given
that these countries are the largest economies in the region, with Russia and
Kazakhstan enjoying considerable endowments of natural resources, their lead in
attracting capital inflows is in line with conventional logic. The relative weight of
other CIS members has been very small.
Figure 3. Portfolio flows to CIS countries, million USD
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Armenia 7.2 15.9 -16.6 1.6 0.3 0.0 -1.9 0.2 -2.4 1.1 9.3
Belarus 3.2 41.8 -13.4 -5.2 50.1 -45.4 -6.7 5.3 59.6 -38.6 -25.1
Georgia n.a. 2.4 0.0 6.2 2.7 2.9 0.0 1.0 13.1 15.6 3.6
Kazakhstan 223.5 405.4 66.2 -39.9 30.4 31.4 -182.9 182.1 675.0 1225.0 578.7
Kyrgyzstan -1.8 5.0 -4.1 0.2 0.3 0.0 -9.5 5.0 0.0 0.0 n.a.
Moldova 30.8 18.6 -59.1 -7.3 -4.0 -3.9 -25.9 -24.2 -8.3 -5.8 -1.5
Russia 4584.0 17794.5 6293.3 -1882.0 -12808.4 -730.0 3756.1 -2328.6 4406.2 -828.0 12272.2
Ukraine 199.0 1605.0 -1379.0 -75.0 -197.0 -867.0 -1718.0 -923.0 2073.0 2757.0 102.0
Source: International Financial Statistics.
When describing the evolution of portfolio flows into the CIS, three distinct time
periods may be distinguished: 1) 1996 up to the Russian currency crisis (3Q1998) --
period of large portfolio inflows, mainly debt; 2) 3Q1998 up to 3Q2003 – no significant
capital inflows took place; and 3) 2004 to the present - equity flows have grown in
significance. We shall discuss these three periods consecutively.
1.1. Portfolio Flows: 1996 until the Russian crisis (3Q1998)
The first period was marked by impressive debt inflows. The equity flows were
tiny since the stock market activity had only just been launched (see Figure 4). The
overall amount of debt flows into the CIS during the period up to the third quarter
of 1998 amounted to USD 28.8 billion2. Unsurprisingly, the majority of capital
flowed to Russia. The share of all CIS countries, excluding Russia, constituted only
5.7%; whereas the relative size of the respective economies (measured by GDP
ratios) was 19.6%.
11
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
2 International Financial Statistics.
Studies & Analyses No 354
12. Figure 4. Debt and Equity Flows into the CIS countries, billion USD
9
6
3
0
-3
-6
-9
-12
1995Q1
1995Q4
1996Q3
1997Q2
1998Q1
1998Q4
During the period directly prior to the crisis of 1998, return on investment in the
CIS countries was huge when compared with other developing countries. Russian T-bills
were offering an average yield of 50.4%. Yield on T-bills in Kazakhstan equalled
23.3% on average. Consequently, the excessive volumes of portfolio flows were
directed into government bonds. The remarkably high rate of return on investment in
the CIS was the principal factor responsible for debt inflows before the crisis. The risk
12
Oleksandr Lozovyi and Alina Kudina
Figure 5. EMBI+ indices for Emerging Markets and Russia, 1998-2006
1998 1999 2000 2001 2002 2003 2004 2005 2006
Studies & Analyses No 354
Source: International Financial Statistics.
1999Q3
2000Q2
2001Q1
2001Q4
2002Q3
2003Q2
2004Q1
2004Q4
2005Q3
2006Q2
equity flows debt flows
7000
6000
5000
4000
3000
2000
1000
0
EMBI + spread EMBI + Russia spread
Source: www.cbonds.info
13. premium on the total number of traded Russian external debt instruments measured
by EMBI+ Russia spread3 rose to 44.2% by the end of 2Q1998 from 6.6% in the very
beginning of 1998 (See Figure 5). Such a dramatic increase of the EMBI+ Russia
spread index was a clear signal of a forthcoming crisis.
A major share of capital inflows was used for government consumption, which had
increased substantially. The Russian quarterly budget deficit during 1Q1995-2Q1998
peaked at 6.2% of nominal GDP on average. Disorderly government expenditures
undermined the creditworthiness of the external government borrowings. The budget
deficit was one of the factors that triggered the crisis in 1998.
1.2. Portfolio Flows: 3Q1998-3Q2003
The period of capital influx in the first time period considered was reversed by
persistent capital outflows after the 1998 crisis. For almost five years, the CIS
countries were cut off from external financing. The yield on debt instruments
skyrocketed. The index EMBI + Russia spread surged to 6890 points in October, 1998
(See Figure 5). Obviously, no considerable external borrowings were possible under
such circumstances.
Although it was only the Russian Federation which defaulted on its external
government debt obligations, all other CIS countries experienced disruptive
13
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Figure 6. Accumulated portfolio capital flows in the CIS, billion USD
1Q1996-2Q1998
3Q1998-3Q2003
-20 -10 0 10 20 30
Source: International Financial Statistics
3 The EMBI+ index measures the spread of the bonds yield on the traded external debt instruments of the
emerging markets and the yield on risk-less US government debt securities.
Studies & Analyses No 354
4Q2003-3Q2006
Russia Ukraine Kazakhstan Other CIS
14. consequences of the crisis. The accumulated volume of outflows from the CIS
countries (except Russia), during the second time period, totalled USD 4.8bn (See
Figure 6). Ukrainian capital outflow was the highest among the remaining CIS
countries. Besides, as in the period up to the crisis, the equity flows in the second time
period were quite modest with no significant inflows having been observed.
Despite its disruptive effects, the Russian crisis motivated major improvements in
public finances in the CIS countries. The Russian quarterly budget deficit shrank to
1.3% of nominal GDP on average in 1999 and became positive in 2000. In Ukraine,
the budget was nearly balanced in 1999, as well as in 2000.
Since the crisis, the rate of return on government securities has declined
dramatically. The yield on T-bills fell to 4.3% in 3Q2003, from 89.6% in 1Q1996, in
Russia and to 5.9% from 40.3% in Kazakhstan. The creditworthiness of the CIS
external debt borrowings experienced significant improvements. The EMBI+ spread
index for Russia and Ukraine declined to 277 points and 255 points respectively.
Furthermore, the spread on external debt instruments for Russia and Ukraine had
become smaller than the overall EMBI+ spread (which comprises the emerging
markets and developing countries).
1.3. Portfolio Flows: 4Q2003-3Q2006
The third time period can be roughly distinguished beginning from the substantial
portfolio capital influx in the fourth quarter of 2003, which was followed by a year and
a half of persistent inflows. The equity flows gained considerable importance in this
period. Although the volume of accumulated debt flows was still larger, the equity
flows showed great potential for growth.
The CIS stock market activity experienced impressive growth records. The MSCI
Russia equity index4 grew by 69.5% in 2005 (See Figure 7). The Russian stock market
performance over 2005-2006 significantly outpaced the average performance of
emerging markets. The same can be ascribed to the stock markets in Ukraine which,
however, lagged somewhat in development as compared to Russia. In 2005. the
Ukrainian stock market index PFTS grew up by 35.7%.
The stock market development in the third period considered was greatly
enhanced by a number of IPO (initial public offering) deals conducted in Russia, as
well as other CIS countries. The IPO process in the CIS was launched in 1996 when
the first deal came through. However, only since 2005 have initial public offerings
increased significantly in volume. During 1996-2004 only seven companies went
public in Russia and raised USD 1.1bn. Yet, 2005 witnessed nine IPOs of Russian
14
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
4 For index description see http://www.mscibarra.com
15. Figure 7. MSCI indices: Emerging Markets and Russia, 1996-2006
1400
1200
1000
800
600
400
200
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
MSCI Emerging Markets MSCI Russia
Source: www.mscibarra.com
companies, which raised USD 4.6bn. In Kazakhstan and Ukraine, the funds attracted
by means of IPOs in 2005 stood at USD 1.4bn and USD 0.15bn respectively.
Furthermore, in 2006 the IPO market in the CIS showed tremendous growth. The IPO
of “Rosneft” in July 2006 resulted in USD 10.4bn of capital raised. The total amount
of IPO deals conducted in Kazakhstan and Ukraine in 2006 amounted to USD 4.6bn
and USD 30.6mn respectively.
A number of previously conducted IPO deals of CIS companies are bound to stimulate
further expansion of stock market activity in the CIS. Furthermore, the IPO market is
expected to preserve impressive growth henceforth. The increase of volume of
outstanding shares is expected to lessen overall risks and liquidity risk in particular.
