This paper examines the motives behind foreign direct investment (FDI) in a group of four CIS countries (Ukraine, Moldova, Georgia and Kyrgyzstan) based on a survey of 120 enterprises. The results indicate that non-oil multi-national enterprises (MNEs) are predominantly oriented at serving local markets. Most MNEs in the CIS operate as 'isolated players', maintaining strong links to their parent companies, while minimally cooperating with local CIS firms. The surveyed firms secure the majority of supplies from international sources. For this reason, the possibility for spillovers arising from cooperation with foreign-owned firms in the CIS is rather low at this time. The lack of efficiency-seeking investment poses further concern regarding the nature of FDI in the region. The most significant problems identified in the daily operations of the surveyed foreign firms are: the volatility of the political and economic environment, the ambiguity of the legal system and the high levels of corruption.
Authored by: Malgorzata Jakubiak
Published in 2008
This paper 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
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
The report reviews key issues in energy trade and cooperation between the EU and CIS countries. It describes historical trends of oil and gas demand in the EU, other European and CIS countries and offers demand forecasts until 2030. Recent developments in oil and gas production and exports from Russia and Caspian countries are covered in detail leading to the discussion of the likely export potential of these regions. The key factors determining the production outlook, trade-offs and competition related to energy resources transportation choices are also discussed. The report also covers the interests and role of transit countries in relations between producer and consumer regions. The analytical section leads to policy recommendations that focus mainly on the EU.
Authored by: Sabit Bagirov, Leonid Grigoriev, Wojciech Paczynski, Vladimer Papava, Marcel Salikhov, Michael Tokmazishvili
Published in 2009
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Authored by: Camilla Jensen
Published in 2014
This paper studies costs and benefits of institutional harmonisation in the context of EU relations with its neighbors. The purpose of this paper is to outline the likely forms of institutional harmonisation between the EU and its Eastern neighbors and provide an
overview of the methodologies that can be used in measuring its effects (costs and benefits). This paper serves as a background for two measurement exercises – one on benefits and another on costs – that are to be undertaken during the second stage of research.
Authored by: Veliko Dimitrov, Vladimir Dubrovskiy, Anna Kolesnichenko, Irina Orlova
Published in 2007
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 CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
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
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
The report reviews key issues in energy trade and cooperation between the EU and CIS countries. It describes historical trends of oil and gas demand in the EU, other European and CIS countries and offers demand forecasts until 2030. Recent developments in oil and gas production and exports from Russia and Caspian countries are covered in detail leading to the discussion of the likely export potential of these regions. The key factors determining the production outlook, trade-offs and competition related to energy resources transportation choices are also discussed. The report also covers the interests and role of transit countries in relations between producer and consumer regions. The analytical section leads to policy recommendations that focus mainly on the EU.
Authored by: Sabit Bagirov, Leonid Grigoriev, Wojciech Paczynski, Vladimer Papava, Marcel Salikhov, Michael Tokmazishvili
Published in 2009
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Authored by: Camilla Jensen
Published in 2014
This paper studies costs and benefits of institutional harmonisation in the context of EU relations with its neighbors. The purpose of this paper is to outline the likely forms of institutional harmonisation between the EU and its Eastern neighbors and provide an
overview of the methodologies that can be used in measuring its effects (costs and benefits). This paper serves as a background for two measurement exercises – one on benefits and another on costs – that are to be undertaken during the second stage of research.
Authored by: Veliko Dimitrov, Vladimir Dubrovskiy, Anna Kolesnichenko, Irina Orlova
Published in 2007
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 CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
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 purpose of this paper is to analyze the sources, economic and social characteristics, of growth recovery, which followed the first period of output decline in two transition countries – Poland and Russia. They represent two different groups of transition countries (new EU member states vs. CIS) in terms of adopted transition strategy and accomplished results. Generally, fast reformers succeeded and slow reformers experienced a lot of troubles. Although eventually all former communist countries entered the path of economic growth, those which moved slowly lost sometimes the whole decade. Social costs of slow reforms were also dramatic: income degradation and rising inequalities, high level of poverty and corruption, various social and institutional distortions and pathologies, violation of human rights and civil and economic liberties, attempts of authoritarian restoration, etc.
Authored by: Marek Dabrowski, Oleksandr Rohozynsky, Irina Sinitsina
Published in 2004
This paper analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and nontradable sectors. Firstly, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependant on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of analysed shocks. Secondly, we conduct an empirical analysis of the behaviour of the tradable and nontradable sectors under different exchange rate regimes for seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.
