CASE Network Studies and Analyses 434 - Background Report on Private Sector Development in Latin America, the Post-Communist Countries of Europe and Asia, the Middle East and North Africa
This document provides background on private sector development in developing countries. It discusses trends in privatization revenues globally and by region since 1988. Privatization activity was highest in Latin America in the 1990s and Eastern Europe/Central Asia in the 2000s, while the Middle East/North Africa region saw more modest activity. Research generally finds private ownership outperforms state ownership. However, privatization alone does not guarantee improved performance - competition, strong market institutions, and the type of private owner are also important factors. The document will examine private sector trends in Latin America, post-communist Europe/Asia, and the Middle East/North Africa region.
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 The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.
Authored by: Marek Dąbrowski
Published in 2009
Emerging market economies were major beneficiaries of the economic boom before 2007. More recently, they have become victims of the global financial crisis. Their future development depends, to a large extent, on global economic prospects. Today the global economy and the European economy are much more integrated and interdependent than they were ten or twenty years ago. Every country must recognize its limited economic sovereignty and must be prepared to deal with the consequences of global macroeconomic fluctuations.
The statistical data for 2009 provides a mixed picture with respect to the impact of the crisison various groups of countries and individual economies. On average, Central and Eastern Europe experienced a smaller output decline than the Euro area and the entire EU while the CIS, especially its European part, contracted more dramatically. However, there was a deep differentiation within each country group. Looking globally, richer countries, which are more open to trade and in which the banking sector plays a larger role and which rely more on external financing, suffered more than less sophisticated economies, which are less dependent on trade and credit (especially from external sources). With some exceptions, the previous good growth performance helped rather than handicapped countries in the CEE and CIS regions in the crisis year of 2009.
The post-crisis recovery has been rather modest and incomplete. It remains vulnerable to new shocks (like the Greek Fiscal crisis), the danger of sovereign default and other uncertainties. Full post-crisis recovery and increasing potential growth will require far going economic and institutional reforms on both national, regional (e.g., EU) and global levels.
Authored by: Marek Dąbrowski
Published in 2010
The European debt crisis triggered a debate on the lacking components of the EU and EMU integration architecture. Many believe that a common currency requires closer fiscal and political integration as a condition for its survival. This opinion is not necessarily supported by the experience of other monetary unions, especially those created by sovereign states. On the other hand, the current EU integration architecture already contains several elements of fiscal union. Furthermore, in several important policy areas such as financial supervision, defense, security, border protection, foreign policy, environmental protection, and climate change, the centralization of tasks and resources at the Union level could offer increasing returns to scale and a better chance to address pan-European externalities. This applies to the entire EU, not only to the Eurozone.
Each variant of fiscal integration must be based on sound foundations of fiscal discipline. Market discipline, i.e., the danger of sovereign default, supplemented by clear and consistently enforced fiscal rules is the best solution to this problem. Unfortunately, since 2010, the ‘no bail out’ principle has been replaced by a policy of conditional bailout of governments in fiscal trouble. Some proposals, such as Eurobonds or the lender of last resort to governments, go even further in this direction, and threaten to build a dysfunctional fiscal union.
Authored by: Marek Dąbrowski
Published in 2013
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
The paper shows that the question that is relevant for the debate on the efficacy of development assistance is not so much as an issue of how much, but rather for what. In view of the growing awareness of ODA’s inefficiency in achieving intended aims, this paper proposes an alternative approach to development assistance policies – economic integration and subsidiarity provides the conditions necessary for ODA to produce higher rates of economic growth on a sustainable basis. Europe is an excellent case in point, in this context. Europe has in the last decades experienced a number of success stories in moving out of poverty and onto sustainable economic growth. The secret of success has been the push towards economic integration, and the adoption of economic reforms at the local, national, and regional level conducive to economic growth. The recipient countries of development assistance have much to learn from the European experience.
This paper discusses the global financial crisis of 2008/9 in thirteen countries, the ten new EU members that previously were communist and the three countries of Western former Soviet Union. Their problems were excessive current account deficits and private foreign debt, currency mismatches, and high inflation, while public finances were in good shape. The dominant cause was fixed exchange rates. Many lessons can be drawn from this crisis. A dollar peg makes no sense in this part of the world. The five currency boards in the region have lacked credibility. By contrast, inflation targeting has worked eminently. The euro has proven credible both in the countries that officially adopted it and in the countries that adopted it unilaterally. With the exception of Hungary, all the countries in the region have displayed decent fiscal policies. No government should accept large domestic loans in foreign currency and they can be regulated away. The IMF has successfully returned to the original Washington consensus with relatively few conditions: a reasonable budget balance and a realistic exchange rate policy, while focusing more on bank restructuring. The most controversial issue is the role of the ECB. The ECB should facilitate the accession of willing EU members to the euro by relaxing the ERM II conditions.
Authored by: Anders Aslund
Published in 2009
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
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 The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.
Authored by: Marek Dąbrowski
Published in 2009
Emerging market economies were major beneficiaries of the economic boom before 2007. More recently, they have become victims of the global financial crisis. Their future development depends, to a large extent, on global economic prospects. Today the global economy and the European economy are much more integrated and interdependent than they were ten or twenty years ago. Every country must recognize its limited economic sovereignty and must be prepared to deal with the consequences of global macroeconomic fluctuations.
The statistical data for 2009 provides a mixed picture with respect to the impact of the crisison various groups of countries and individual economies. On average, Central and Eastern Europe experienced a smaller output decline than the Euro area and the entire EU while the CIS, especially its European part, contracted more dramatically. However, there was a deep differentiation within each country group. Looking globally, richer countries, which are more open to trade and in which the banking sector plays a larger role and which rely more on external financing, suffered more than less sophisticated economies, which are less dependent on trade and credit (especially from external sources). With some exceptions, the previous good growth performance helped rather than handicapped countries in the CEE and CIS regions in the crisis year of 2009.
The post-crisis recovery has been rather modest and incomplete. It remains vulnerable to new shocks (like the Greek Fiscal crisis), the danger of sovereign default and other uncertainties. Full post-crisis recovery and increasing potential growth will require far going economic and institutional reforms on both national, regional (e.g., EU) and global levels.
Authored by: Marek Dąbrowski
Published in 2010
The European debt crisis triggered a debate on the lacking components of the EU and EMU integration architecture. Many believe that a common currency requires closer fiscal and political integration as a condition for its survival. This opinion is not necessarily supported by the experience of other monetary unions, especially those created by sovereign states. On the other hand, the current EU integration architecture already contains several elements of fiscal union. Furthermore, in several important policy areas such as financial supervision, defense, security, border protection, foreign policy, environmental protection, and climate change, the centralization of tasks and resources at the Union level could offer increasing returns to scale and a better chance to address pan-European externalities. This applies to the entire EU, not only to the Eurozone.
Each variant of fiscal integration must be based on sound foundations of fiscal discipline. Market discipline, i.e., the danger of sovereign default, supplemented by clear and consistently enforced fiscal rules is the best solution to this problem. Unfortunately, since 2010, the ‘no bail out’ principle has been replaced by a policy of conditional bailout of governments in fiscal trouble. Some proposals, such as Eurobonds or the lender of last resort to governments, go even further in this direction, and threaten to build a dysfunctional fiscal union.
Authored by: Marek Dąbrowski
Published in 2013
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
The paper shows that the question that is relevant for the debate on the efficacy of development assistance is not so much as an issue of how much, but rather for what. In view of the growing awareness of ODA’s inefficiency in achieving intended aims, this paper proposes an alternative approach to development assistance policies – economic integration and subsidiarity provides the conditions necessary for ODA to produce higher rates of economic growth on a sustainable basis. Europe is an excellent case in point, in this context. Europe has in the last decades experienced a number of success stories in moving out of poverty and onto sustainable economic growth. The secret of success has been the push towards economic integration, and the adoption of economic reforms at the local, national, and regional level conducive to economic growth. The recipient countries of development assistance have much to learn from the European experience.
This paper discusses the global financial crisis of 2008/9 in thirteen countries, the ten new EU members that previously were communist and the three countries of Western former Soviet Union. Their problems were excessive current account deficits and private foreign debt, currency mismatches, and high inflation, while public finances were in good shape. The dominant cause was fixed exchange rates. Many lessons can be drawn from this crisis. A dollar peg makes no sense in this part of the world. The five currency boards in the region have lacked credibility. By contrast, inflation targeting has worked eminently. The euro has proven credible both in the countries that officially adopted it and in the countries that adopted it unilaterally. With the exception of Hungary, all the countries in the region have displayed decent fiscal policies. No government should accept large domestic loans in foreign currency and they can be regulated away. The IMF has successfully returned to the original Washington consensus with relatively few conditions: a reasonable budget balance and a realistic exchange rate policy, while focusing more on bank restructuring. The most controversial issue is the role of the ECB. The ECB should facilitate the accession of willing EU members to the euro by relaxing the ERM II conditions.
Authored by: Anders Aslund
Published in 2009
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
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
The paper discusses the current and potential role of the European Neighbourhood Policy (ENP) in anchoring economic reforms in the countries of the EU's Eastern Neighbourhood. It claims that it is too early to assess the success of the ENP in this sphere especially given that the actual progress of the ENP agenda has been limited. A review of the empirical evidence on external reform anchors confirms that the ENP shares some features with the EU accession process that has proven to be an effective mechanism supporting major economic, political and social changes in the countries concerned. The eventual ENP economic offer is meaningful and integration with the EU is getting stronger public support in several CIS countries and among their political elites. On the other hand several factors limit the reform anchoring potential of the ENP. This paper offers recommendations on policies that could strengthen this potential.
Authored by: Wojciech Paczynski
Published in 2009
We apply Feldstein's (1997, 1999) analysis of the interactions between the tax system and inflation to two transition economies: Poland and Ukraine. We find that the taxrelated costs of inflation in these countries are significantly smaller than in mature market economies. Our analysis points out that the tax system in these two countries is superior to the tax system in developed market economies, as taxes on investment income are lower. It implies that transition countries should avoid replicating other tax systems and, instead, take advantage of the unique opportunity to design and entrench the features of their tax system which are superior to those in mature economies.
Authored by: Monika Blaszkiewicz, Jerzy Konieczny, Anna Myslinska, Przemyslaw Wozniak
Published in 2003
This paper analyses the effect of the EU enlargement process on income convergence among regions in the EU and in the Eastern neighbourhood of the EU. The data used is NUTS II regions in the EU and Oblasts' of Russia over the period 1996-2004. The estimation techniques used take into account both regional and spatial heterogeneity. The main findings are that the regional income differences are reduced within EU15. The income convergence within the EU is mainly driven by reductions in the differences across countries rather than by a reduction in regional differences within countries. When differences in initial conditions in the regions are controlled for by fixed regional effects there are strong evidences of convergence among regions in all studied country groups.
Authored by: Fredrik Wilhelmsson
Published in 2009
This study seeks to determine the extent to which countries of the former Soviet Union are "infected" by the Dutch Disease. We take a detailed look at the functioning of the transmission mechanism of the Dutch Disease, i.e. the chains that run from commodity prices to real output in manufacturing. We complement this with two econometric exercises. First, we estimate nominal and real exchange rate models to see whether commodity prices are correlated with the exchange rate. Second, we run growth equations to analyse the possible effects of commodity prices and the dependency of economic growth on natural resources.