However, portfolio flows into the CIS are still projected to be volatile and highly
dependent on the IPOs of large companies. Besides, as long as there is little progress with
major economic and political reforms (e.g. further liberalization of the economy and
capital account, property rights protection, improvement of legal system), the portfolio
flows into the CIS are likely to be highly susceptible to global financial sentiments.
2. Literature Review
The existing literature on portfolio flows may be divided into two broad categories.
The first group looks at portfolio flows in developed countries. This part of the
15
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
16. literature analyzes portfolio capital flows in the context of the portfolio equilibrium
framework. The second group focuses on portfolio flows into the developing
countries. Scholarly interest in this area was revived following a series of currency
crises, which hit a number of emerging markets in the 1990s. These studies pay
special attention to external (push) and domestic (pull) determinants of capital flows.
The following section provides an overview of research on the topic, whereas Annex
1 provides a more detailed account of the studies discussed below.
2.1 Capital flows in the developed countries
One of the most popular approaches used to analyse international capital
movements is the stock-equilibrium model developed by Miller and Whitman (1970).
The authors treat capital flows as a combination of stock adjustment and flow
adjustment components. Based on U.S. quarterly data, they show interest rate
differentials to be highly important determinants of international capital movements.
The speed of adjustment coefficient suggests that approximately 1/3 of adjustment
between foreign and domestic assets holdings takes place within one quarter.
The same approach was also used by Kreicher (1981). However, his model assumes
that there is some desired stock of capital that economic agents would like to have.
However, as the actual stock differs from the desired stock, it induces investments to
flow. The author argues that the desired stock of capital depends on a set of country
specific variables (such as real interest rate and industrial production indices). The
model was estimated for both capital inflows (liability equation) and outflows (asset
equation) for four developed countries. Industrial production indices were found to be
statistically insignificant in all of the asset flow equations; however, they are
statistically significant in the liability equations. For all countries there is at least one
real interest rate being statistically significant. Hence, an increase in the external
market return leads to an increase in portfolio flows into the country. However, the
domestic real interest rate turned out to be statistically significant for only two
countries, which suggests some independence in investment decisions concerning
capital allocation between the domestic economy and the rest of the world.
Further, development to the stock equilibrium approach was undertaken by Kouri
and Porter (1974), who combined the stock equilibrium approach with balance-of-payments
theory. The authors assume the capital flows to be the means for
eliminating excess money demand. Thus, it is believed that income and interest rates
should have a significant impact on capital flows. The authors find that the primary
motive for capital flows is real disposable income which, in turn, is an important
determinant of money demand. Therefore, they conclude that money demand and
supply forces determine the capital flows between countries.
16
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
17. The next important approach in the analysis of international capital movements is
the portfolio equilibrium approach. It is often regarded as more suitable for estimation
of portfolio flows because it captures the effect of the two most important factors, such
as market return and risks associated with investments (Kraay et. al., 2000).
A complication to the portfolio equilibrium models arises when informational
asymmetries between international investors are taken into account (Brennan and
Cao, 1997). In this case, investors may not act in line with portfolio equilibrium theory
logic. Brennan and Cao (1997) developed a model of international capital flows based
on the differences in knowledge about foreign markets. The authors moved away from
barriers to investments, and interest rate differentials. The only independent variables
that enter the equation are market returns and foreign market indices measured in US
dollars. The authors conclude that while US investors have an informational
disadvantage in the foreign market (apart from the UK), investors from developed and
developing countries do not have any informational shortages in the US market.
Brennan and Cao’s (1997) informational disadvantages hypothesis found little
support in the study by Froot, O’Connell and Seasholes (1998). High frequency data
employed in the paper allowed for a more comprehensive analysis of portfolio flows.
Daily international portfolio flows for 46 countries were used to estimate a structural
equation by employing the vector auto-regression (VAR) methodology. It was found
that portfolio flows had been highly persistent over time. For developing countries,
current portfolio inflows are good predictors of future returns. However, for
developed economies, this is not the case. Thus, inflows of capital to emerging
markets contain some information about their future value.
Another popular approach for analysis of portfolio flows has been borrowed from
international trade theory. More precisely, the gravity model has been successfully
employed by, for example, Portes and Rey (1999). An augmented gravity equation
produced a very good fit for equity flows into the 14 developed countries. As a
measure of market size, Portes and Rey (1999) used market capitalization. To proxy
the cost of investing they included a distance variable. The authors found that market
returns do not play any significant role in equity flows. Measures of market size and
distance were found to be the key determinants of capital flows. Also, the information
asymmetry explanation of equity flows found strong support in their results.
Siouronis (2002) employs a similar model to Portes and Rey (1999). Specifically, the
author uses the volatility augmented gravity equation model to estimate the influence of
monetary variables on the composition of international capital flows. Contrary to Portes
and Rey (1999), the distance proxy was found to be an insignificant determinant of
cross-border capital flows for developed economies. However, for developing countries,
the distance was important in most of the cases. The capital flows were divided into
three broad categories: government bonds, corporate bonds and corporate equities. For
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18. all of the capital categories, market interest rate and inflation volatilities were found to
be significant with a negative sign. This is in line with the logic that as interest rate and
inflation volatility increase, the riskiness of the investments increases as well.
Interestingly, exchange rate volatility was found to have a positive impact, i.e. greater
volatility of exchange rate encourages all types of capital flows.
While consideration of domestic (or pull) and external (or push) factors is more
widely used in literature analysing developing countries, it was also applied in a
developed country setting by Odedokun (2003). He used a push and pull factors
approach to analyze the determinants of capital flows from the perspective of a
capital-exporting country. Per capita income levels, interest rates, economic growth
and the phase of the economic cycle are among the key explanatory variables in his
study. The author reports a significant and positive effect of income per capita on
capital flows. A relatively high interest rate in the destination country pulls the
portfolio capital, while the increase of interest rates in other countries tends to
discourage capital flows. Economic growth, as well as the economic cycle, appeared
to be insignificant factors in explaining capital flows. Thus, the only factors which
matter are income and interest rate differentials.
A domestic interest rate has been found to be a significant determinant of portfolio
flows into the developed countries by almost all authors. Hence, portfolio investment
flows were confirmed to be responsive to the changes in international market returns.
Furthermore, gravity models confirmed a positive impact of the market size on
portfolio flows, whereas the impact of distance and information cost had not always
been found statistically significant.
2.2 Capital flows in the developing countries
There is a significant body of research exploring the determinants of capital flows
into the developing/emerging economies. Considerable attention is devoted to the
analysis of the causes of different currency crises. The Mexican crisis of 1994 and the
Asian crisis of 1997 have spurred substantial interest by economists. Financial crises
are typically followed by significant exchange rate depreciation if a floating exchange
rate is adopted, or a foreign reserves reduction if it is fixed. However, the Mexican and
Asian crises have witnessed both processes. Large IMF loans were used to cover
international capital imbalances during those periods.
Carlson and Hernandez (2002) analyzed the major factors that led to financial
crises in both regions. While in Mexico the low ratio of short term debt to reserves
contributed to crisis aggravation, in Asia, an abrupt debt denomination was a major
cause of the crisis. In both cases, composition of capital flows affected the likelihood
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19. of a crisis occurring. A considerable part of capital inflows into these countries was
short-term. As economic conditions in the countries began to deteriorate, short-term
capital was the first to leave the country. Thus, the government should have
implemented some policies to balance the structure of capital flows. For example, by
imposing capital controls the government could have increased the level of FDI in the
economy and restricted the volume of short-term debt. A floating exchange rate tends
to encourage the share of short-term debt, while a fixed exchange rate promotes FDI
and portfolio flows. It is generally assumed that portfolio flows behave similarly to
short-term debt because of its short-term nature. The authors concluded that portfolio
flows behaved similarly to FDI. being encouraged by a fixed exchange rate regime.
The stock adjustment approach employed for developed countries has also been
used to investigate portfolio flows into developing countries. Hernandez and Rudolph
(1995) employ a stock adjustment model by incorporating push (external) and pull
(internal) determinants of capital flows. The estimation results support a proposition
that pull factors are of larger importance than push factors for portfolio flows to
transition economies. In particular, the 12-month US Treasury bill rate was found to
be insignificant. Therefore, the paper infers that an adverse shock is very unlikely to
happen solely because of external factors.