Authored by: Przemyslaw Kowalski, Wojciech Paczynski, Łukasz Rawdanowicz
Published in 2003
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
The regulatory environment for businesses in Ukraine has been considered unfavorable and market unfriendly. Although various governments have made numerous efforts to improve it, many of these attempts have failed and increasing the quality of the regulatory environment in the country still remains on the agenda of the government. With this report we claim to review a set of measures undertaken in Ukraine after the Orange Revolution in the area of deregulation of business activity. The paper analyzes the effectiveness of actions undertaken in Ukraine in a general framework of successful regulatory policies implemented in other parts of the world. Based on this analysis we developed concrete public policy measures aiming to increase the quality of the regulatory environment in the country, which, in turn, should secure Ukraine’s further movement toward a real, functioning market economy.
Authored by: Ewa Balcerowicz, Oleg Ustenko
Published in 2006
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 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
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
Obstacles Encountered by Foreign Investors in Kosovonakije.kida
Abstract: The purpose of the paper is finding obstacles that led to the reduction of foreign ivestitors’ motive to
come to Kosovo. Through the survey was taken the opinion of the sample from 306 current investors with 100%
foreign capital operating in Kosovo. Descriptive analysis has depicted the main obstacles in their business
activity. Weak enforcement of law, corruption, failure to integrate into the EU, poor infrastructure, lack of
financial incentives, poor business climate, highlighted poverty, frequent legal changes are part of these
obstacles. However, Kosovo has the youngest workforce in Europe, well educated and who speak more than one
language. Multiple natural properties make it attractive, toond. The main conclusion that can be drawn from the
above findings is that Kosovo has not become fully available to all mechanisms to welcome the foreign investors.
It is suggested that the government comes up with concrete projects to stimulate investors and create the
necessary climate to develop their business.
Keywords: Foreign Investors in Kosovo; Obstacles encountered by investors, Surveys, Descriptive analysis.
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
Implementation of the European internal market and East-West integration has been accompanied by dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe's economic geography. This suggests that the implementation of the European internal market or the Euro has "made Europe smaller". In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
Authored by: Arne Melchior
Published in 2009
This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008.
Authored by: Marek Gora, Oleksandr Rohozynsky, Oksana Sinyavskaya
Published in 2010
The aim of this paper is to examine the issues of gender disparities in the Commonwealth of Independent States (CIS) region, with a special focus given to countries covered by the European Neighbourhood Policy (ENP). The analysis is conducted in several dimensions: labour participation, economic opportunity, political empowerment, educational attainment, and health and demography. Beside the comparative study of "in region differentials" done for the CIS, I analyze the trends in gender disparities in comparison to EU-12 and EU-15, using data for the period 1985-2005.
The study confirms the existence of slightly different paths in which gender disparities have evolved over time. While in EU-15 women participation in labour market, their remuneration, and position in public life have significantly increased, in majority of the CIS countries a gradual decrease of female labour activity was reported. In addition female representation in politics and public life has shrunken after and during the transition period. On the other hand in such fields as secondary and tertiary education attainment, health, and demography male population in the CIS region has became more disadvantaged, which also leads to enlarging gender gap.
Authored by: Magdalena Rokicka
Published in 2008
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
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
The empirical analysis of the determinants of institutional development in transition countries as well as the qualitative country studies summarized in this publication allow for some optimism concerning a potential impact of the EU on institution building and governance quality in CIS countries. Regression analysis reveals a positive impact of EU cooperation agreements below a membership perspective. Alternatively to the EU, entry into the NATO accession process also exerts incentives for better institutions which are often overlooked. In contrast, WTO membership is not found to have any impact on institution building in CIS countries. While there is room for some EU-related optimism given the results from the regression analysis it depends on the country-specific ENP action plans and programs whether or not ENP cooperation actually leads to Europeanization or institutional convergence towards EU standards in the CIS. The case studies on the effectiveness of Neighborhood Europeanization through ENP in Ukraine, Georgia, and Azerbaijan reveal that current EU policies towards these countries can be, at best, seen as a catalyst but not as a main driver of institutional convergence. A perspective for a stake in the internal market is on the long horizon for Ukraine only. ENP mechanisms for conflict resolution in Georgia and Azerbaijan have been rather weak before the recent clash in Abkhazia and South Ossetia. The top-down institutional convergence, i.e. an EU-first strategy, worked well for Enlargement Europeanization but implemented in the ENP it significantly reduces the leverage of the EU to create a ring of well-governed neighbour states.
Authored by: Thorsten Drautzburg, Andrea Gawrich, Inna Melnykovska, Rainer Schweickert
Published in 2008
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 paper examines the quality of the business climate in the group of the Commonwealth of Independent States (CIS) from the prospective of the level of development of entrepreneurship, and individual countries’ attractiveness to the foreign direct investments (FDI). The analysis suggests that the main obstacles for further improvements of the business climate in this group of countries are high level of corruption, inefficiency in the existing system of tax administration and regulation, discretionary implementation of custom and trade regulations, low level of property rights protection, and macroeconomic instability. Some explanations of the historical and institutional causes of these business impediments are provided.