Authored by: Balazs Egert
Published in 2009
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
Despite significant economic reforms in many Southern Mediterranean EU neighbour countries, their growth performance has on average been subdued. This study analyses the differences in growth performance and macroeconomic stability across Mediterranean countries, to draw lessons for the future. The main findings are that Southern Mediterranean countries should benefit from closer ties with the EU that result in higher levels of trade and FDI inflows, once the turbulence of the ‘Arab Spring’ is resolved, and from the development of financial markets and infrastructure. They will also benefit in keeping inflation under control, which will depend in great part on their ability to maintain fiscal discipline and sustainable current accounts. One of the main challenges for the region will be to implement structural reforms that can help them absorb a large pool of unemployed without creating upward risks to inflation.
Authored by: Leonor Coutinho
Published in 2012
This paper evaluates achievements and shortcomings of the Lisbon Strategy launched by the European Union in the spring of 2000 aiming to increase the competitiveness of the European economy within ten years. A careful examination of the Strategy’s pros and cons shows that its general rationale was sound and helpful despite an incorrect and naive political call to economically outperform the rest of the world in such period. The main priorities of the Strategy: promoting growth through creating more and better jobs and developing the knowledge base of the economy, remain valid for today and for the future. However, it has to be underlined that implementing desired changes requires time. At the moment, it is crucial to accomplish structural reforms, which have significant impact on job creation, business performance and growth. Among them, it is essential to complete the Single Market, still limited by many administrative barriers.
The paper shows main areas of necessary improvements to be undertaken by the Community and the member states. To strengthen real ownership of the Lisbon process, politicians must change their thinking from short-term and national to long-term and beneficial for the entire Community. Only such committed leadership can persuade the citizens to support the reforms, aiming to build a common European public good. Exploring these ideas would be a desirable return to the basic concept of the European Community, shaped by its founding fathers short after the World War II.
Authored by: Barbara Blaszczyk
Published in 2005
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
The purpose of this paper is to measure and analyse how intensively CIS countries apply non-tariff barriers (NTBs) to restrict foreign trade in regard to certain products and total trade. Five CIS countries were selected for this analysis: Ukraine, the Russian Federation, Moldova, Belarus, and the Kyrgyz Republic. We first considered measurement methods usually applied to NTBs, reviewed other studies measuring NTBs in CIS countries, and then described our own findings on the matter. This analysis was made in the framework of the EU Eastern Neighbourhood: Economic Potential and Future Development (ENEPO) project seeking to examine different aspects of the European Union's relations with its neighbours to the East.
Authored by: Svitlana Taran
Published in 2008
This paper is an overview of the achievements in the area of employee financial participation (EFP) during the last fifty years. It addresses the question of the extent to which EFP is relevant in today’s world. EFP is distinguished from participation in management (industrial democracy), and the various types of EP are discussed. The major arguments for EFP are presented and discussed critically. The evolution of major forms of EFP, the scale of their operation in several advanced economies, and the legal and tax incentives for EFP are described. The efforts of European Union bodies to popularise this idea in all member countries are illustrated. Showing that EFP has become a broadly recognised principle of modern management in thousands of enterprises, we consider opportunities for disseminating these solutions on a wider scale, in particular in Poland. Finally, a number of directions for further research on financial participation are considered.
Authored by: Barbara Blaszczyk
Published in 2014
Since May 1, 2004 the European Union's new member states (NMS) have been subject to the same fiscal rules established in the Treaty on the European Union and Stability and Growth Pact (SGP) as the old member states (OMS). The NMS entered the EU running structural fiscal deficits. More than half of them (including the biggest ones) breach the Treaty's actual deficit limits and are already the subject of the excessive deficit procedure. A high rate of economic growth makes the fiscal situation of most NMS reasonably manageable in the short- to medium-term, but the long term fiscal outlook, mostly connected with the consequences of an aging population, is dramatic. The NMS should therefore prepare themselves now to be able to meet this challenge over the next decades (the same goes for the OMS). In addition, the perspective of EMU entry should provide the NMS with a strong incentive to reduce their deficits now because waiting (and postponing both fiscal adjustment and the adoption of the Euro) will only result in higher cumulative fiscal costs. The additional financial burden connected with EU accession cannot serve as excuse in delaying fiscal consolidation.
In spite of the growing debate on the relevance of the EU's fiscal surveillance rules and not excluding the possibility of their limited modification, they should not be relaxed. Frequent breaching of these rules cannot serve as an argument that they are irrelevant from the point of view of safeguarding fiscal prudence and avoiding fiscal 'free riding' under the umbrella of monetary union. Any version of fiscal surveillance rules (either current or modified) must be solidly anchored in an effective enforcement mechanism (including automatic sanctions) at the EU and national levels.
Authored by: Malgorzata Antczak, Marek Dabrowski, Michal Gorzelak
Published in 2005
This study reviews monetary policy options that are seemingly viable for adopting the euro by the new Member States of the European Union. A fully autonomous direct inflation targeting is believed to be suboptimal for convergence to the euro as it does not incorporate convergence parameters into the central bank reaction function and instrument rules. In an attempt to correct for such deficiency, this study advocates adopting a framework of relative inflation forecast targeting where a differential between the domestic and the eurozone inflation forecasts becomes the main objective of the central bank's decisions.
At the same time, some attention to the exchange rate stability objective becomes necessary for facilitating the monetary convergence process. Foreign exchange market interventions, rather than interest rate adjustments, are viewed as a preferred way of achieving this objective.
Authored by: Lucjan T. Orlowski
Published in 2005
The aim of this study is to undertake an up-to-date assessment of market power in Central and Eastern European banking markets and explore how the global financial crisis has affected market power and what has been the impact of foreign ownership. Three main results emerge. First, while there is some convergence in country-level market power during the pre-crisis period, the onset of the global crisis has put an end to this process. Second, bank-level market power appears to vary significantly with respect to ownership characteristics. Third, asset quality and capitalization affect differently the margins in the pre-crisis and crisis periods. While in the pre-crisis period the impacts are similar for all banks regardless of ownership status, in the crisis period non-performing loans have a negative effect and capitalization a positive effect only for domestically-owned banks.
Authored by: Georgios Efthyvoulou, Canan Yildirim
Published in 2013
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
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
The paper first considers why central European countries wish to join EMU soon. The main reasons are the risk of macroeconomic instability they face outside the euro zone if they wish to grow quickly. At the same time, Central Europe is highly integrated as regards trade with EMU, so it is little exposed to asymmetric shocks that would require a realignment of exchange rates. Finally, it is argued that there is no cost in terms of slower growth from EMU accession, so that there is no trade-off, as has been claimed, between nominal convergence to EMU and real convergence to EU average GDP levels. Second, the paper assesses whether Central European accession to EMU would be disadvantageous to current members. It concludes that accession cannot increase inflationary pressure on existing EMU members, as has been claimed, but that slow growing members of EMU might suffer increased unemployment, unless they increase the flexibility of their labour markets. Incumbent members may also be unwilling to share power with Central Europeans in EMU institutions.
Authored by: Jacek Rostowski
Published in 2003
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.
This paper aims to study the joint effects of the 2004 EU Enlargement and Russia’s entry into the WTO, and the effects of an eventual Russia-Enlarged EU Free Trade Agreement (FTA). The paper is organized as follows: in Section I, it starts with the brief description of the model used. The effects of the 2004 EU Enlargement are estimated on Section II. In Section III, the effects of Russia’s WTO Accession are simulated up on the benchmark of an Enlarged EU. Section IV simulates different Russia-EU FTAs, again upon the benchmark of an Enlarged EU. The work ends with a conclusion.
Authored by: Lucio Vinhas de Souza
Published in 2004
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
The paper discusses the current and potential role of the European Neighbourhood Policy (ENP) in anchoring economic reforms in the countries of the EU's Eastern Neighbourhood. It claims that it is too early to assess the success of the ENP in this sphere especially given that the actual progress of the ENP agenda has been limited. A review of the empirical evidence on external reform anchors confirms that the ENP shares some features with the EU accession process that has proven to be an effective mechanism supporting major economic, political and social changes in the countries concerned. The eventual ENP economic offer is meaningful and integration with the EU is getting stronger public support in several CIS countries and among their political elites. On the other hand several factors limit the reform anchoring potential of the ENP. This paper offers recommendations on policies that could strengthen this potential.
Authored by: Wojciech Paczynski
Published in 2009
We apply Feldstein's (1997, 1999) analysis of the interactions between the tax system and inflation to two transition economies: Poland and Ukraine. We find that the taxrelated costs of inflation in these countries are significantly smaller than in mature market economies. Our analysis points out that the tax system in these two countries is superior to the tax system in developed market economies, as taxes on investment income are lower. It implies that transition countries should avoid replicating other tax systems and, instead, take advantage of the unique opportunity to design and entrench the features of their tax system which are superior to those in mature economies.
Authored by: Monika Blaszkiewicz, Jerzy Konieczny, Anna Myslinska, Przemyslaw Wozniak
Published in 2003
This paper analyses the effect of the EU enlargement process on income convergence among regions in the EU and in the Eastern neighbourhood of the EU. The data used is NUTS II regions in the EU and Oblasts' of Russia over the period 1996-2004. The estimation techniques used take into account both regional and spatial heterogeneity. The main findings are that the regional income differences are reduced within EU15. The income convergence within the EU is mainly driven by reductions in the differences across countries rather than by a reduction in regional differences within countries. When differences in initial conditions in the regions are controlled for by fixed regional effects there are strong evidences of convergence among regions in all studied country groups.
Authored by: Fredrik Wilhelmsson
Published in 2009
This study seeks to determine the extent to which countries of the former Soviet Union are "infected" by the Dutch Disease. We take a detailed look at the functioning of the transmission mechanism of the Dutch Disease, i.e. the chains that run from commodity prices to real output in manufacturing. We complement this with two econometric exercises. First, we estimate nominal and real exchange rate models to see whether commodity prices are correlated with the exchange rate. Second, we run growth equations to analyse the possible effects of commodity prices and the dependency of economic growth on natural resources.
Authored by: Balazs Egert
Published in 2009
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
Despite significant economic reforms in many Southern Mediterranean EU neighbour countries, their growth performance has on average been subdued. This study analyses the differences in growth performance and macroeconomic stability across Mediterranean countries, to draw lessons for the future. The main findings are that Southern Mediterranean countries should benefit from closer ties with the EU that result in higher levels of trade and FDI inflows, once the turbulence of the ‘Arab Spring’ is resolved, and from the development of financial markets and infrastructure. They will also benefit in keeping inflation under control, which will depend in great part on their ability to maintain fiscal discipline and sustainable current accounts. One of the main challenges for the region will be to implement structural reforms that can help them absorb a large pool of unemployed without creating upward risks to inflation.
Authored by: Leonor Coutinho
Published in 2012
This paper evaluates achievements and shortcomings of the Lisbon Strategy launched by the European Union in the spring of 2000 aiming to increase the competitiveness of the European economy within ten years. A careful examination of the Strategy’s pros and cons shows that its general rationale was sound and helpful despite an incorrect and naive political call to economically outperform the rest of the world in such period. The main priorities of the Strategy: promoting growth through creating more and better jobs and developing the knowledge base of the economy, remain valid for today and for the future. However, it has to be underlined that implementing desired changes requires time. At the moment, it is crucial to accomplish structural reforms, which have significant impact on job creation, business performance and growth. Among them, it is essential to complete the Single Market, still limited by many administrative barriers.
The paper shows main areas of necessary improvements to be undertaken by the Community and the member states. To strengthen real ownership of the Lisbon process, politicians must change their thinking from short-term and national to long-term and beneficial for the entire Community. Only such committed leadership can persuade the citizens to support the reforms, aiming to build a common European public good. Exploring these ideas would be a desirable return to the basic concept of the European Community, shaped by its founding fathers short after the World War II.