The opposite findings have been reported in Fernandez-Arias (1994) where the
push explanation of capital flows received greater backing. Fernandez-Arias (1994)
developed a model of international capital flows based on non-arbitrage conditions
between external and domestic measures of returns adjusted by country risk. Three
key variables of the model are the countries’ creditworthiness, domestic investment
return and opportunity costs represented by market return in developed countries.
The results showed a larger influence of the international interest rate on capital
inflows into the country than improvements in the domestic investment climate. A
country’s creditworthiness also appeared to be an important factor driving capital
inflows into the country. However, it is argued that creditworthiness is influenced by
external sources to some extent. A country’s credit rating tends to improve when the
international interest rate is low.
The relative importance of push and pull factors in determining capital flows
varies by country. While for the CIS countries domestic factors were found to be the
major determinants of capital flows (Claessens, Oks and Polastri, 1998), both internal
and external factors were found to be important for Latin American and Asian
countries (Taylor and Sarno, 1997). The authors use the same monthly data on
portfolio flows from the USA to a group of Latin American and Asian countries, as in
the study by Chuhan, Claessens and Mamingi (1993). Taylor and Sarno (1997)
estimate a seemingly unrelated error correction model to retrieve short-term effects,
while cointegration techniques were employed to estimate long-term coefficients.
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20. Both methods testified of approximately equal importance of external and domestic
determinants. However, for bond flows, global factors seem to have greater
importance than domestic factors.
The proposition that the importance of push and pull factors is equal for emerging
economies was challenged in other studies. Hernandez, Mellado and Valdes (2001),
which analyzed portfolio flows to developing countries in Latin America, Asia, and
Eastern Europe, found that domestic determinants are much more important than
external ones. The authors pay special attention to the so-called contagion effect
which occurs if capital flows exhibit strong co-movement. In this case, decisions by
large investors tend to be followed by many relatively small players whose behaviour
mimics the pattern of the leader. Three possible sources of contagion considered in
the paper: the neighbourhood effect, the trade related channel and the similar
macroeconomic indicators channel. The estimation results provided strong evidence
that macroeconomic similarities and trade linkages between countries tended to
intensify the impact of external shocks for the countries.
On the other hand, support for pull factors in explaining international capital flows
in the developing country setting was offered in a study by Chuhan, Claessens and
Mamingi (1993). The authors explored the relative importance of global and domestic
determinants of capital flows. They analyzed net equity and gross bond flows from the
USA to Latin American and Asian countries. While for Latin American countries the
external and domestic factors were roughly equally important, for Asian countries,
domestic fundamentals played a larger role. Interestingly, equity flows were shown to
be more sensitive to global factors than bond flows.
The pull factor explanation of capital flows has found considerable support in
existing literature on developing countries. There is also some evidence for the push
factors explanation, although it is far less prevalent. Thus, reforming institutions and
strengthening the domestic economic environment are the key factors that should
attract capital flows into developing countries.
2.3 Capital flows into the CIS countries
For the CIS countries except Russia, almost all capital flows have taken the form
of foreign direct investment (FDI). Out of portfolio investment only, a considerable
amount of capital flows took the form of government borrowings from international
organizations (mostly from the IMF and the World Bank) both long-term (in order to
conduct structural reforms) and short-term (in order to cover rising fiscal deficits).
The studies of the CEE and CIS countries claim that the most important factors of
portfolio inflows tend to be domestic. Claessens, Oks and Polastri (1998) concluded
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Studies & Analyses No 354
21. that a country’s success in reforms and robust creditworthiness are the only important
determinants of capital inflows into the country (having considered a variety of both
external and internal factors). It is not surprising as the bulk of capital flows had been
in the form of government borrowing to conduct reforms. Thus, the primary goal of
the capital inflows was to promote the reform process. Because of the relatively short
history of portfolio flows into the CEE and CIS countries, the authors speculate about
“weak relationships” in a portfolio flow equation which limits the estimation options.
Another similar study, which analysed the portfolio flows into the CEE and CIS
countries, has been conducted by Garibaldi, Mora, Sahay and Zettlemeyer (2001). As
in the previous paper, portfolio capital flows have been found to be much harder to
properly model than FDI. The authors found only a few explanatory variables to be
responsible for portfolio investment into the CIS and CEE. While macroeconomic
variables played a significant role for FDI, portfolio investment was found to be
associated with developments of financial market infrastructure and protection of
property rights only. Hence, such factors as interest rates and solvency indicators
were not reported to be among important determinants of portfolio flows into these
countries. Hence, again for CEE and CIS countries, domestic factors were shown to
be highly important in attracting capital inflows. Large sensitivity of investment to
these factors indicates that the CIS countries need to pay considerable attention to the
development of a healthy institutional environment.
3. Methodology
According to the Tobin-Markowitz framework, as discussed in Calderon, Loayza,
and Serven (2003), the determinants of portfolio flows into a country or a region may
be split into four categories:
(i) Expected investment return in host country relative to abroad.
(ii) Perceived risk of investments.
(iii) Co-movement between portfolio flows in given countries.
(iv) Diversification.
This set of comprehensive determinants encompasses the factors which are
responsible for portfolio flows to CIS countries. It is also easy to expand this approach
to the one most frequently used in the literature on developing countries, specifically,
the push-pull framework.
The four above-mentioned groups of portfolio flow determinants are essential in
the long-run. In the short-run, additional factors such as frictions and imperfections
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DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
22. of financial (as well as real) markets, and changes in the regulatory framework may
play a significant part too. Additionally, co-movement in capital flows over and above
a normal level can also be considered as determining portfolio flows in the short-run.
Despite being a widely applied framework, the Tobin-Markowitz approach,
however, does not work accurately even for developed countries. Investors usually
tend to under-invest in foreign countries even after appropriately adjusting
investment decisions by expected risk and return, and also over-invest in the domestic
market, thus, causing home bias in portfolio investment (Tesar and Werner, 1995).
Investors expect “return in their domestic equity markets to be several hundred basis
points higher than returns in other markets” (French and Poterba, 1991).
As for developing countries, a number of other factors play a significant part in
addition to the standard ones. One of these factors is restrictions on cross-border
capital movements in developing countries which control various aspects of
foreign investment. The ease of liquidation of an investment position in the local
market tends to be the most important. In the CIS, the controls on capital flows
have not been lifted yet. This is definitely one of the reasons for the relatively
modest volumes of portfolio flows as compared to direct investment. The issue of
capital account liberalization is an acute question for the CIS countries to address.
All CIS countries, except for Azerbaijan, experience approximately the same level
of capital account restrictions.
Another important factor, which has been shaping the pattern of portfolio flows
into the developing/transition economies and the CIS in particular, is a country’s
political environment. The CIS countries have been characterized by constantly
changing political situations, which obviously had a detrimental impact on the
investment climate. Hence, it is expected that an improvement in political stability
will have a considerable impact on portfolio flows into the CIS.
Underdeveloped financial markets were yet another restricting factor to portfolio
flows into the CIS. The set of possible investment opportunities in a typical CIS
country was very narrow, mostly represented by debt instruments. Unsurprisingly, the
majority of portfolio investment used to be of the debt type. A large part of debt flows
were government borrowings. Hence, during the first years of independence, portfolio
flows were skewed toward government securities.
Following the approach used in literature on developing countries, in this paper
we split the determinants of portfolio flows into the CIS region into two large groups:
global or push and domestic or pull factors. This division will help us to differentiate
between domestic and global sensitivity of capital flows into the CIS region.
Recognising the importance of domestic factors for capital flows into the developing
countries and the CIS, we also expect global factors to play a significant part in the
CIS setting as was shown by Calvo et al. (1993). In this case, external or global factors
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Studies & Analyses No 354
23. will only be reflecting the return on investment. It is assumed that these investments
are risk-free as compared to the investment in the CIS.
As a result, we employ the following external or push factors in this paper:
(i) short-term international interest rate measured by Market yield on U.S.
Treasury securities at 3-month constant maturity. The correlation of yield on
the 3-month US Treasury securities with the Euro-Dollar 3-month deposit rate
is close to one. The correlation with yield on the 2-year US Treasury securities
is also very high, which justifies the usage of the 3-month US T-bills rate.
(ii) yield on a world stock market index measured by S&P 500 (Standard &
Poor’s 500).
(iii) yield on emerging markets price index from Morgan Stanley Capital
International (MSCI). This index should reflect more closely the risk structure
of investments similar to those in the CIS (i.e. the emerging markets).
(iv) US real GDP growth, which is supposed to represent (be correlated with)
world economic activity. The inclusion of this global explanatory variable will
shed some light on whether portfolio flows to CIS countries follow global
economic cycles.
The determinants of portfolio flows considered in this research constitute only a
background or approximation to characteristics which are of primary interest to the
investor. Largely, these are return and risk measures of investment into a particular asset.
Hence, the following internal pull factors are employed in this study to account for
investment opportunities in the host country (CIS):
(i) domestic deposit rate (which is a good indicator of prevailing interest rate in a
country). In the CIS, the domestic deposit rate is strongly correlated with the T-bill
rate (the correlation coefficient equals 0.92 for Russia, and 0.86 for Kazakhstan).
(ii) real GDP growth rate.
At the same time, perceived risks of investing into the CIS countries are
approximated by several variables. Because the risks in the CIS countries were
numerous, a single measure of risk may not provide satisfactory results. The most
common risks faced by investors are currency, financial, and political risks. We will
assess these risks with the following explanatory variables:
(i) exchange rate risk will be measured by the percentage change in the exchange
rate of the national currency against the US dollar,
(ii) financial risk will be estimated by employing corresponding indices from the
International Country Risk Guide (ICRG).
(iii) political risk will be also approximated by corresponding indices from the
International Country Risk Guide (ICRG).
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DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
24. The ICRG financial risk index is comprised of the following components: foreign
debt as a percentage of GDP, foreign debt service as a percentage of exports of goods
and services, current account as a percentage of export of goods and services, net
international liquidity as month of import cover, and exchange rate stability. The
numerical values of the categories are then assigned specific risk points in order to
combine them into one index. The index is measured on a scale of 1 to 100, with
higher values being assigned to the most stable countries, hence, 100 points indicates
an absence of financial risk.
The ICRG political risk index is a weighted average of the values assigned to the
following categories (each one assessed independently): government stability,
socioeconomic conditions, investment profile, internal and external conflicts,
corruption, military in politics, religious tensions, law and order, ethnic tensions,
democratic accountability, and bureaucracy quality. The maximum and minimum
points of the index are similar to those of the financial index5.
We have already emphasized the importance of contagion for capital flows. The
literature embraces different views with respect to the nature of the contagion effect.
While Fiess (2003) does not distinguish contagion from global conditions, Forbes and
Rigobon (1999) proposed defining contagion as “a significant increase in cross-market
linkages after a shock”. In this paper, we will follow the approach introduced
by Forbes and Rigobon (1999). Specifically, they propose the use of the term ‘shift-contagion’
rather than ‘contagion’. Naturally, the Russian financial crisis of 1998 will
be investigated as a source of shift-contagion in the CIS countries. A test on stability
of the effects of push and pull factors before and after the crisis will help to analyse
the presence of the contagion after the crisis period. The analysis of the two time
periods, before the crisis of 1998 and afterwards, will also help to better understand
the influence of the factors outlined above on portfolio flows into the CIS. The
behaviour of the domestic variables differs substantially before and after the crisis,
which prompts the hypothesis that there was a significant (structural) change in the
relationship between explanatory and dependent variables in 1998.
Although Forbes and Rigobon (1999) introduced a more sophisticated way to
account for contagion effects through the use of unconditional correlation
coefficients, it does not seem possible to apply in this paper due to the low frequency
of data on portfolio flows in the CIS (in this case, a correlation coefficient for the
period before the crisis of 1998 will offer little insights).
Apart from the contagion effects, the literature also suggests being aware of the
presence of co-movements in the flows of capital to adjacent regions. To account for
this effect, we include portfolio investment flows to Central and Eastern European
24
Oleksandr Lozovyi and Alina Kudina
5 For more information on ICRG methodology please see http://www.prsgroup.com/ICRG_Methodology.aspx
Studies & Analyses No 354
25. countries as an additional explanatory variable. Furthermore, in line with the Tobin-
Markowitz model, we test for a diversification motive in the CIS region through
inclusion of a country’s GDP share in the total GDP of the CIS countries.
Another factor that is hypothesised to have a significant impact on short-term
capital flows is capital account controls in the CIS. It is very important since capital
account restrictions are present in almost all CIS countries except Armenia. However,
we were not able to construct an appropriate index due to low variation in the data for
the CIS countries (both across time and cross-sectional). There are plenty of controls
imposed on transactions with capital market securities and money market securities
which are still not abolished in the CIS6. Yet, it will only be possible to assess the effect
of these restrictions when more countries start relaxing at least some of them.
The determinants of portfolio flows to the CIS countries will be estimated using a
panel data regression. Using either the fixed or random effect method (as will be
suggested by the Hausman specification test), the following model will be estimated:
,
PILit =α + β kWRk it + β jDRj it + β sRIs it + β COit + β Dit +ε it 1 , 2 , 3 , 4 5
where PILit is portfolio investment liabilities in USD, mn; WRk,it – is a set of global
variables which measure return on investment in global markets. In particular, they
encompass the 3 month U.S. T-bills yield, MSCI emerging markets yield, S&P 500
yield, and the US GDP growth rate. DRj,it – is a set of variables measuring domestic
return on investment, which comprise the domestic deposit and GDP growth rates.
RIj,it – is a set of risk variables, comprised of the exchange rate changes, financial and
political risk indexes; COit – a co-movement variable, operationalised by portfolio
investment flows to the CEEC7; Dit – a diversification variable measured by a
country’s GDP share in the total GDP of the CIS countries, εit – stochastic error term
distributed as N(0,σ2).
4. Data
The time span of balance of payments data on the CIS members8 is rather short (if
available at all) and that determined the time dimension of the sample under
25
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
6 See ‘Annual Report on Exchange Arrangements and Exchange Restrictions’, the International Monetary Fund.
7 Central and Eastern European Countries (CEEC) in this research comprises the following countries: Bulgaria,
Czech Republic, Hungary, Poland, Romania, and Slovakia.
8 CIS includes the following countries: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova,
Russia, Tajikistan, Ukraine and Uzbekistan. Turkmenistan suspended participation in the CIS in 2005.
Studies & Analyses No 354
26. consideration. More specifically, the data is available beginning in the first quarter of
1996 and ending in the second quarter of 2006.
The primary source of data is the International Financial Statistics (IFS) of the
IMF. However, the IFS do not provide data on all countries that are members of the
CIS. In particular, the data for Uzbekistan are not available in the IFS database at all,
whereas the data on Tajikistan contain a highly limited number of series, which makes
them of no value for the purposes of this research. Hence, these countries will not be
considered in this paper. Also, the two Caucasus countries – Azerbaijan and Georgia
–are not included in the sample either. A number of series are unavailable for
Azerbaijan, whereas portfolio flows to Georgia have very often been reported to be
zero in magnitude. In the end, the final sample comprises the following countries:
Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia and Ukraine.
We use quarterly portfolio investment liabilities9 (which consist of the claims of
foreigners on assets in the CIS) as a dependent variable in this paper. Quarterly series
is the most frequent data format available for the CIS countries that defines the
frequency of the sample under study. Table 1 offers a more detailed description of
variables and corresponding sources; whereas Appendix 2 provides summary
statistics and graphs.
5. Results
We employ a random effect Generalized Least Squares technique (with a correction
for cross-country heteroskedasticity) to analyse the determinants of portfolio flows into
the CIS countries. The choice of the random effect technique was supported by the
Hausman specification test which rejected the use of a fixed effects model. The fixed
effects technique produces inefficient estimates when no correlation between fixed
effects and regressors are observed in the model. The random effects model, on the
other hand, supplies lower estimates of the standard errors, hence, more precise
inferences can be made. The use of a random effects model for the CIS indicates that
specific individual effects of each country are the realization of random processes and
constitute individually specific errors. The results are quite natural given the common
past of the CIS member countries and that they all had approximately the same level
of economic development during the time period studied.
26
Oleksandr Lozovyi and Alina Kudina
9 Portfolio investments are divided into debt and equity securities. Debt securities are subdivided into bonds and
notes, money market instruments, and financial derivatives. Equity securities include shares, stocks,
participation, preferred stocks or shares, mutual funds, and investment trusts.
Studies & Analyses No 354
27. Table 2 reports estimation results of the determinants of portfolio flows into the
CIS countries. The estimates obtained are generally consistent with the theory of
allocation of international portfolio flows. Higher return in the host country attracts
more portfolio investment to the CIS countries, whereas higher risk (particularly
political risk) has a detrimental effect on the investment attractiveness of the region.