Authored by: Barbara Blaszczyk
Published in 2005
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
The purpose of this paper is to measure and analyse how intensively CIS countries apply non-tariff barriers (NTBs) to restrict foreign trade in regard to certain products and total trade. Five CIS countries were selected for this analysis: Ukraine, the Russian Federation, Moldova, Belarus, and the Kyrgyz Republic. We first considered measurement methods usually applied to NTBs, reviewed other studies measuring NTBs in CIS countries, and then described our own findings on the matter. This analysis was made in the framework of the EU Eastern Neighbourhood: Economic Potential and Future Development (ENEPO) project seeking to examine different aspects of the European Union's relations with its neighbours to the East.
Authored by: Svitlana Taran
Published in 2008
This paper is an overview of the achievements in the area of employee financial participation (EFP) during the last fifty years. It addresses the question of the extent to which EFP is relevant in today’s world. EFP is distinguished from participation in management (industrial democracy), and the various types of EP are discussed. The major arguments for EFP are presented and discussed critically. The evolution of major forms of EFP, the scale of their operation in several advanced economies, and the legal and tax incentives for EFP are described. The efforts of European Union bodies to popularise this idea in all member countries are illustrated. Showing that EFP has become a broadly recognised principle of modern management in thousands of enterprises, we consider opportunities for disseminating these solutions on a wider scale, in particular in Poland. Finally, a number of directions for further research on financial participation are considered.
Authored by: Barbara Blaszczyk
Published in 2014
Since May 1, 2004 the European Union's new member states (NMS) have been subject to the same fiscal rules established in the Treaty on the European Union and Stability and Growth Pact (SGP) as the old member states (OMS). The NMS entered the EU running structural fiscal deficits. More than half of them (including the biggest ones) breach the Treaty's actual deficit limits and are already the subject of the excessive deficit procedure. A high rate of economic growth makes the fiscal situation of most NMS reasonably manageable in the short- to medium-term, but the long term fiscal outlook, mostly connected with the consequences of an aging population, is dramatic. The NMS should therefore prepare themselves now to be able to meet this challenge over the next decades (the same goes for the OMS). In addition, the perspective of EMU entry should provide the NMS with a strong incentive to reduce their deficits now because waiting (and postponing both fiscal adjustment and the adoption of the Euro) will only result in higher cumulative fiscal costs. The additional financial burden connected with EU accession cannot serve as excuse in delaying fiscal consolidation.
In spite of the growing debate on the relevance of the EU's fiscal surveillance rules and not excluding the possibility of their limited modification, they should not be relaxed. Frequent breaching of these rules cannot serve as an argument that they are irrelevant from the point of view of safeguarding fiscal prudence and avoiding fiscal 'free riding' under the umbrella of monetary union. Any version of fiscal surveillance rules (either current or modified) must be solidly anchored in an effective enforcement mechanism (including automatic sanctions) at the EU and national levels.
Authored by: Malgorzata Antczak, Marek Dabrowski, Michal Gorzelak
Published in 2005
This study reviews monetary policy options that are seemingly viable for adopting the euro by the new Member States of the European Union. A fully autonomous direct inflation targeting is believed to be suboptimal for convergence to the euro as it does not incorporate convergence parameters into the central bank reaction function and instrument rules. In an attempt to correct for such deficiency, this study advocates adopting a framework of relative inflation forecast targeting where a differential between the domestic and the eurozone inflation forecasts becomes the main objective of the central bank's decisions.
At the same time, some attention to the exchange rate stability objective becomes necessary for facilitating the monetary convergence process. Foreign exchange market interventions, rather than interest rate adjustments, are viewed as a preferred way of achieving this objective.
Authored by: Lucjan T. Orlowski
Published in 2005
The aim of this study is to undertake an up-to-date assessment of market power in Central and Eastern European banking markets and explore how the global financial crisis has affected market power and what has been the impact of foreign ownership. Three main results emerge. First, while there is some convergence in country-level market power during the pre-crisis period, the onset of the global crisis has put an end to this process. Second, bank-level market power appears to vary significantly with respect to ownership characteristics. Third, asset quality and capitalization affect differently the margins in the pre-crisis and crisis periods. While in the pre-crisis period the impacts are similar for all banks regardless of ownership status, in the crisis period non-performing loans have a negative effect and capitalization a positive effect only for domestically-owned banks.
Authored by: Georgios Efthyvoulou, Canan Yildirim
Published in 2013
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
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
The paper first considers why central European countries wish to join EMU soon. The main reasons are the risk of macroeconomic instability they face outside the euro zone if they wish to grow quickly. At the same time, Central Europe is highly integrated as regards trade with EMU, so it is little exposed to asymmetric shocks that would require a realignment of exchange rates. Finally, it is argued that there is no cost in terms of slower growth from EMU accession, so that there is no trade-off, as has been claimed, between nominal convergence to EMU and real convergence to EU average GDP levels. Second, the paper assesses whether Central European accession to EMU would be disadvantageous to current members. It concludes that accession cannot increase inflationary pressure on existing EMU members, as has been claimed, but that slow growing members of EMU might suffer increased unemployment, unless they increase the flexibility of their labour markets. Incumbent members may also be unwilling to share power with Central Europeans in EMU institutions.
Authored by: Jacek Rostowski
Published in 2003
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.
This paper aims to study the joint effects of the 2004 EU Enlargement and Russia’s entry into the WTO, and the effects of an eventual Russia-Enlarged EU Free Trade Agreement (FTA). The paper is organized as follows: in Section I, it starts with the brief description of the model used. The effects of the 2004 EU Enlargement are estimated on Section II. In Section III, the effects of Russia’s WTO Accession are simulated up on the benchmark of an Enlarged EU. Section IV simulates different Russia-EU FTAs, again upon the benchmark of an Enlarged EU. The work ends with a conclusion.
Authored by: Lucio Vinhas de Souza
Published in 2004
Development Studies as a course and discipline is only taught in at least 3 universities in the Philippines. This yet popular academic program in the tertiary, graduate and post-graduate schools may be a great options for students and professionals whose work outlook and demand is imperative in the community, national and international arena.
Similar to CASE Network Studies and Analyses 434 - Background Report on Private Sector Development in Latin America, the Post-Communist Countries of Europe and Asia, the Middle East and North Africa
This paper focuses on knowledge-based entrepreneurship, or new firm creation in industries which are considered to be science-based or to use research and development intensively, in the East Central European (ECE) context. On the basis of case studies of thirteen knowledge-based firms in six ECE countries, we suggest that KBE firms in these countries may differ in some important ways from the conventional picture of new technology based firms. In general, we see the ECE knowledge-intensive firm as a knowledge-localiser or customiser, adapting global knowledge to local needs on the domestic market, rather than a knowledge-creator generating new solutions for global markets. The entrepreneurs who start and run these businesses are skilled at spotting trends early and bringing them to their countries. Based in countries that generally have poor reputations as sources of innovative, high-technology products, but having established strong brands for themselves in their home markets, they are struggling with the challenge of entering export markets with products and services that can achieve global, or at least regional, recognition. The studies of the companies discussed here suggest that ECE firms are still in the early stages of this strategic shift.
Authored by: Slavo Radosevic, Richard Woodward, Deniz Eylem Yoruk
Published in 2011
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
The importance of new firm creation in the post-Communist economies of East Central Europe (ECE) has been subject to extensive research. This paper focuses on an area of entrepreneurship which has received relatively little attention in the transition economy context but which is of particular importance for the modernization of the transition economies: knowledge-based entrepreneurship (KBE), or new firm creation in industries considered to be science-based or to use research and development (R&D) intensively. We begin by sketching the situation in Romania‟s small and medium-sized business sector, then proceed to study the conditions for high-tech firm development in the country, focusing on the institutional infrastructure and policy initiatives. We then turn to the analysis of a series of case studies of firms active in the areas of information technology, pharmaceuticals, and advanced chemistry. Among the issues treated are the resources and strategies involved in KBE in Romania, the relationships (networks) of the firms in question and how they are used for knowledge acquisition. We find that overall Romania appears to be a poor location for KBE, with R&D spending as a percentage of GDP very low (and falling for much of the transition period) and a poorly educated population. Most of the firms studied here rely on foreign markets for development of their more innovative products, whereas domestic markets provide opportunities for higher volume sales of less advanced products. The nature of strategic business relationships and networks varies significantly across the firms studied, with some engaging in virtually no collaboration in the area of innovation, and others engaging quite intensively with academic partners in product development.
Authored by: Stela Andrei, Romana Emilia Cucuruzan, Radu Gheorghiu, Geomina Turlea
Published in 2010
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
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
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
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
The authors use the insights from strategy research and innovation studies to address two principal questions regarding the technology strategy of a firm: what are the distinct elements of technology strategy and what are the strategy determinants? Equipped with Zahra’s (1996) concept of measuring technology strategy, we analyze data from two runs of the Community Innovation Survey for Polish service firms. They propose a set of indicators reflecting four principal fields of technology strategy: pioneer-posture, R&D efforts, technology portfolio, and monitoring activities. Interactions between the strategic variables are analyzed and their determinants are assessed. The results suggest that technology strategies are determined by both factors external to the firm, and by the hitherto less stressed in the CIS-based empirical literature, internal factors. The role of internal factors increases with the macroeconomic environment becoming less favourable.
Authored by: Krzysztof Szczygielski, Wojciech Grabowski, Richard Woodward
Published in 2013
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 study surveys the current state of affairs in Poland with regard to the development of knowledge-intensive entrepreneurship (KIE), or new firm creation in industries considered to be science-based or to use research and development (R&D) intensively. We place KIE in Poland in the larger institutional context, outlining the key features of the country’s National Innovation System, and then focus on KIE itself. Our findings are perhaps more optimistic than many previous studies of knowledge-based economy development in Poland. We observe significant progress due to Polish access to the European Union. The frequency with which universities are playing a significant role as partners for firms in the innovation process has increased significantly; moreover, we observe a significant degree of internationalization of innovation-related cooperation. Another optimistic development is that the level of activity of venture capitalists seems to be fairly high in Poland considering the relatively low degree of development of capital markets offering VC investors exit opportunities. Moreover, after almost two decades of decline in the share of R&D spending in GDP, there are signs that this is beginning to rise, and that businesses are beginning to spend more on R&D. While demand-side problems continue to be significant barriers for the development of KIE, due to the relatively low level of education and GDP per capita in the country, the trends here are optimistic, with high rates of economic growth and improvements in the level of education of younger generations. Significant improvement is still needed in the area of intellectual property protection.
Authored by: Richard Woodward, Elzbieta Wojnicka, Wojciech Pander
Published in 2012
The objective of the PICK-ME (Policy Incentives for Creation of Knowledge – Methods and Evidence) research project is to provide theoretical and empirical perspectives on innovation which give a greater role to the demand-side aspect of innovation. The main question is how can policy make enterprises more willing to innovate? This task is fulfilled by identifying what we consider the central or most salient aspect of a demand-side innovation- driven economy, which is the small and entrepreneurial yet fast growing and innovative firm. We use the term “Gazelle” to signify this type of firm throughout the paper. The main concern of policy-makers should therefore be how to support Gazelle type of firms through various policies. The effectiveness of different policy instruments are considered. For example, venture capitalism is in the paper identified as an important modern institution that renders exactly the type of coordination necessary to bring about an innovation system more orientated towards the demand side. This is because experienced entrepreneurs with superior skills in terms of judging the marketability of new innovations step in as financiers. Other factor market bottlenecks on the skills side must be targeted through education policies that fosters centers of excellence. R&D incentives are also considered as a separate instrument but more a question for future research since there is no evidence available on R&D incentives as a Gazelle type of policy. Spatial policies to foster more innovation have been popular in the past. But we conclude that whereas the literature often finds that new knowledge is developed in communities of physically proximate firms, there is no overshadowing evidence showing that spatial policies in particular had any impact on generating more of the Gazelle type of firms.