We also found empirical support of co-movement between portfolio flows into the CIS
and CEE regions. Additionally, the size of the economy has been confirmed to induce
portfolio flows to the CIS countries.
The following discussion of the results is organised according to the 4 categories
of the Tobin-Markowitz framework on which we have based our analysis, i.e. relative
return, risk, co-movement and diversification. As has been mentioned before, we have
employed the following measures of the relative return: global and domestic GDP
growth rates, the US T-bill yield, MSCI emerging markets yield, domestic interest rate
and the S&P 500 yield.
Portfolio flows to the CIS countries were found to be independent of global
economic cycles and, to some extent, from domestic ones. The world economic cycles
(as approximated by seasonally adjusted US GDP growth rate) do not have a
statistically significant impact on portfolio investment in the CIS (see Table 2).
However, the impact of domestic economic activity (as measured by a host
country’s growth rate) changes over the period under consideration. Despite the
variable being insignificant over the whole time period, it becomes significant only if
an after-crisis period is considered. Before 1998, the GDP in the majority of CIS
countries was declining, yet large portfolio (debt) inflows were reported. The situation
reversed after the Russian default in 1998: both GDP and capital flows were growing
shortly thereafter. Unsurprisingly, no relationship could be detected over the whole
time period. Yet, domestic GDP growth rate turns out to be statistically significant at
the 10% significance level after 1998. Consequently, portfolio flows in the after-crisis
period have become sensitive to domestic economic activity which indicates a
structural shift in the pattern of capital flows into the CIS.
The Russian crisis has also had a significant impact on the relationship between
another measure of return on investment, the interest (deposit) rate in the CIS
countries and capital flows. Despite its significance in the baseline specification, the
coefficient loses its significance when the influence of the 1998 crisis is accounted for
(See Table 2). This suggests that the crisis of 1998 had a crucial impact on the
relationship between the deposit rate and portfolio flows into the CIS. Our estimates
show that the influence of the deposit rate has changed over time. While for the period
before the Russian default, the coefficient of the deposit rate is significant at the 5%
significance level and negative (a higher interest rate in that period was a reflection
of high domestic inflation and risk, rather than higher return on investment); the
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DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
28. coefficient changes the sign to positive and becomes significant at the 1% level after
the crisis (see Table 2). Before the crisis, a decline in the deposit rate meant not lower
profits, but higher macroeconomic stability and lower risks in a country. The largest
value for the deposit rate in CIS countries during 1996-2006 was 61.7%, whereas the
mean value is only 16%. After the crisis, the deposit rate has become more stable and
its influence on portfolio flows has become more predictable.
The world interest rate, measured by US 3 month T-bill yield, did not appear to be
a significant determinant of portfolio flows into the CIS.
Another measure of the relative return considered in this study is the yield on the
S&P 500. The return on the global stock market is only important for equity flows
which have been small in the CIS as compared to debt flows. But nevertheless, the
coefficient of yield on the S&P500 is statistically significant and positive (see Table 2).
As mentioned above, measures of relative return and the influence of S&P 500 return
on portfolio flows have seen a considerable change in the aftermath of the Russian
crisis. Specifically, the magnitude of the coefficient declined strongly, though,
remained positive (Table 2). A positive relationship between S&P 500 yield and
portfolio flows to the CIS signals a larger willingness to invest in emerging markets
when more liquidity in the developed markets is available. In this case, investment
into the CIS is deemed complementary to investment in the global stock markets.
However, we find investment into stock markets in the emerging markets acts as
a substitute to investment in the CIS (if measured by the yield on the emerging
markets index (MSCI)). In a baseline scenario, the coefficient on the MSCI index turns
out to be significant with a negative sign, indicating a substitution effect. However,
after inclusion of the dummy for the Russian crisis, the coefficient becomes
insignificant as the index (which was severely hit by the Asian/Russian crises) has the
same structure as the dummy. Therefore, we excluded it from specifications 2-4 to
avoid potential multicollinearity.
Of the risk measures considered in this research, only political risk is statistically
significant and a robust determinant of portfolio flows. The other two risk variables,
financial risk and exchange rate risk, were found to be insignificant. Exchange rate
risk, which is essentially the risk of depreciation of the national currency, becomes
significant at the 10% level when a group of larger CIS countries is considered
separately. We have already mentioned that political risk was found to be the most
significant risk variable. However, the value of the coefficient has declined
considerably since the Russian default in 1998 (See Table 3).
There is strong evidence of co-movement in portfolio flows between the CIS and
CEE countries. The coefficients for portfolio flows into the CEE countries remain
significant and positive in all specifications under consideration. Hence, investment
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Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
29. into the CEEC and CIS are deemed complementary: the more capital flows into the
CEE countries are recorded, the more likely capital is to flow into the CIS as well.
The diversification motive measured as the ratio of a host country’s GDP in total
GDP of CIS countries has also been reported to have a significant positive effect on the
portfolio flows in the CIS. The value of the coefficient declined strongly after the crisis
of 1998 (see Table 2). However, it remained positive, which means that investors tend
to invest in larger CIS economies even after controlling for all other determinants.
One of the most robust findings of this analysis is the significance of the Russian
1998 crisis for the capital flows into the region. A dummy variable which controls for
the effect of the crisis was statistically significant at the 1% level in all specifications.
Unsurprisingly, it had a negative sign. Furthermore, as was mentioned earlier, the
stability tests performed indicate a structural break, with many variables behaving
differently in the periods before and after the crisis.
Three countries out of all CIS countries are responsible for almost all portfolio
flows into the CIS region. These countries are Kazakhstan, Russia, and Ukraine.
Furthermore, among these countries, Russia stands out considerably. The results for
the group of larger countries (the three mentioned above) show a larger importance
of external factors (see Table 2). Specifically, these are yields on the S&P 500 and
portfolio flows into the CEEC. Also, the Russian default dummy is found again to be
a strong determinant. The impact of the deposit rate is similar to its impact in the full
sample. On the contrary, for a group of other CIS countries (smaller countries),
domestic variables play a greater role as compared to external variables.
6. Discussion
The Russian crisis of 1998 has had the largest influence on capital flows into the
CIS countries. It is the most statistically robust and significant variable among all
other determinants of portfolio flows considered in this study. The crisis has re-shaped
the pattern of portfolio flows into the CIS countries in subsequent years. Prior to 2002,
the CIS had been primarily experiencing net outflows of capital. According to our
estimates, the Russian default of 1998 was responsible for the outflow of portfolio
capital from the three largest CIS countries in the amount of USD 2.7bn (see Table 2).
For the CIS as a whole, the influence of the Russian default on portfolio flows is
somewhat smaller and constitutes only USD 1.7bn (in outflows). The relatively low
impact of the crisis in the whole CIS setting is due to the much smaller volumes of
portfolio investment into smaller CIS countries before 1998.
29
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
30. The portfolio investment flows to the CIS move together with the flows into
Central and Eastern European countries. Specifically, an increase in portfolio flows
to the CEEC by USD 1mn induces an inflow of capital to the CIS region of USD
0.07mn (Table 2). Though the impact of co-movement is small, it is robust to the
inclusion of other explanatory variables.
The impact of variables measuring the relative return in the CIS with respect to the
return abroad has a mixed pattern. The return variables have a different influence on
portfolio flows before and after the Russian crisis. Interestingly, before the crisis, lower
domestic interest rates tended to increase portfolio inflows. From 1996-1998, due to
large risks in the CIS, interest/deposit rates were high. Thus, a decrease in the interest
rate signified lower investment risks in the country, which had a positive effect on
portfolio flows. When, after the crisis, interest rates generally decreased, their
magnitude began to positively influence inflows of short-term capital. In particular,
before the Russian crisis, a decrease in the deposit rate by 1% was followed by an
increase in portfolio flows by USD 33.8mn; whereas after the default, an increase in
the deposit rate by 1% was causing portfolio flows to rise by USD 30mn (see Table 2).
Though most of portfolio flows into the CIS countries were of a debt type, the S&P
500 was found to be an important determinant of portfolio flows into the region as
well. A growth in the S&P 500 by 1% has been causing the portfolio investment
liabilities to increase by USD 4.9mn in the after-default period (see Table 2). The
positive sign of the coefficient points to the complementarity of portfolio flows in the
CIS and world stock market activity.
Expectedly, the most important risk determinant of portfolio flows into the CIS
region is political risk. The employed ICRG political risk index measures not only
stability of a country’s political environment but also the quality of bureaucracy, law
and order, corruption level etc. Hence, portfolio flows to the CIS are more sensitive
to the quality of institutions rather than to a country’s creditworthiness measured by
ICRG financial risk index (which appeared to be insignificant). An increase in the
political risk index by 1% has been estimated to increase portfolio flows into the CIS
by USD 24.7mn on average (see Table 2).
7. Conclusions
This paper has been devoted to the analysis of the determinants of capital flows
into the CIS countries. Taking the Tobin-Markowitz framework as a basis, we have
analysed the impact of global, domestic, co-movement and diversification factors on
the capital flows into the region.
30
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
31. The Russian crisis of 1998 has had the most considerable impact on portfolio flows
into the CIS countries. It had influenced portfolio flows directly and indirectly,
through its effect on other related factors. The behaviour of a number of capital flow
determinants into the CIS changes significantly before and after the crisis of 1998. In
particular, an important determinant of portfolio flows – the domestic interest
(deposit) rate – has undergone serious changes in the aftermath of the Russian
financial crisis. Having had a negative impact on portfolio flows into the CIS before
default, it has changed its impact to positive after the crisis.
Political stability is the second most important determinant of portfolio investment
into the CIS. Apart from political risk, the employed ICRG political risk index also
assesses the quality of institutions in a host country. Hence, the quality of institutions
was shown to shape considerably the attractiveness of the CIS region for private
investors.
Another interesting finding is that a growth in portfolio flows to Central and
Eastern European countries (which are now members of the EU) seems to have also
enhanced capital flows to the CIS. It is likely that some investors expect the CIS
countries to a have economic performances similar to the CEECs. Though the
coefficient measuring this influence is small, it is robust to the inclusion of other
explanatory variables.
Our results also have implications for domestic economic policies in the CIS
countries. As investors tend to link the actual investment with the performance of the
country (as opposed to the pre-1998 period), the inadequate macro policies may
transmit faster into sudden capital flight in the case of bad economic policies. As we
have already mentioned, the consequences for the economy in general and the
financial sector, in particular, may be even more pronounced than in 1998-1999.
However, there is also another, more positive side to the story. It is the fact that
institutional investors tend to notice positive domestic developments in the CIS
region, and tend to react to them. Hence, if the CIS countries continue to grow,
reform and integrate with global trading blocks, short term capital is expected to flow,
thus contributing to the development of domestic financial markets. Large inflows
usually also mean that financing of the budget deficits can become cheaper over time.
From this perspective, a significant increase in capital inflows into the region is
expected in the future. If positive economic developments in the CIS region are
accompanied by lowering/abolishing the restrictions on the current account,
persistent reform of domestic financial sectors and further integration with the global
economy, an upsurge in capital flows into the region is anticipated to be of a much
higher magnitude.
31
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
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33
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Studies & Analyses No 354
34. 34
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
Table 1. Description of Explanatory Variables
Variable Operationalization Data source Label
External explanatory variables
Market yield on U.S. Treasury
securities at 3-month constant
maturity, quoted on investment
basis
Average yield over quarter, %
Federal Reserve Board, Statistics:
Releases and Historical Data,
(www.federalreserve.org)
US T-bills yield
Yield on US stock market index,
S&P 500
Yield on S&P 500 over
the quarter, % http://finance.yahoo.com S&P 500 yield
Yield on Emerging Markets
Price Index
Average yield on MSCI EM Price
Index over quarter, %
MSCI Barra,
(http://www.mscibarra.com) EM Prices index
US Real GDP growth
US GDP percent change based
on chained 2000 dollars (seasonally
adjusted growth rates), %
Bureau of Economic Analysis,
(http://www.bea.gov) US GDP growth
Portfolio flows to CEEC
Portfolio investment liabilities
to CEEC, million USD IFS
Portfolio flows
to CEEC
Domestic explanatory variables
Domestic interest rate paid
on deposit
Quarterly deposit rate, % IFS
Domestic
deposit rate
Appreciation/Depreciation
of the domestic exchange
rate against US dollar
Quarterly decline/growth
of exchange rate against
US dollar, %
IFS/Authors calculations
Exchange
rate changes
Political Risk Index
Average index values over quarter,
points
International Country Risk Guide Political risk
Financial Risk Index
Average index values over quarter,
points International Country Risk Guide Financial Risk
Domestic GDP growth rate GDP growth rate, % IFS/Authors calculations
Domestic GDP
growth
Relative size of economy
Ratio of domestic GDP to GDP
of all CIS countries, % IFS/Authors calculations Ratio of GDP
Dummy to account for Russian
default effect
Dummy takes value zero before
default and one afterwards
Russian default
dummy
35. 35
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Table 2. The Determinants of Portfolio Flows into the CIS: Estimation Results
Variable
*** - significant at 1% level
** - significant at 5% level
* - significant at 10% level
values in the brackets show standard errors
Studies & Analyses No 354
General
Specification
With dummy
for Russian default
Group of larger
countries
Group of smaller
countries
Constant
-2282.9**
*
(720.9)
-213.9
(770.9)
11314
(1380.1)
-40.7***
(13.7)
US T-bills yield
52.6
(54.5)
58.0
(48.5)
106.7
(87.9)
0.5
(0.8)
S&P 500 yield
44.1***
(14.6)
24.2***
(8.8)
38.0***
(14.7)
0.08
(0.1)
EM Price Index
-19.4**
(9.5)
- - -
Domestic deposit rate
16.5*
(9.1)
1.5
(8.9)
-28.9*
(16.7)
0.5**
(0.2)
Exchange rate changes
-3.3
(8.9)
1.7
(8.3)
-20.3*
(11.2) -
Political risk
28.1***
(10.4)
24.7***
(9.6)
20.9
(17.8)
0.3
(0.2)
Financial risk - - -
0.9***
(0.3)
Ratio of GDP
11.6***
(2.5)
6.3**
(2.5)
-
-2.4*
(1.2)
Portfolio flows to CEEC
0.05*
(0.03)
0.07**
(0.03)
0.1**
(0.05)
-
US GDP growth
-3.5
(38.6)
-37.8
36.2 - -
Domestic GDP growth
10.2
(13.9)
14.9
(12.9) - -
Russian default dummy -
-1686.2***
(303.4)
-2725.5***
(477.7)
-18.2*
(9.4)
R2 0.22 0.32 0.39 0.14
P-value for Wald test
for joint significance 0.00 0.01 0.00 0.04
36. 36
Oleksandr Lozovyi and Alina Kudina
Table 3. Testing stability of the influence of explanatory variables over time
Studies & Analyses No 354
Variable
Testing the stability
of influence
of GDP growth
*** - significant at 1% level
** - significant at 5% level
* - significant at 10% level
values in the brackets show standard errors
Testing stability
of influence
of deposit rate
Testing stability
of world
interest rate
Testing stability
of yield
on SP500
Constant
52.5
(764.6)
797.0
(802.9)
-57988***
(13050.6)
747.8
(698.0)
US T-bills rate
48.1
(47.8)
14.7
(48.7)
11532.4***
(2588.3)
21.9
(43.3)
S&P 500 rate
18.3**
(8.9)
24.5***
(8.6)
12.5
(8.8)
209.7***
(28.1)
Domestic deposit rate
-2.2
(8.9)
-33.8**
(13.4)
-6.8
(8.7)
-8.4
(8.1)
Exchange rate changes
-1.2
(8.3)
1.6
(8.1)
0.9
(7.9)
1.9
(7.4)
Political risk
28.1***
(9.6)
24.6***
(9.3)
15.5*
(9.4)
11.7
(8.7)
Ratio of GDP
6.1**
(2.5)
9.7***
(2.7)
3.1
(2.5)
2.1
(2.3)
Portfolio flows to CEEC
0.06**
(0.03)
0.08***
(0.03)
0.07**
(0.03)
0.05**
(0.03)
US GDP growth
-27.9
(35.8)
-38.7
(35.1)
-17.4
(34.6)
-12.8
(32.3)
Domestic GDP growth
65.4***
(23.0)
21.5*
(12.7)
6.1
(12.5)
4.3
(11.6)
Russian default dummy
-2084.7***
(334.4)
-3028.9***
(487.9)
56867.7***
(13209.1)
-1551.8***
(269.8)
Domestic GDP growth
after the crisis of 1998
-61.6***
(23.4) - - -
Deposit rate after
the crisis of 1998 -
63.7***
(18.5) - -
World interest rate
after the crisis of 1998 - -
-14496.8***
(2592.9) -
Yield on SP500
after crisis of 1998
- - -
-204.7***
(29.8)
R2 0.35 0.37 0.39 0.47
P-value for Wald test
for joint significance 0.00 0.00 0.00 0.00
37. 37
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Table 4. Testing stability of the influence of explanatory variables, cont.