Authored by: Itzhak Goldberg, Camilla Jensen
Published in 2014
This paper investigates the differences in innovation behaviour, i.e. differences in innovation sources and innovation effects, among manufacturing firms in three NMS: the Czech Republic, Hungary and Poland. It is based on a survey of firms operating in four manufacturing industries: food and beverages, automotive, pharmaceuticals and electronics. The paper takes into account: innovation inputs in enterprises, cooperation among firms in R&D activities, the benefits of cooperation with business partners and innovation effects (innovation outputs and international competitiveness of firms' products and technology) in the three countries. After employing cluster analysis, five types of innovation patterns were detected. The paper characterises and compares these innovation patterns, highlighting differences and similarities. The paper shows that external knowledge plays an important role in innovation activities in NMS firms. The ability to explore cooperation with business partners and the benefits of using external knowledge are determined by in-house innovation activities, notably R&D intensity.
Authored by: Ewa Balcerowicz, Marek Pęczkowski, Anna Wziatek-Kubiak
Published in 2009
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
In this paper the author presents a general assessment of the labour market situation of older workers in the Czech Republic, starting with a more general overview of the demographic situation and emphasizing the generational differences among the young-old and older cohorts, underlying a number of different problems as well as solutions. Further in the paper she addresses the impact of the recent economic situation on employment levels, showing that the recovery in terms of employment has not yet begun and that the impact on older workers is (at least) two-fold: firstly, for older workers it is very difficult to find a new job once unemployed; secondly, if employed, the pressure on workability and the increasing demands of workplaces may be harder to bear for the older the worker. She describes a National Action Plan Supporting Positive Ageing (2013-2017) and other examples of good and transferable praxes which address some of the active ageing issues in an innovative way.
The second part of this report examines the issues of employability, workability and age-management as perceived by some of the key actors. The report goes into greater detail on the topic of paid work after retirement, which is considered an important part of the Czech economy, despite the fact that the employment of sizable groups of older workers after retirement is undeclared. Self-entrepreneurship and independent work in later life are another realm of employment that is increasing in importance in the Czech economy; however, as consulted experts argue, it is not to be taken as an unproblematic solution to late-life careers. In the last chapter the author turns her attention to the lifelong learning of older workers and to their up-skilling/retraining. In the concluding remarks, she reemphasizes the need to address the heterogeneity of the older workforce, in the sense of age/generational affiliation, health, socio-economic and other characteristics.
Authored by: Lucie Vidovicova
Published in 2014
Foreign subsidiary performance and market efficiency effects are estimated and confronted in this paper using a rich firm-level panel for Polish manufacturing. Besides estimating total factor productivity, other performance measures are calculated and contrasted such as labor productivity, employment growth, markup levels and profitability. The findings show that foreign subsidiaries in Poland pay more (in wages and capital), earn less (in terms of profitability or ROA) and work harder (in terms of TFP and labor productivity) relative to their domestic counterparts. Foreign subsidiaries contribute with higher employment growth than other domestic and new firms. There is no evidence that foreign subsidiaries have significantly reduced market efficiency within the period of study and across the industries and entry modes investigated on average. Controlling for competition (which is found to have a negative effect on efficiency) the paper documents significant intra-industry spillovers. The effect is estimated to be twice as high within the foreign owned industrial communities as compared to the cross effect to domestic firms.
Authored by: Camilla Jensen
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 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
This paper claims that the European Neighbourhood Policy (ENP) of the EU, and in particular the elements related to justice and home affairs (JHA), is a complex, multilayered initiative that incorporates different logics and instruments. To unravel the various layers of the policy, the paper proceeds in three steps: firstly, it lays out some facts pertaining to the origins of the ENP, as its ‘origins’ arguably account for a number of the core tensions. It then presents the underlying logic and objectives attributed to JHA cooperation, which can be derived from the viewpoints voiced during policy formulation. The paper goes on to argue that despite the existence of different logics, there is a unifying objective, which is to ‘extra-territorialise’ the management of ‘threats’ to the neighbouring countries. The core of the paper presents the various policy measures that have been put in place to achieve external ‘threat management’. In this context it is argued that the ’conditionality-inspired policy instruments’, namely monitoring and benchmarking of progress, transfer of legal and institutional models to non-member states and inter-governmental negotiations, contain socialisation elements that rely on the common values approach. This mix of conditionality and socialisation instruments is illustrated in two case studies, one on the fight against terrorism and one on irregular migration. Finally, the paper recommends that the EU draft an Action-Oriented Paper (AOP) on JHA cooperation with the ENP countries that indicates how the EU intends to balance the conflicting objectives and instruments that are currently present in the JHA provisions of the ENP.
Authored by: Nicole Wichmann
Published in 2007
Similar to CASE Network Studies and Analyses 434 - Background Report on Private Sector Development in Latin America, the Post-Communist Countries of Europe and Asia, the Middle East and North Africa (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.
More from CASE Center for Social and Economic Research (20)
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US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
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
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
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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.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
Latino Buying Power - May 2024 Presentation for Latino Caucus
CASE Network Studies and Analyses 434 - Background Report on Private Sector Development in Latin America, the Post-Communist Countries of Europe and Asia, the Middle East and North Africa
3. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
2
Contents
Contents .......................................................................................................................................2
Abstract ........................................................................................................................................5
1. Introduction .............................................................................................................................6
2. General trends in privatization and private sector development in developing
countries.......................................................................................................................................7
3. Latin America ........................................................................................................................15
3.1. Savings, credit and investment...................................................................................16
3.2. Business environment..................................................................................................18
3.3. Foreign Direct Investment............................................................................................21
4. Post Communist Countries of Europe and Asia..............................................................21
4.1. Savings, credit and investment...................................................................................24
4.2. Business environment..................................................................................................25
4.3. Foreign Direct Investment............................................................................................29
5. Middle East and North Africa (MENA)................................................................................31
5.1. Savings, credit and investment...................................................................................32
5.2. Business environment..................................................................................................36
5.3. Foreign Direct Investment............................................................................................38
6. Conclusions...........................................................................................................................40
References .................................................................................................................................41
Appendix ....................................................................................................................................44
4. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Richard Woodward is an economist at CASE - the Center for Social and Economic
Research - in Warsaw and a lecturer in international business at the University of Edinburgh
Business School. He is the author of numerous publications on privatization in post-
Communist countries (especially management-employee buyouts) as well as local
development and SME support in Poland, and is currently researching the innovation
networks of European enterprises. Some of his recent publications include: "Knowledge-intensive
entrepreneurship in Central and Eastern Europe: results of a firm-level survey"
(with Slavo Radosevic and Maja Savic) in F. Malerba (ed.), Knowledge-Intensive
Entrepreneurship and Innovation Systems: Evidence from Europe, London: Routledge, 2010;
"Networking and Competitiveness" (with Piotr Wójcik), in I. Hoshi, P.J.J. Welfens, and A.
Wziątek-Kubiak (eds.), Industrial Competitiveness and Restructuring in Enlarged Europe:
How Accession Countries Catch Up and Integrate in the European Union, New York and
Basingstoke: Palgrave Macmillan, 2007, and "The Reform Process in Post-Communist
Transition: Understanding Reform in Eastern and Central Europe and the Commonwealth of
Independent States" (with Piotr Kozarzewski), in J.M. Fanelli and G. McMahon (eds.),
Understanding Market Reforms, Vol. 2: Motivation, Implementation and Sustainability, New
York and Basingstoke: Palgrave Macmillan, 2006.
Mehdi Safavi is currently a PhD candidate in Strategy and International Business at the
University of Edinburgh Business School. He holds an MSc in Information Technology
Management from the Shahid Beheshti University of Tehran, Iran, and a BSc in Electrical
Engineering from the Ferdowsi University of Mashhad, Iran. His current research is
concentrated on Knowing and Capability Recreation through Mergers in the British Higher
Education sector.
3
5. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Piotr Kozarzewski is a political scientist who collaborates with CASE - the Center for Social
and Economic Research in Warsaw. He is a professor at the Nowy Sącz School of Business
- National-Louis University and a senior research fellow at the Institute of Political Studies,
Polish Academy of Sciences. He is the author of more than one hundred publications, mainly
on the post-Communist transition, especially on privatization, private sector development and
corporate governance issues. He is currently researching local development in Poland and
international development aid. Some of his recent publications include: "International
Transfer of Knowledge: Opportunity to Even Up Disparities in Development", in M. Jarosz
(ed.), Poland and Its People in a United Europe, Warsaw: ISP PAN, 2011; "Corporate
Governance Formation in Poland, Kyrgyzstan, Russia and Ukraine", in R.W. McGee (ed.),
Corporate Governance in Transition Economies, New York: Springer, 2008; Prywatyzacja w
krajach postkomunistycznych (Privatization in Post-Communist Countries), Warsaw: ISP
PAN, 2006; "The Reform Process in Post-Communist Transition: Understanding Reform in
Eastern and Central Europe and the Commonwealth of Independent States" (with Richard
Woodward), in J. M. Fanelli and G. McMahon (eds.), Understanding Market Reforms, Vol. 2:
Motivation, Implementation and Sustainability, New York and Basingstoke: Palgrave
Macmillan, 2006; Understanding Reform: The Case of Poland (with Jacek Kochanowicz and
Richard Woodward), "CASE Reports", no. 59, Warsaw: CASE - Center for Social and
Economic Research, 2005.
4
6. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
5
Abstract1
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. One of
the main lessons for privatization policy makers in MENA countries from the experience in
other regions is that merely transferring assets from the state to the private sector is not
enough to ensure improved social welfare; competition and the institutional environment are
also very important. With respect to the latter, much attention has focused in recent years on
improvements in the business environment, which are necessary to spur entrepreneurship
and encouragement movement from the informal economy into the formal sector. In this area
the post-communist countries have been leaders; while Latin America and the MENA region
have also seen significant improvement, they still lag behind the new European Union
member states as well as some of the post-Soviet states (although the MENA region
performs very well with respect to the protection of property rights). The area where the
MENA region needs improvement most drastically is in the financial sector. Although rich in
savings, it performs very poorly in these countries with respect to the provision of credit to
the private sector (particularly small and medium-sized enterprises), largely due to the
insufficient level of competition in the sector. We conclude with some speculation regarding
possible scenarios for development between now and 2030.
1 This report was prepared with funding from the MEDPRO (Mediterranean Prospects) project, financed under
the European Union’s 7th Framework Programme. We would like to thank Luk DeWulf and Marek Dabrowski for
their extremely helpful comments. All the usual disclaimers apply.
7. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
6
1. Introduction
A period of roughly 50 years from the 1930s to the 1970s saw a great expansion in the role
of state ownership in economies around the world, regardless of whether we look at socialist
or capitalist countries or at rich or developing countries. The Middle East and North Africa
were no exceptions, with socialist policies implemented in Israel as well as countries where
variants of Arab socialism prevailed, such as Egypt, Syria, Iraq and Libya. In the 1980s, this
trend began to reverse, with the drive to roll back the state under Reagan and Thatcher in
the West and the introduction of Deng Xiaoping’s reforms in China at the beginning of the
decade and the collapse of socialism in the Soviet bloc at its end. Today, private firms
provide more than 90 percent of jobs in developing countries and are the main source of tax
revenues, contributing to public funding for health, education, and other services (World
Bank, 2004). But much remains to be done to stimulate private sector development in many
regions where state property has until recently been dominant. Areas of activity include both
privatization of existing state-owned assets and improvement of the investment climate and
business environment that will allow new private firms to flourish. In this report we will
provide a broad overview of trends in the Arab world as well as in two regions – Latin
America and the countries formerly belonging to the Soviet bloc – that serve as points of
comparison. We will examine the relative contributions of the state-controlled and private
sectors to the economies of these regions, the main sources of finance for the private sector,
and the role of Foreign Direct Investment (FDI) in private sector development.
8. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
2. General trends in privatization and private sector
development in developing countries
As Figure 1 depicts, the 1990s saw considerable growth in privatization revenues, climaxing
in 2000. The recession that followed brought a steep decline, but the mid-2000s saw a
recovery, with a record year in 2009. However, it is worth bearing in mind that even the
privatization wave of the 1990s affected only a small minority of state-owned assets in the
world (Ramamurti, 1999).
Figure 1: Worldwide Revenues from Privatizations 1988 - 2009
7
Source: Privatization Barometer (2009)
Figure 2 demonstrates that during this period privatization activity (measured by revenues)
was very unevenly distributed in the developing world. In the 1990s, Latin America was
clearly taking the lead, followed by Central and Eastern Europe and East Asia and the
Pacific. The level of activity in other regions could be described as marginal. In the 2000s,
the East Asia - Pacific and Eastern Europe - Central Asia regions moved into the lead, while
the Latin America - Caribbean region was marginalized; the Middle East and North Africa
(MENA) showed some improvement, but remained quite marginal in the overall picture.
However, one should also bear in mind that this was a bigger piece of a bigger pie: the total
privatization revenue rose 43% in the last decade in comparison with the 1990s.
9. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 2: Total Privatization Revenues by Regions (% of total revenues for developing
countries)
Source: Privatization in the Middle East and North Africa: Region Fact Sheet
A number of surveys of the literature on the subject show quite conclusively that private
ownership is generally superior to state ownership of industry (Boubakri & Cosset, 1998;
Nellis, 1999; Megginson & Netter, 2001; Djankov & Murrell, 2002). While one might object
that the comparison of privatized with state-owned enterprises can be afflicted with selection
bias, since if we consider enterprises from a single industry, those left in state ownership are
liable to be poorer performers than the privatized ones for reasons not related to
privatization, there are studies which are not susceptible to this line of criticism (for example,
Djankov and Murrell, 2002, take great pains to deal with the issue of selection bias in the
studies they survey).
However, there is also evidence that privatization does not always work. For example, in
their meta-survey of the transition literature, Djankov and Murrell (2002) found that
privatization did not have a statistically significant effect on various measures of performance
in the countries of the former Soviet Union; amore recent study by Estrin et al. (2009) also
found that the economic (productivity) effects of privatization in the Commonwealth of
Independent States were generally smaller than in Central and East European countries, and
in the case of domestic owners are negative or insignificant. Clearly there are some other
8
10. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
factors at work here. What are they? Here are some important ones identified by the relevant
literature:
Competition. One of the key factors of interest here is competition in product markets, which
can be at least as important as privatization itself for inducing improvements in the efficiency
of the management of an enterprise (Dabrowski et al., 1991; Pinto et al., 1993; Carlin et al.,
1995; Nellis, 1999; Djankov & Murrell, 2002). Privatization will often fail to improve enterprise
performance if the privatized enterprises are not forced to compete in the market, either with
other domestic enterprises or with foreign competitors (or both). This result would seem to be
especially important for strategic industries, which tend to be monopolies, thus indicating the
need for allowing foreign competition when it is possible and the need for appropriate
regulation when it is not.
Some even go so far as to suggest that in at least some cases (for example, if privatization is
costly and time-consuming, putting a strain on the available resources a country has at its
disposal), liberalization and deregulation might be pursued first, and privatization later
(Stiglitz, 1998; Ramamurti, 1999).
Institutional framework. The importance of well-regulated institutions for economic
development is not a new topic, and interest has greatly increased in the last 20 years as a
result of the work of Oliver Williamson and Douglass North. Economists such as Dani Rodrik,
Simon Johnson and Daron Acemoglu have provided some of the most interesting
contributions on this subject in recent years (see, for example, Rodrik 2007; Acemoglu,
Johnson & Robinson, 2002, 2005; Acemoglu & Johnson, 2005). Of course, the property
rights transferred in privatization are of little worth if those rights cannot be enforced. In a
study of particular relevance for our topic, Glaeser et al. (2001) compared the performance of
the highly regulated Warsaw Stock Exchange, which has become the largest stock exchange
in Central and Eastern Europe, with that of the Prague exchange, which had very little
regulation in the first half of the 1990s. In Poland, they find, securities laws regarding
disclosure and other measures protecting investors were crucial for the development of the
market, whereas the Czech Republic, where decision makers deliberately opted for a model
with very little regulation (and consequently little protection of minority shareholders and
other measures in accordance with what is generally accepted as corporate governance
good practice), saw the emergence of “tunnelling” (asset-stripping) as well as massive de-listing
9
in the early 1990s.
Djankov and Murrell (2002) conclude that flaws in the post-Soviet regulatory framework were
the main reason for the lack of statistically significant positive results concerning the effects
of privatization in post-Soviet countries. In addition to capital market regulation stressed by
11. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Glaeser et al. (2001), Nellis (1999) points to the importance of an effective mechanism for
enterprise exit (bankruptcy). The importance of hard budget constraints has also been clearly
shown by research (see, e.g., Dabrowski et al. 1991; Carlin et al., 1995), which indicates that
avoidance of government subsidies (whether explicit or implicit) or bailouts is important for
the economic performance of firms.
Who is the private owner? Another important factor affecting the efficacy of privatization in
achieving desirable restructuring results is the type of owner: some owners are better than
others at inducing restructuring. The survey by Djankov and Murrell (2002) finds the overall
verdict in the literature on transition countries to be a negative one for insiders (i.e.,
managers and employees) and a positive one for investment funds and foreigners. The
positive result concerning investment funds should, however, be treated with caution in the
light of studies of Polish and Czech mass voucher privatization programs, in which
investment funds played a crucial role. These studies tend to show investment fund
ownership being associated with poor economic performance (Weiss & Nikitin, 1998; Nellis,
1999; Blaszczyk et al., 2003).
Political legitimacy. Purely political factors such as public opinion are often dismissed as
having no economic significance. However, they can have very important implications for the
success of economic policies. In two papers, Henisz et al. (2005a, b) examine the shift from
state domination to neo-liberal paradigms of economic policy, using the particular examples
of privatising and deregulating reforms of the telecommunication and electricity industries in
numerous countries around the world. They find that the political legitimacy of reforms has
important consequences for the risk of those reforms’ being rolled back, which can in turn
cause serious problems for foreign investors who have moved into the deregulated and
privatised industries. They identify some factors that are important for legitimacy. First,
reforms have low legitimacy if a country adopts them simply in response to pressure from
multilateral lenders such as the World Bank or IMF, and they have higher legitimacy if
neighboring countries have adopted them. Privatisation without regulatory reform, which
leaves consumers facing a private monopoly in the place of a state-owned one, also makes
reforms very unpopular. The authors also find that the likelihood of adopting a
comprehensive package of reforms depends on the economic performance of an industry
(poor performance creates demand for reform) and on the presence of sufficient institutional
checks and balances, which make domestic politicians less likely to adopt reform (since
policy makers are less likely to adopt controversial measures when there is effective
opposition from, e.g., the parliament) but make foreign investors more likely to enter the
market due to their greater confidence that reforms will not be reversed once adopted. A
statistical analysis of data on over 1,000 electrical infrastructure investment projects in 83
10
12. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
countries in the period 1989-1999 shows that countries that adopt reforms due to pressure
from multilaterals tend to intervene in markets later, reversing reforms or altering reformed
regulatory frameworks and thus creating serious losses for foreign investors. (Henisz et al.,
2005b).
In addition to privatization, we are also concerned in this report with private sector investment
and the conditions that affect it. Foreign investment is becoming more important in
developing countries, but the bulk of private investment remains domestic.
Figure 3: Domestic Private Investment and Foreign Direct investment:
Annual Averages of 92 Developing Countries
11
Source: World Bank (2004)
In the World Bank’s annual Doing Business reports, economies are ranked on their ease of
doing business, from 1 - 183, with first place being the highest. The ease of doing business
index averages the economy's percentile rankings on 9 topics (namely: starting a business,
dealing with construction permits, registering property, getting credit, protecting investors,
paying taxes, trading across boarders, enforcing contracts, and closing a business), made up
of a variety of indicators, giving equal weight to each topic. Figure 4 shows the average
ranking on the ease of doing Business for the region in comparison with other regions such
as Latin America and Caribbean.
13. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 4: Regional average rankings on the Ease of Doing Business (1-183)
12
Source: World Bank (2010)
As one can see, the region of Eastern Europe and Central Asia ranked higher than other
developing regions such as Latin America & Caribbean and MENA. Unfortunately, in many
developing countries, a poor business climate leads to the informal economy accounting for
more than half of economic activity (the share of informal output in GDP is shown for nine
countries in Figure 5). Firms in the informal economy face more constraints than other firms,
including insecure property rights, corruption, policy unpredictability, and, more importantly,
limited access to finance and public services. Relieving these constraints allows
entrepreneurs to expand their activities and provides incentives to move into the formal
economy (De Soto, 1989, 2000).
Figure 5: Informal output as percent of GDP in nine countries
Source: Schneider (2002)
he high costs of operating formally, which lead to this state of affairs, vary widely among
developing countries both in level and composition. As Figure 6 depicts, the costs of contract
14. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
enforcement difficulties, inadequate infrastructure, crime, corruption, and regulation can
amount to over 25 percent of sales, which is more than three times what firms typically pay in
taxes (World Bank, 2004).
Figure 6: Costs of a poor business environment in 5 countries
13
Source: World Bank (2004)
Access to external finance is also very often a barrier to private sector development,
especially in developing countries. In a review of the literature on the relationship between
financial sector development and economic development, Demirgüç-Kunt and Levine
(2008:2) state that:
First, countries with better developed financial systems tend to grow faster. Specifically,
countries with (i) large, privately owned banks that funnel credit to private enterprises
and (ii) liquid stock exchanges tend to grow faster than countries with corresponding
lower levels of financial development. The level of banking development and stock
market liquidity each exerts an independent, positive influence on economic growth.
Second, simultaneity bias does not seem to be the cause of this result.
Figure 7 shows domestic credit to the private sector and market capitalization as a
percentage of GDP for the world and seven groups of countries (Latin America and the
Caribbean, Europe and Central Asia2, the Middle East and North Africa, East Asia and
Pacific, South Asia, Sub-Saharan Africa and OECD members) in 2009. It shows the huge
gap between developing regions and OECD members in terms of credit activity; it is
2 The region of “Europe and Central Asia” in this report includes 20 countries, of which 19 are post-communist
countries: Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Georgia, Kazakhstan,
Kosovo, Kyrgyzstan, Lithuania, Macedonia, Moldova, Montenegro, Romania, Russia, Serbia, Tajikistan,
Turkmenistan, Ukraine, and Uzbekistan (Turkey is the one member of this group that is not post-communist).
15. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
particularly worth noting that the MENA region has the lowest levels of credit activity. We will
explore this issue further for the three regions covered in this report in later sections. If we
compare this figure with Figure A1 in the appendix (showing 2010 GDP per capita in these
seven regions) and use the OECD countries as a benchmark, we see that sub-Saharan
Africa, the East Asia-Pacific region and South Asia have market-capitalization-to-GDP ratios
that are much higher than one would expect if there were a simple relationship between this
ratio and a nation’s per capita income, whereas the MENA region’s is far lower than that of
any other region.