Variable
*** - significant at 1% level
** - significant at 5% level
* - significant at 10% level
values in the brackets show standard errors
Studies & Analyses No 354
Testing stability of influence
of political risk
Testing stability of influence
of portfolio flows to CEEC
Constant
-2007.7
(1278.6)
-211.9
(769.2)
US T-bills yield
48.0
(48.5)
48.1
(48.9)
S&P 500 yield
22.8**
(8.8)
21.0**
(9.1)
Domestic deposit rate
1.6
(8.9)
2.3
(8.9)
Exchange rate changes
3.0
(8.3)
1.3
(8.3)
Political risk
56.3*
(20.5)
23.4**
(9.7)
Ratio of GDP
5.5**
(2.6)
6.2**
(2.5)
Portfolio flows to CEEC
0.07**
(0.03)
0.4
(0.25)
US GDP growth
-36.3
(35.9)
-30.6
(36.5)
Domestic GDP growth
17.7
(13.0)
13.0
(13.0)
Russian default dummy
741.2
(1417.5)
1598.6
(309.6)
Political risk after the crisis
of 1998
-41.3***
(23.6) -
Portfolio flows to CEEC
of the crisis of 1998 -
-0.3
(0.25)
R2 0.33 0.32
P-value for Wald test for
joint significance 0.00 0.00
38. 38
Oleksandr Lozovyi and Alina Kudina
Appendix 1. Overview of Empirical Research on the Determinants of Portfolio Capital Flows
Studies & Analyses No 354
Study Model
Dependent
Variables
Independent Variables
Other independent
Variables
Gordon
and
Gupta
(2003)
Portfolio
allocation
choice.
OLS
estimates
Monthly Foreign
Institutional
Investors equity
flows in millions
of US dollars
and as a %
of market
capitalization
on the BSE
Global: 12 month % change in industrial production; mom %
yield in NASDAQ, SP, DOW; 3 month LIBOR in USD, Federal
Fund Rate, Treasury bill rate. Regional; mom % change in Morgan
Stanley Cap International (MSCI) emerging market index; dummy
for currency crises; industrial production growth in emerging
markets. Domestic: 12 month % change, mom % yield in BSE
index; mom % change in exchange rate with respect to USD;
sovereign credits ratings; dummies to capture political events,
turnover at BSE/marcup.
Variance
and covariance
returns on the BSE,
the NASDAQ
and the MSCI
emerging market
index, dummies
for seasonal effects
Garibaldi
et al.
(2001)
OLS;
Wide range
of possible
explanatory
variables
Inward portfolio
investments
per capita
and per GDP
General to all flows: Natural log of average Inflation; fiscal balance
as a percent of GDP; lagged growth; pre-announced exchange rate
regime dummy; multiple exchange rates; liberalization index from
De Melo et al (1997); institutional quality indices from WDR.
Specific to PI: security market index; PI restriction index;
real Treasury bill rate; external debt per capita; international
reserves per capita; ratio of short-term debt to total.
different
dummies
Claessens
et al.
(1998)
Fixed
effect
model
Private capital
flows
Push factors: US dollar 6-month LIBOR interest rate; economic
growth in OECD countries. Pull factors: liberalization index from
De Melo et al. (1997) to account for reform efforts; GDP growth
rates; inflation; fiscal balance; private savings; change in countries
reserves as an indicator for creditworthiness; nominal domestic
interest rate minus the rate of change in the local exchange rate
minus US interest rate; domestic credit growth.
Dummies
Hernandez
et al.
(2001)
Panel
regression
Private
capital flows
Push factors: real ex-post international interest rate (US dollar
3-month LIBOR minus the US CPI 3 month inflation); net private
cap flows available to all developing countries minus the flows
received by country j as a share of GDP of major industrial
countries; economic activity (GDP) in industrial countries.
Domestic variables: real GDP growth; public sector balance
as a share of GDP; gross domestic investment as a share of GDP;
total export as a share of GDP; foreign debt service as a share
of GDP; growth in banking sector nominal credit; real exchange
rate appreciation during past year.
To test contagion
effect: inflation;
CA balance;
the stock of int.
reserves; the stock
of foreign debt,
total export;
similarity index
Chuhan
et al.
(1993)
Panel
data
approach
Gross bond flows;
Net equity flows
Global factors: US i-rates; US industrial activity. Country-specific
factors: secondary market price of a countries debt; the country's
credit rating; the price-earning ratio; the return on domestic stock
market; black market premium; first principal components.
Ahmed
et al.
(2005)
Dynamic
panel using
GMM
Ratio of portfolio
flows to GDP
Domestic variables: lagged GDP per capita growth; index of law
and order from International Country Risk Guide; ratio of imports
and exports to GDP; annual standard deviation of monthly changes
in the real effective exchange rate; inflation volatility; three proxies
for capital account controls from IMF's AREAER; # of telephones
per 1000 people; fuel export receipts as a % of export; domestic
credit to the private sector and domestic stock market
capitalization as a % of GDP. Global factors: real short-term
and long term US i-rates.
Lagged capital
inflow as a %
of GDP to capture
agglomerati
on effect
Fernandez-
Arias
(1994)
Fixed-effect
model
Portfolio flows
both equity
and bonds
External returns were proxied by annualized 10-year US bond
nominal yields; the countries capacity to pay index was proxied by
the debt secondary market price; stock of portfolio liabilities
proxied by accumulating portfolio flows after 1988; the domestic
investment climate parameter is indirectly measured as a residual.
All the variables
are expressed
as deviations
from their 1989
average level
Hernandez
and
Rudolph
(1995)
Panel data
for
1986-1993;
A stock-adjustment
model
Total long-term
private flows
as a ratio of GDP
Domestic variables: two year moving average of gross domestic
investment as a ratio of GNP; two year moving average
of aggregate private consumption as a ratio of GNP; total external
debt minus stock of international reserves as a ratio of GNP; total
stock of foreign liabilities; volatility of the real effective exchange
rate; real export growth. Global: US i-rates (US three year
government bond yield, twelve month US treasury bond rate,
first principal component of five interest rates
and the US production index)
One lag of
the dependent
variable
Dasgupta
and
Ratha
(2000)
Time series;
Panel data
estimation;
Two stage
process
of investing
int.
Factors specific to developing countries: real i-rate; lagged dep.
Variable; GDP growth in developing countries; world GDP growth
rate; dummy for financial crisis. Pull variables: creditworthiness
indicator such as CA balance with one year lag; per capita income;
three year MA of GDP growth rate; private net non-FDI flows
to all developing countries; net FDI as a % of GDP.
Regional
dummies;
inflation
and exchange
rate appreciation;
WB lending
commitments
Calderon
et al.
(2003)
Dynamic
panel
estimation
procedure
(pooled
mean group
estimator
developed
by Pesaran,
1999)
NFA position
normalized
by wealth
Expected return proxied by composite index (real per capita GDP
growth, inverse of black market premium, liquid liabilities to GDP,
real imports plus exports to GDP, indices of governance, negative
of government consumption to FDP, population size) and also
perceived risk measured by composite index (standard deviation
of real per capita GDP growth, ratio of external debt to debt plus
equity external liabilities, average and standard deviation
of inflation, standard deviation of RER standard deviation of TT,
standard deviation of import plus export to GDP, negatives of
indices of governance, negative of quasi-liquid liabilities to GDP).
Co-movement
was measured
as correlation
of the relevant
return index
in a country
and the rest
of the world
39. 39
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Appendix 1. cd. Overview of Empirical Research on the Determinants of Portfolio Capital Flows
Study Model
Dependent
Variables
Studies & Analyses No 354
Independent Variables
Other independent
Variables
Calderon
et al.
(2003)
Dynamic
panel
estimation
procedure
(pooled
mean group
estimator
developed
by Pesaran,
1999)
NFA position
normalized
by wealth
Expected return based on real per capita GDP growth
and perceived risk as standard deviation of real per capita GDP
growth. Expected return as real stock market return and perceived
risk as standard deviation of real stock market return.