Figure 7: Domestic Credit to Private Sector 2009 and Market Capitalization 2010
(% of GDP)
Domestic credit to private sector (% of GDP) Market Capitalization (% of GDP)
14
180.00%
160.00%
140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
Latin America & Caribbean 40.80% 57.70%
Europe & Central Asia 45.90% 51.90%
Middle East & North Africa (MENA) 34.30% 37.80%
OECD members 162.80% 90.40%
East Asia and Pacific 117.00% 80.40%
South Asia 43.80% 83.40%
Sub-Saharan Africa 65.40% 152.70%
World 138.60% 90.50%
Source: World Bank Data Base (2009)
One of the most important factors in the quality of the business environment – particularly
with respect to its effect on the development of the private sector – is the protection of
property rights by the national justice system. In Table 1 we present a number of indices of
property rights protection for the world and various regions. Of the five developing regions,
we can see that the Middle East and North Africa is in second place (behind Asia and
Oceania), whereas the two other regions we are using as benchmarks –Latin America and
the post-communist countries of Central and Eastern Europe and the former Soviet Union –
do significantly more poorly, on some measures being indistinguishable from the poorest-performing
region, Africa.
16. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Table 1: Property Rights Indices for the World and Various Regions
15
Region
International
Property Rights
Index
Legal and Political
Environment
Physical
Property
Rights
Intellectual
Property Rights
World 5.6 5.3 6.2 5.4
North America 7.8 7.8 7.3 8.3
Western Europe 7.5 7.7 7.2 7.7
Asia and Oceania 6.0 5.6 6.6 5.6
Middle East and
North Africa 5.7 5.3 6.7 5.2
Central & Eastern
Europe and Former
5.1 5.0 5.8 4.6
Soviet Union
Latin America and
Caribbean 5.0 4.4 5.7 4.8
Africa 4.8 4.1 5.6 4.6
Source: International Property Rights Index (2011)
3. Latin America
Latin America has an area of approximately 14.1% of Earth's land surface area which
includes twenty countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba,
Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua,
Panama, Paraguay, Peru, Puerto Rico, Uruguay, and Venezuela. As of 2010, it’s population
was estimated at more than 590 million (CIA World FACTBOOK, 2011) and its combined
GDP at 5.16 trillion United States dollars (6.27 trillion at purchasing power parity)
(International Monetary Fund, 2010). The Latin American expected economic growth rate is
about 5.7% for 2010 and 4% in 2011 (International Monetary Fund, 2010).
The economic growth of the area is promising. According to current predictions, two of the
five largest economies in the world in 2050 will belong to this region (Brazil and Mexico,
which together with China, the United States, and India are predicted to be the largest
economies of the world by that time; see Goldman Sachs, 2007).
In the region, Brazil has the largest population (almost 200 million people which consists
one-third of the region’s population) and the largest GDP – around 2.2 trillion $US in 2010
(estimated). On a per capita basis as of 2010, Latin America included five nations classified
17. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
as high-income countries: Argentina, Chile, Uruguay, Mexico and Panama, each with over
12,000 $US at PPP (see Figure 8). The figure also demonstrates significant rates of growth
in the past decade.
Figure 8: GDP Per Capita for Latin American countries, 2000-2010
Honduras
16
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Bolivia
Argentina
Brazil
Chile
Colombia
Cuba*
Dominican Republic
Costa Rica
El Salvador
Ecuador
Guatemala
Panama
Paraguay
Mexico
Nicaragua
Peru
Uruguay
Venezuela
GDP Per Capita $US
2000
2005
2009
2010 Estimates
2010 PPP Est.
Note: Missing Puerto Rico
* Cuba 2008 is used instead of missing 2009
Sources: World Bank Data Bases (2000, 2005, and 2009); International Monetary Fund (2010)
With respect to privatization, the 1990s were a decade of much progress in the region.
According to López de Silanes and Chong (2004), Latin America accounted for 55% of total
privatization revenues in the developing world in the 1990s (see also Figure 2), and the
share of state-owned enterprises in the economy dropped more substantially there than in
Asia and Africa. However, they also point out that the countries of the region saw little
progress in the early 2000s (though, as we have noted, this was a world-wide trend; see
Figure 1). It is claimed that 90 percent of Latin American and Caribbean jobs are generated
by the private sector (ECLAC, 2009).
3.1. Savings, credit and investment
Savings have traditionally been low in Latin America (with net national savings consistently
under 10% of gross domestic income since the early 1980s, compared with rates of between
14 and 16% in a comparison group of 25 developing countries), and contrary to expectations,
increases in interest rates and reductions in government budget deficits and inflation rates in
18. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
the most recent two decades have not changed this situation (Reinhardt 2008). Saving rates
in Latin America seem to be affected by a degree of inertia, suggesting that culture may play
an important role.
Productivity in the small business sector is relatively low. One study of ten Latin American
countries found that the labor productivity (the ratio of production to employment) of Small
and Medium-sized Enterprises (SMEs) was only 20-60 percent that of the larger firms in
eight of those countries; in the remaining two (Brazil and Costa Rica), where the comparison
was more favorable, the best figure achieved was only 77% of the productivity of larger
businesses (Peres and Stumpo, 2000). This is linked to the fact that 80% of SMEs in the
region face credit constraints (International Finance Corporation, 2010).
On average for the region of Latin America, domestic credit to the private sector accounts for
31% to 39% of GDP during the last decade, compared to 57% in Central and Eastern Europe
and the former Soviet Union (see section 4.1). Figure 9 depicts the domestic credit to private
sector for the countries in the region in 2001, 2005, and 2009.
Figure 9: Domestic credit to private sector (% of GDP) for Latin America
17
120
100
80
60
40
20
0
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dominican Republic
El Salvador
Ecuador
Honduras
Guatemala
Mexico
Nicaragua
Panama
Paraguay
Venezuela
Peru
Uruguay
% of GDP
2001
2005
2009
Note: Missing Cuba and Puerto Rico
Source: World Bank Data Bases (2000, 2005, and 2009)
As one can see, Panama and Chile have by far the highest share of lending to the private
sector in GDP, and Brazil, Chile, Colombia, Costa Rica, Honduras, and Nicaragua show
almost a stable continuous growth during the last decade. The general trend for the region
shows a decrease between 2000 and 2004 and a continuous increase afterwards. The bulk
19. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
of investment has gone to the energy sector, telecommunications, transportation, and water
and sanitation (World Bank Data Base).
18
3.2. Business environment
As we saw in Table 1, Latin America’s performance with regard to the protection of property
rights is very poor. However, there is significant differentiation within the region, as we see in
Table 2. Chile and Uruguay perform particularly well, and Costa Rica and Panama are also
well above the regional average. However, there are particularly dismal performances by
Venezuela and Bolivia, where the rule of law is very significantly impaired.
Table 2: Property rights indices for the countries of Latin America
Country
International
Property Rights
Index
Legal and
Political
Environment
Physical
Property Rights
Intellectual
Property Rights
Argentina 4.7 4.1 5.1 5.0
Bolivia 3.9 3.2 4.5 4.0
Brazil 5.3 5.0 5.5 5.5
Chile 6.7 7.3 7.0 5.8
Colombia 5.1 3.8 6.0 5.4
Costa Rica 5.9 6.6 6.1 5.0
Ecuador 4.4 3.0 5.3 4.8
El Salvador 4.9 4.4 6.0 4.4
Guatemala 4.5 3.5 6.1 4.0
Guyana 4.6 4.1 5.7 4.0
Honduras 4.7 3.9 5.7 4.4
Mexico 5.0 4.2 5.7 5.0
Nicaragua 4.1 3.5 4.9 3.9
Panama 5.6 4.6 6.8 5.3
Paraguay 4.0 2.9 5.4 3.6
Peru 4.9 3.7 6.5 4.4
Uruguay 6.1 7.0 6.0 5.2
Venezuela 3.4 2.3 4.4 3.5
Source: IPRI (2011)
Figure 10 depicts the overall ranking of Latin American Countries in the Ease of Doing
Business. We see that Mexico, Peru, Colombia, and Chile are well ahead of the other
countries in the region; not surprisingly, given what we saw in Table 2 with respect to
property rights, Venezuela and Bolivia are bringing up the rear (World Bank, 2010).
20. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Another comprehensive index which shows the ease of doing business is the 5-year
measure of cumulative change which shows whether, and to what extent, doing business
has become easier or more difficult and costly. Figure 11 shows the ranking among the
countries in the region. As the figure demonstrates, Colombia, Peru, Guatemala, and Mexico
(respectively) show a huge improvement (over 12% improvement in ease of doing business),
followed by Paraguay (over 8%), while Argentina and Venezuela show regression.
Figure 10: Latin America - Aggregate rankings for period June 2009 - June 2010
Note: Singapore is shown as a benchmark; missing Cuba, Dominican Republic, and Puerto Rico
Source: World Bank (2010)
19
21. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 11: the distribution of cumulative change across the 9 indicators (2006-2011)
Note: missing Cuba, Dominican Republic, and Puerto Rico
Source: World Bank (2006) and World Bank (2010)
One of the effects of a poor business environment is the fact that, as mentioned in the
introduction, the informal economy accounts for more than half of economic activity in many
developing countries (see Figure 5). As for Latin America and the Caribbean countries,
informal activity accounts for about 41 percent of the region’s gross domestic product
(Schneider, 2002). Firms in the informal economy face many of the same constraints as
other firms, including insecure property rights, corruption, policy unpredictability, and limited
access to finance and public services.
20
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3.3. Foreign Direct Investment
Figure 12 shows the average net inflows of FDI as a percentage of GDP in Latin America in
the last decade. The general trend for the net inflow of FDI shows a continuous increase
since 2003 up to 2008. The decrease in the flow into the region for 2009 is due to the global
financial crisis.
Figure 12: Net Inflows of FDI to Latin America 2000-2009 (% of GDP)
21
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Percent of GDP
Note: Cuba and Puerto Rico are excluded
Source: World Bank Data Bases (2000-09)
4. Post Communist Countries of Europe and Asia
This region includes 29 countries of Eastern Europe and Central Asia; namely, Albania,
Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic,
Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Macedonia, Moldova,
Mongolia, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan,
Turkmenistan, Ukraine and Uzbekistan. Average standards of living registered a catastrophic
fall in the early 1990s in many parts of the former Comecon3 - most notably, in the former
Soviet Union - and began to rise again only toward the end of the decade. Most of the
countries that have joined the European Union since 2004, however, bounced back quite
3 The Council for Mutual Economic Assistance, 1949–1991, was an economic organization comprising the
countries of the Eastern Bloc along with a number of communist states elsewhere in the world.
23. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
quickly in the 1990s and have grown considerably since then, although all have suffered from
the 2009 recession. Today, all post-communist countries in Europe are dominated by
flourishing private sectors.
Figure 13 shows the development of GDP per capita for the countries in the region during the
last decade.