Co-movement
was measured
as correlation
of the relevant
return index
in a country
and the rest
of the world
Taylor
and
Sarno
(1997)
Error
correction
models
Monthly net US
equity flows;
Data the same
as in Chuhan
et al (1993)
Country-specific: country credit rating; black market exchange
rate premium. Global: treasury bill rate and government bond
yield; level of real US industrial production
Fedderke
and
Liu
(2001)
ARDL error
correction
version
Four different
measures of cap
flows in annual
form
Rate of return variables: exchange rate adjusted interest
differentials; % change of GDP. Risk variables:
over/undervaluation of the exchange rate in term of PPP, political
rights index, political instability index.
Dummies
Fiess
(2003)
Multivariate
cointegrati
on analysis
Cap flows data
comprises
monthly records
of bond, equity
and syndicated
loan flows
Global factors: US long-term interest rates; first principal
component. Pull factors: residual from a regression of the country
EMBI component on the first principal component; ratio of total
public debt to GDP; primary balance to GDP ratio.
Alfaro
et al.
(2005)
Cross-country
regressions
Inflows of total
equity investments
per capita
Domestic variables: years of total schooling in total population;
International Country Risk Guide (ICRG) political safety variables
as a measure of institutional quality; distance using GDP shares
as weights; inflation volatility; capital controls; sovereign risk;
corporate tax; share of credit provided by deposit money banks
Kim
(2000)
Structural
decomposition
analysis
Balance on capital
and current
accounts
Domestic variable: terms of trade; domestic income; real exchange
rate; real money supply; domestic price level. External factors:
foreign income; foreign interest rate.
Bekaert
and
Harvey
(1998)
Net US equity
flows
1) Cost of capital, correlation with world market return, volatility;
2) Asset concentration ratios, market size and liquidity; 3) foreign
exchange volatility, real exchange rate, real GDP per capita,
inflation, interest rate, size of trade sector, fiscal deficit;
4) Country risk.
Carlson
and
Hernandez
(2002)
Panel data
regression
with fixed
effects; SUR
Portfolio equity
investment
Economic Fundamentals: GDP; GDP deflator; stock
of international reserves; inflation rate; exchange rate; stock
of domestic credit to Central Bank; interest rate paid on deposits;
LIBOR; real exchange rate appreciation; yield on government
US bonds; growth rate of real GDP in USA, ratio of reserves to M2;
expansion of bank credit;
Odedokun
(2003)
Panel
regression
with fixed
effects
Total portfoli
capital flows
as a fraction
of GDP
Variables expressed for the source country, all developing
countries and destination country of cap flows: Per capita income;
interest rate; economic growth; phase of economic cycle; openness
in the BOP cap account; inflation rate and monetary growth;
private debt to GDP ratio; public debt to GDP ratio.
40. 40
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
Appendix 2. Sample Statistics
Valid N Mean Minimum Maximum Std.Dev.
Portfolio Investment Liabilities, million USD
Armenia 42 0.348 -12.120 9.130 3.058
Belarus 42 0.662 -58.900 53.900 17.762
Kazakhstan 42 79.142 -108.843 703.501 160.287
Kyrgyzstan 42 4.695 -11.206 101.000 22.020
Moldova 42 -2.174 -39.670 15.670 8.195
Russia 42 481.045 -11426.100 8061.940 2952.543
Ukraine 42 28.881 -825.000 1347.000 471.356
Portfolio Investment Liabilities as a Ratio of GDP, %
Armenia 42 0.076 -2.457 1.533 0.613
Belarus 42 0.043 -2.079 2.516 0.599
Kazakhstan 42 0.750 -1.665 6.513 1.756
Kyrgyzstan 42 -0.031 -2.364 2.288 0.682
Moldova 41 -0.594 -13.508 3.786 2.458
Russia 42 0.191 -18.013 8.705 3.714
Ukraine 42 -0.210 -7.229 8.118 3.635
Global Explanatory Variables, %
Yield on US
Treasure securities 42 3.724 0.930 6.200 1.755
Yield on SP500 42 2.092 -17.634 20.867 8.509
US GDP growth 42 3.310 -1.400 7.500 2.069
Portfolio flows
to CEEC
39 1907.829 -1063.348 9790.267 2625.735
Domestic Deposit Interest Rate, %
Armenia 42 16.535 4.526 42.867 10.095
Belarus 42 21.705 7.600 49.900 10.862
Kazakhstan 39 11.959 5.400 31.900 6.067
Kyrgyzstan 42 15.289 3.780 39.590 12.376
Moldova 41 17.581 9.920 28.767 5.832
Russia 42 12.680 3.367 61.700 15.276
Ukraine 42 14.724 6.574 48.700 8.868
Exchange Rate Changes
Armenia 42 0.238 -5.939 7.959 2.829
Belarus 42 15.623 -0.623 138.662 28.329
Kazakhstan 42 1.796 -6.093 40.397 6.771
Kyrgyzstan 42 3.433 -6.231 31.737 8.094
Moldova 42 2.885 -7.466 51.134 9.183
Russia 42 5.232 -3.853 90.543 16.212
Ukraine 42 2.782 -4.219 45.326 8.017
Political Risk Index, points
Armenia 32 58.380 54.000 61.000 2.044
Belarus 33 61.000 56.667 65.000 2.460
Kazakhstan 31 70.720 68.000 74.500 1.613
Kyrgyzstan 0
Moldova 31 65.468 55.333 69.000 3.521
Russia 42 61.373 42.667 68.833 6.672
Ukraine 33 62.227 56.167 69.000 4.254
41. 41
DETERMINANTS OF PORTFOLIO FLOWS INTO CIS COUNTRIES
Appendix 2. cd. Sample Statistics
Studies & Analyses No 354
Valid N Mean Minimum Maximum Std.Dev.
Financial Risk Index, points
Armenia 33 31.616 9.833 39.500 6.965
Belarus 33 34.828 28.500 40.500 4.129
Kazakhstan 31 37.016 28.000 40.000 2.684
Valid NMe an Minimum Maximum Std.Dev.
Kyrgyzstan 0
Moldova 31 29.667 20.000 36.500 5.037
Russia 42 37.548 23.167 47.000 5.847
Ukraine 33 36.859 25.833 42.000 4.919
Ratio of country GDP to total GDP of CIS, %
Armenia 42 0.519 0.182 1.271 0.229
Belarus 42 3.109 2.130 4.275 0.416
Kazakhstan 42 5.769 3.695 10.429 1.306
Kyrgyzstan 42 0.372 0.179 0.742 0.127
Moldova 41 0.436 0.261 2.347 0.324
Russia 42 79.812 66.956 84.879 3.358
Ukraine 42 9.993 7.729 15.621 1.748
42. 42
Oleksandr Lozovyi and Alina Kudina
Studies & Analyses No 354
Appendix3. Correlation matrix
Portfolio
flows as
ratio to GDP
US
T-bills
yield
S&P 500
yield
EM
Price
Index
Domestic
deposit
rate
Exchange
rate
changes
Political
risk
Financial
risk
Portfolio
flows
to CEEC
Ratio
of GDP
Domestic
GDP
growth
US
GDP
growth
Portfolio
flows as ratio
to GDP
1.0000
US T-bills yield 0.0150 1.0000
S&P 500 yield 0.0615 -0.0556 1.0000
EM Price Index 0.0403 -0.2716 0.7914 1.0000
Domestic
deposit rate
-0.0279 0.4851 0.0592 -0.0552 1.0000
Exchange rate
changes
-0.1660 0.2886 0.1726 0.0904 0.3202 1.0000
Political
risk 0.3116 -0.2684 -0.0251 0.0856 -0.1939 -0.1305 1.0000
Financial risk 0.2411 -0.4204 -0.1228 0.0133 -0.4357 -0.3086 0.4365 1.0000
Portfolio flows
to CEEC
0.1516 -0.3606 -0.0111 0.0583 -0.3513 -0.1578 0.1633 0.3709 1.0000
Ratio of GDP 0.1881 0.1063 0.0643 -0.0311 -0.0680 -0.0082 -0.0476 0.2914 -0.0786 1.0000
Domestic GDP
growth 0.2031 -0.3431 -0.2631 -0.1583 -0.3890 -0.8715 0.1478 0.3606 0.1846 -0.0319 1.0000
US GDP growth 0.0768 0.0523 0.3876 0.3321 0.0964 0.1118 -0.0507 -0.1584 -0.0125 0.0891 -0.1280 1.0000