Figure 13: GDP Per Capita for the post-communist countries of Europe and Asia,
2001-2009
22
25000
20000
15000
10000
5000
0
Belarus
Bosnia and Herzegovina
Albania
Armenia
Azerbaijan
Croatia
Czech Republic
Bulgaria
Hungary
Kazakhstan
Estonia
Georgia
Kyrgyzstan
Moldova
Mongolia
Montenegro
Latvia
Lithuania
Mecedonia
Poland
Romania
Serbia
Slovakia
Russia
Ukraine
Uzbekistan
Slovania
Tajikistan
Turkmenistan
GDP Per Capita US$
2001
2005
2009
Source: World Bank Data Bases (2001, 2005, and 2009)
As one can see, the figure depicts a huge increase in the GDP per capita in 2000s for the
countries in the region while Slovenia, the Czech Republic, Slovakia, Croatia, Estonia, and
Hungary are outstanding for having over 10,000 US GDP per capita since 2005 respectively
(since 2001 for Slovenia). Latvia, Lithuania, and Poland reached this level at the end of the
decade. Not surprisingly, there is a huge gap between the countries that have been in the
European Union since 2004 on the one hand and the non-members and countries that joined
in 2007 (Bulgaria and Romania) on the other (Croatia being the exception).
24. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Table 3 shows the private sector share in GDP in the countries of the region.
Table 3: Private sector share of GDP (%)
23
Source: EBRD (2010)
The highest shares (80%) are noted in the EU member states Estonia, Hungary, and
Slovakia, the lowest in the former Soviet republics of Turkmenistan (25%), Belarus (30%)
25. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
and Uzbekistan (45%). With the exception of the latter three countries, however, all others
have private sector shares of over 50%.
4.1. Savings, credit and investment
On average for the region, domestic credit to private sector rose from 20% of GDP in 2001 to
57% in 2009. Figure 14 depicts the domestic credit to private sector for the countries in the
region in 2001, 2005, and 2009.
Figure 14: Domestic credit to private sector for the post-communist countries
of Europe and Asia
24
120
100
80
60
40
20
0
Belarus
Bosnia and Herzegovina
Albania
Armenia
Azerbaijan
Croatia
Czech Republic
Bulgaria
Hungary
Kazakhstan
Estonia
Georgia
Kyrgyzstan
Latvia
Lithuania
Mecedonia
Moldova
Mongolia
Montenegro
Poland
Romania
Serbia
Slovakia
Russia
Ukraine
Slovenia
Tajikistan
% of GDP
2001
2005
2009
Note: Missing Turkmenistan and Uzbekistan
Source: World Bank Data Bases (2000, 2005, and 2009)
As one can see, Estonia, Latvia, and Slovenia have the largest shares of lending to the
private sector in GDP, with huge increases during the last decade, and are followed by
Montenegro, Bulgaria, Ukraine, Hungary, Lithuania, Croatia, Bosnia and Herzegovina,
Poland, and Czech Republic, which have all reached figures of over 50% of GDP. The
general trend for the region shows a continuous, stable, and high growth in lending to the
private sector. Interestingly, the credit crunch in 2008 and 2009 did not reverse this trend,
although it slowed down the pace of growth, which shows the robustness of the improvement
in the economy of the post communist countries of Europe and Central Asia. Again, as in
26. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Latin America, the bulk of investment has gone to energy, telecommunications,
transportation, and water and sanitation (in that order; see World Bank Data Base).
25
4.2. Business environment
Like Latin America, this region shows overall poor performance in the area of property rights
protection (Table 1). Table 4 shows clearly that this is due to the performance of the non-EU
members in the region; all except Croatia and Montenegro have IPRI scores below 5,
whereas all EU member states have scores of at least 5.3.
Table 4: Property Rights Indices for the Post-Communist Countries
of Europe and Central Asia
Country
International
Property Rights
Index
Legal and Political
Environment
Physical
Property
Rights
Intellectual
Property Rights
Albania 4.4 4.5 5.5 3.3
Armenia 4.2 4.2 5.9 2.5
Azerbaijan 4.4 3.8 6.2 3.2
Bosnia-
Herzegovina 4.1 4.1 4.9 3.3
Bulgaria 5.3 5.0 5.6 5.4
Croatia 5.3 5.3 5.7 4.8
Czech
Republic 6.5 6.3 6.3 6.9
Estonia 6.7 7.1 7.1 5.8
Georgia 4.1 4.1 6.0 2.3
Hungary 6.4 6.1 6.3 6.9
Kazakhstan 4.4 4.4 5.6 3.2
Latvia 5.5 5.9 5.8 4.8
Lithuania 6.0 5.8 6.3 5.9
Macedonia 4.7 4.6 5.5 3.9
Moldova 3.9 3.7 5.6 2.3
Montenegro 5.2 5.4 6.6 3.6
Poland 6.2 6.4 5.6 6.6
Romania 5.5 5.2 5.8 5.4
Russia 4.6 3.5 5.2 5.0
Serbia 4.2 4.1 5.2 3.2
Slovakia 6.3 5.7 6.7 6.5
Slovenia 5.8 6.8 4.7 5.9
Ukraine 4.0 3.5 4.4 4.2
Source: IPRI (2011)
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With respect to the Ease of Doing Business rankings (see section 2), in 2011, Georgia was
the leader among the countries of Eastern Europe and Central Asia, with the world ranking
12, followed by Estonia (17), Lithuania (23), and Latvia (24) (World Bank, 2010). Figure 15
shows the percentage of countries with at least one positive doing business reform in
2009/2010.
Figure 15: Percentage of countries with at least one positive doing business reform
in 2009/2010
Source: World Bank (2010)
As figure 15 demonstrates, the highest percentage of reformers was found in Eastern and
Central Europe (moreover, this was the case for the 7th year in a row). Figure 16 depicts the
world ranking of the ease of doing business for 28 of the 29 post-communist countries of
Europe and Asia in 2010 and 2011 (Turkmenistan is not included in the report).
26
28. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 16: The World Ranking of the Ease of Doing Business for Post-Communist
Countries of Europe and Central Asia
27
160
140
120
100
80
60
40
20
0
Estonia
Lithuania
Georgia
Slovakia
Slovenia
Kyrgyzstan
Latvia
Macedonia
Hungary
Bulgaria
Azerbaijan
Armenia
Romania
Kazakhstan
Czech Republic
Belarus
Montenegro
Albania
Poland
Mongolia
Croatia
Serbia
Moldova
Bosnia and Herzegovina
Ukraine
Uzbekistan
Russia
Tajikistan
2010
2011
Note: Missing Turkmenistan
Source: World Bank (2010)
As one can see, the general trend shows an improvement in the ease of doing business in
these countries, with the Czech Republic and Kazakhstan showing the biggest jumps, and
regression in Albania, Armenia, Belarus, Macedonia, Moldova, Mongolia, Montenegro,
Romania, Russia, and Slovakia.
In Poland, Romania, Russia, Slovakia, and Ukraine firms that believe their property rights are
secure reinvest between 14 and 40 percent more of their profits in their businesses than
those who do not. Improving policy predictability and reducing barriers to competition by
governments can increase the likelihood of new investment by more than 30 percent.
Governments also influence barriers more directly through their regulation of market entry
and exit and their response to anticompetitive behaviour by firms. Barriers to competition in
the region remain pervasive, reducing incentives for firms to innovate and increase
productivity. For example, competitive pressure is reported to be significant by 90% of firms
in Poland but only 40% of firms in Georgia (World Bank, 2004).
Interesting evidence on how reform progress can vary across industries is provided in the
Transition Report 2010 of the European Bank for Reconstruction and Development (EBRD).
Focusing on two main reform areas – the development of domestic capital markets and local
currency finance and the improvement of the business environment – the report shows how
29. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
the relevant indicators for Russia and four groups of post-communist Countries – Central
Europe and the Baltic States (CEB), South-eastern Europe (SEE), Eastern Europe and
Caucasus (EEC), and Central Asia (CA)4 – vary across four sectors: the Corporate Sector
(agribusiness; general industry, and real estate), Energy Sector (natural resources;
sustainable energy, and electric power), Infrastructure (telecommunications; water and
wastewater; urban transport; roads, and railways), and Financial Sector (banking; insurance
and other financial services; micro-, small and medium-sized enterprise finance; private
equity, and capital markets).
Figure 17: Summary of 2010 Sector Transition Indicators
28
4
3.5
3
2.5
2
1.5
1
0.5
0
Corporate sectors Energy Infrastructure Financial sectors
Sector Transition Score
CEB
Russia
SEE
EEC
CA
Source: EBRD (2010)
Figure 17 depicts the results of this analysis. As one can see, the highest sectoral scores are
typically in Central Europe and the Baltic states, while the lowest scores are uniformly in
Central Asia. It is also interesting to note that in the most advanced CEB region, there is a
significant difference between the level of reform achieved in the most reformed – corporate
– and least reformed – financial – sector. Indeed, for all groups of countries the financial
sector is the least reformed one; the exception is Russia, where the least reformed sector is
(hardly surprisingly) energy.
4 Central Europe and the Baltic states (CEB) includes Croatia, Estonia, Hungary, Latvia, Lithuania, Poland,
Slovakia, and Slovenia; South-eastern Europe (SEE) includes Albania, Bosnia and Herzegovina, Bulgaria,
Macedonia, Montenegro, Romania, and Serbia; Eastern Europe and Caucasus (EEC) includes Armenia,
Azerbaijan, Belarus, Georgia, Moldova, and Ukraine; and Central Asia (CA) includes Kazakhstan, Kyrgyzstan,
Mongolia, Tajikistan, Turkmenistan, and Uzbekistan.
30. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
In the EBRD-World Bank Business Environment and Enterprise Performance Surveys
(BEEPS), firms in the region rate the main obstacles to doing business every three years.
However, the views expressed in the BEEPS are difficult to compare across firms and
countries. Focusing on relative obstacle ratings removes firm differences in reference points
and “tendencies to complain” from the data. This approach reveals that many transition
countries share the same three main business environment concerns: skills availability,
corruption, and tax administration. Poor physical infrastructure and crime are also among the
top concerns, particularly further east in the region. Regression analysis of constraint
determinants also suggests that despite the rise of mobile telephony, landline availability still
matters; that transparent implementation of tax rules may matter more than simpler
documentation or less tax preparation time, and that removing skill bottlenecks is more
important than increases in education spending (EBRD, 2010).
4.3. Foreign Direct Investment
Figure 18 shows the average net inflows of FDI to the region as a percentage of GDP during
the last decade. We can see an increase for the region during most of this period. The
decrease in the flow of FDI into the region for 2008 and 2009 is due to the global financial
crisis and was, as we have seen in section 3.3, also experienced in Latin America. Figure 19
depicts those countries with more ups and downs. As one can see, Azerbaijan shows a huge
decline at the end of the decade in the net inflow of FDI after its high jump in the middle of
the last decade, the latter jump having been caused by oil investment projects in the Caspian
Sea. The same happened in Hungary four years later, which is more consistent with the
global trend regarding global recession. Bulgaria has been chosen as a good example to
show the general trend in the region. Mongolia, almost unaffected by the global crisis, shows
almost continuous improvement in the net inflow of FDI; here the foreign investment activity
is largely related to opportunities in natural resource industries such as copper mining.
29
31. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 18: The Average Net Inflows of FDI to post-communist countries of Europe and
Asia, 2000-2009 (% of GDP)
30
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Percent of GDP
Source: World Bank Data Bases (2000-2009)
Figure 19: Net Inflows of FDI as % of GDP for Azerbaijan, Hungary,
Mongolia, and Bulgaria (2000-2009)
60
50
40
30
20
10
0
-10
-20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Percent of GDP
Hungary
Bulgaria
Azerbaijan
Mongolia
Source: World Bank Data Bases (2000-2009)
32. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
5. Middle East and North Africa (MENA)
The MENA region referred to in the World Bank nomenclature covers an extensive area
including the majority of the Middle Eastern and Maghreb Countries, extending from Morocco
to Iran. As of 2009, the area had a population of roughly 381 million people (about 6% of the
total world population), with 58% of this in urban areas, and is responsible for the GDP of
over US$1.1 trillion (World Bank Database, 2009). The countries included are: Algeria,
Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco,
Oman, the Palestinian National Authority, Qatar, Saudi Arabia, Syria, Tunisia, Turkey, United
Arab Emirates, and Yemen.5
The MENA region has vast reserves of petroleum and natural gas (60% of the world's oil
reserves and 45% of the world's natural gas reserves) that make it a vital source of global
economic stability – or instability (Oil and Gas Journal, 2009). As of 2011, 8 of the 12 OPEC
nations are within the region.
Figure 20 shows the development of GDP per capita for the countries in the region during the
last decade. As one can see, their GDP per capita in 2000s recorded a continuous increase.
Qatar, Kuwait, United Arab Emirates, Bahrain, and Israel stand out with GDP per capita of
over $20,000 as of 2009 (almost $70,000 for Qatar and over $50,000 for Kuwait and United
Arab Emirates), followed by Oman and Saudi Arabia. Not surprisingly, there is a huge gap
between the Arab countries with huge oil and gas reserves but small populations and other
countries of the region (Israel is an exception in this respect, with high GDP per capita but no
oil reserves).
5 MENA countries are listed at:
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/MENAEXT/0,,menuPK:247619~pagePK:146748~pi
PK:146812~theSitePK:256299,00.html. All the MED-11 counties – Algeria, Egypt, Israel, Jordan, Lebanon, Libya,
Morocco, the Palestinian Authority, Syria, Tunisia, and Turkey – are included in the MENA region.
31
33. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 20: GDP Per Capita for Middle East and North Africa, 2001-2009
Note: Missing Palestinian Authority
Source: World Bank Data Bases (2001, 2005, and 2009)
5.1. Savings, credit and investment
On average for MENA region, the domestic credit to private sector rose from 40% of GDP in
2001 to almost 50% in 2009. Table 5 depicts the domestic credit to private sector for the
countries in the region in 2001 and 2009. The highest shares of lending to the private sector
in GDP are noted in the UAE (93%), Israel (85%) and Bahrain (80%), and are followed by
Lebanon, Jordan, Tunisia, Morocco, and Kuwait, while Iraq and Yemen have the lowest
share.
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34. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Table 5: Domestic Credit to Private Sector for MENA Countries
Countries Population 2011 Est.
Million
33
Domestic credit to private
sector (% of GDP)
2001 2009
Algeria 35 8 16
Bahrain 1.2 47 80
Egypt 82 55 36
Iran 78 23 37
Iraq 30 1.8 6
Israel 7.5 85 85
Jordan 6.5 76 72
Kuwait 2.6 64 63
Lebanon 4.1 86 74
Libya 6.6 24 11
Morocco 32 45 64
Oman 3 39 49
Qatar 0.8 35 52
Saudi Arabia 26 27 52
Syria 23 8 20
Tunisia 11 68 68
Turkey 79 15 37
United Arab Emirates 5 52 93
Yemen 24 6 7
AVERAGE 40 49
Source: World Bank Data Bases (2000 and 2009) and CIA World Factbook (2011)
Figures 21 and 22 show that among developing regions, the Middle East and North Africa
region has the second most developed banking sector (after East Asia) in terms of assets
and credit activity (generated largely due to the abundance of oil revenues in the region).
(With respect to the other regions examined in this report, Central and Eastern Europe
comes in third place, Latin America fifth, and the former Soviet republics are comparable to
sub-Saharan Africa.)
Figure 21: Banking assets (% of GDP, average 2002-2008)
Source: World Bank Financial Structure Database (cited in Anzoategui et al., 2010)
35. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 22: Banking sector credit to private sector (% of GDP, average 2002-2008)
Source: World Bank Financial Structure Database (cited in Anzoategui et al., 2010)
However, using both the Herfindahl and Lerner indices to measure competition, Anzoategui
et al. (2010) studied the region’s banking sector and found it to suffer from a low degree of
competition compared to the banking sectors of other regions, and also concluded that this
situation did not improve in the period from 1994 to 2008. They blame a poor credit
information environment and excessive restrictions on entry into the sector.
The low level of competition in the banking sector is related to the high share of state-owned
banks in the sector. As we can see in Figure 23, extensive privatization of the banking sector
has taken place everywhere in the world in the last 40 years. Interestingly, while the Middle
East and North African region has participated in this trend, it has done less than the other
regions and is still left with one of the largest state shares (second only to South Asia
Though larger and relatively privileged (for example, they face lower funding costs), state-owned
banks have inferior profitability compared to those in the private sector (Farazi et al.,
34
2011).
36. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 23: Share of state banks in total banking sector assets (%), 1970-2005
Source: Levy-Yeiati et al. (2007), cited in Farazi et al. (2011), for 1970-2002; Farazi et al. (2011) for 2005. MENA
countries include Egypt, Jordan, Lebanon, Morocco, Tunisia and Yemen.
The effects of the low degree of competition in the sector can be seen in Figure 24, showing
the percentage of firms with loans or credit lines from financial institutions in various regions.
As we can see, the Middle East and North Africa region is one of the poorest performers with
respect to lending to both large firms and SMEs. Given that, as we have seen (Figures 20
and 22), the region does well in terms of credit to the private sector as a percentage of GDP,
it is clear that the lending activity of banks in the region is strongly focused on a narrow,
privileged group of customers. In addition to the low level of competition, some factors
indicated as underlying the low level of lending to the SME sector by Rocha et al. (2011)
include: poor registries of movable assets that could be used as collateral, poor public credit
registries, and the scarcity of private credit bureaus that could improve the availability of
credit information (Figure 24).
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37. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
Figure 24: Percentage of firms with loans or credit lines from financial institutions
Source: World Bank Enterprise Surveys (2006-2009), cited in Rocha et al. (2011)
5.2. Business environment
As we saw in Table 1, this region is one of the leaders in the developing world with respect to
the security of property rights. As we have seen with other regions, however, there is
considerable variance across countries (Table 6). The leaders, with IPRI scores of 6.5 or
better, are the United Arab Emirates, Bahrain, Oman and Saudi Arabia (in that order). But
there are others with much poorer performance (notably Iran with 4.2, Algeria with 4.3 and
Lebanon with 4.4).
As for regional average rankings on the Ease of Doing Business, as we saw in Figure 4 (see
section 2), the MENA region has the same average as Latin America and Caribbean (96),
which is somewhat lower than Eastern Europe and Central Asia (72). Figure 25
demonstrates the world ranking of the Ease of Doing Business for the countries in MENA
region. As one can see, Saudi Arabia has the leading position (11th in the world), followed –
at a great distance – by Bahrain, Israel, United Arab Emirates, and Qatar. Bringing up the
rear are Iraq, Syria, Algeria, and Iran.
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Figure 25: The World Ranking of the Ease of Doing Business
for the countries of MENA Region
Note: Missing Palestinian Authority and Libya
Source: World Bank (2010)
Table 6: Property rights indices for the countries of the Middle East and North Africa
37
Country
International
Property Rights
Index
Legal and
Political
Environment
Physical Property
Rights
Intellectual
Property Rights
Algeria 4.3 3.5 5.4 3.9
Bahrain 6.7 5.9 8.1 6.0
Egypt 5.2 4.6 6.2 4.9
Iran 4.2 3.5 5.4 3.8
Israel 6.3 6.1 5.9 7.0
Jordan 6.1 5.6 6.8 5.8
Kuwait 5.9 6.2 6.6 5.0
Lebanon 4.4 3.3 6.5 3.3
Libya 3.7 4.3 4.3 2.6
Morocco 5.3 4.6 6.2 5.1
Oman 6.7 6.6 7.8 5.6
Qatar 7.1 7.9 7.5 5.9
Saudi Arabia 6.5 5.6 7.9 5.9
Syria 4.8 3.7 6.2 4.6
Tunisia 6.0 5.7 7.2 5.2
Turkey 5.3 4.6 6.1 5.1
United Arab
Emirates 7.2 6.7 7.8 7.0
Source: International Property Rights Index (2011)
39. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
5.3. Foreign Direct Investment
Figure 26 shows the average net inflows of FDI to the region as a percentage of GDP during
the last decade. We can see an increase for the region to 2006 and a continuous decrease
afterwards. The decrease in the flow of FDI into the region from 2007 onwards is due to the
global financial crisis and was, as we have seen in section 3.3, also experienced in Latin
America and Eastern Europe and Central Asia. Table 7 shows the net inflow of FDI to the
countries of MENA region. As we can see, Jordan – albeit with enormous fluctuations – has
the highest record of net inflow of FDI (23% of its GDP in 2006 in the last decade) in the
region. Lebanon also continuously shows a high percentage of net inflow of FDI. However,
with the exceptions of Egypt, Israel and Bahrain (as well as Tunisia in 2006), FDI represents
a small share of GDP in the countries of the MENA region.
Figure 26: The Average Net Inflows of FDI to the countries of MENA Region,
2000-2009 (% of GDP)
38
Note: Missing Palestinian Authority, Qatar, and UAE
Source: World Bank Data Bases (2000-09)
41. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
40
6. Conclusions
The business environment in the MENA region cannot be characterized as a favorable one,
but it is far from being so poor as to preclude development, as in the case of much of sub-
Saharan Africa; it is even significantly better than that of South Asia, which has experienced
a great deal of private sector development in the last two decades. (Four countries in the
region can be singled out as having particularly poor business environments: Iran, Algeria,
Syria and Iraq, the latter having one of the worst in the world, largely due to internal security
problems.) Private property rights are on the average relatively well protected in the region,
especially with regard to physical (as opposed to intellectual) property, where protection
levels are almost on a par with the developed world. It is, however, important to remember
that this is a regional average, and if we look at particular countries, we note that there are
several where the situation with regard to the protection of property rights is very far below
the average (these countries include Algeria, Iran, Lebanon, and Syria, with the situation
especially dire in Libya).
Privatization has made a great deal of progress in the developing world, particularly in Latin
America, though the MENA countries have lagged somewhat. Privatization policy makers in
these countries need to pay particular attention to improvements in competition and the
institutional environment, as the region suffers particular deficits in these areas, particularly
with respect to competition. With respect to the latter, much attention has focused in recent
years on improvements in the business environment, which are necessary to spur
entrepreneurship and encouragement movement from the informal economy into the formal
sector. In this area the post-communist countries have been leaders; while Latin America
and the MENA region have also seen significant improvement, they still lag behind the new
European Union member states as well as some of the post-Soviet states (although the
MENA region performs very well with respect to the protection of property rights). The area
where the MENA region needs improvement most drastically is in the financial sector.
Although rich in savings, it performs very poorly in these countries with respect to the
provision of credit to the private sector (particularly small and medium-sized enterprises),
largely due to the insufficient level of competition in the sector. A few countries (including
Egypt, Lebanon and Libya) have even seen significant decreases in domestic lending to the
private sector as a percentage of GDP in the last decade (although the regional trend was in
the opposite direction).
42. CASE Network Studies & Analyses No.434 – Background Report on Private Sector …
41
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GDP per capita 2010 (current US$)
44
Appendix
Figure A1: GDP Per Capita for Seven Different Regions 2010 (current US$)
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Current US$
Sub-Saharan Africa 1,274
South Asia 1,313
Middle East & North Africa 3,229
East Asia and Pacific 3,873
Europe & Central Asia 7,484
Latin America & Caribbean 8,597
OECD members 35,098
World 9,197
Source: World Bank Data Bases (2009 and 2010)
Note: Data for Middle East and North Africa is dated 2009