Although the net FDI inflow to CIS countries has been substantially increased since the time they gained independence, it’s still well bellow than in Central & Eastern Europe Countries (CEE). The number of private enterprises per capita vastly varies within the CIS countries, with some of them approaching the OECD level, but some else lagging far behind. FDI stocks also unequally distribute within the CIS group. Fuel exporting countries are better off than fuel importing countries, although the individual country’s business climate within two groups does not differ significantly.
As a conclusion, paper suggests a number of concrete public policy recommendations aiming to improve business climate in the CIS region. This paper focuses on discussing the deep systemic causes of the existing business and investment climate in the CIS, its potential negative implications for economic growth and possible cures.
Authored by: Vladimir Dubrovskiy, Oleg Ustenko
Published in 2005
People looking out for International Trade theories, This Porters Diamond will be a useful presentation for you!... If requested on mail i will send you any particular Topic in International Business.
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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 purpose of this paper is to analyze the sources, economic and social characteristics, of growth recovery, which followed the first period of output decline in two transition countries – Poland and Russia. They represent two different groups of transition countries (new EU member states vs. CIS) in terms of adopted transition strategy and accomplished results. Generally, fast reformers succeeded and slow reformers experienced a lot of troubles. Although eventually all former communist countries entered the path of economic growth, those which moved slowly lost sometimes the whole decade. Social costs of slow reforms were also dramatic: income degradation and rising inequalities, high level of poverty and corruption, various social and institutional distortions and pathologies, violation of human rights and civil and economic liberties, attempts of authoritarian restoration, etc.
Authored by: Marek Dabrowski, Oleksandr Rohozynsky, Irina Sinitsina
Published in 2004
This paper analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and nontradable sectors. Firstly, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependant on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of analysed shocks. Secondly, we conduct an empirical analysis of the behaviour of the tradable and nontradable sectors under different exchange rate regimes for seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.
Authored by: Przemyslaw Kowalski, Wojciech Paczynski, Łukasz Rawdanowicz
Published in 2003
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
The regulatory environment for businesses in Ukraine has been considered unfavorable and market unfriendly. Although various governments have made numerous efforts to improve it, many of these attempts have failed and increasing the quality of the regulatory environment in the country still remains on the agenda of the government. With this report we claim to review a set of measures undertaken in Ukraine after the Orange Revolution in the area of deregulation of business activity. The paper analyzes the effectiveness of actions undertaken in Ukraine in a general framework of successful regulatory policies implemented in other parts of the world. Based on this analysis we developed concrete public policy measures aiming to increase the quality of the regulatory environment in the country, which, in turn, should secure Ukraine’s further movement toward a real, functioning market economy.
Authored by: Ewa Balcerowicz, Oleg Ustenko
Published in 2006
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 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
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
Obstacles Encountered by Foreign Investors in Kosovonakije.kida
Abstract: The purpose of the paper is finding obstacles that led to the reduction of foreign ivestitors’ motive to
come to Kosovo. Through the survey was taken the opinion of the sample from 306 current investors with 100%
foreign capital operating in Kosovo. Descriptive analysis has depicted the main obstacles in their business
activity. Weak enforcement of law, corruption, failure to integrate into the EU, poor infrastructure, lack of
financial incentives, poor business climate, highlighted poverty, frequent legal changes are part of these
obstacles. However, Kosovo has the youngest workforce in Europe, well educated and who speak more than one
language. Multiple natural properties make it attractive, toond. The main conclusion that can be drawn from the
above findings is that Kosovo has not become fully available to all mechanisms to welcome the foreign investors.
It is suggested that the government comes up with concrete projects to stimulate investors and create the
necessary climate to develop their business.
Keywords: Foreign Investors in Kosovo; Obstacles encountered by investors, Surveys, Descriptive analysis.
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
Implementation of the European internal market and East-West integration has been accompanied by dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe's economic geography. This suggests that the implementation of the European internal market or the Euro has "made Europe smaller". In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
Authored by: Arne Melchior
Published in 2009
This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008.
Authored by: Marek Gora, Oleksandr Rohozynsky, Oksana Sinyavskaya
Published in 2010
The aim of this paper is to examine the issues of gender disparities in the Commonwealth of Independent States (CIS) region, with a special focus given to countries covered by the European Neighbourhood Policy (ENP). The analysis is conducted in several dimensions: labour participation, economic opportunity, political empowerment, educational attainment, and health and demography. Beside the comparative study of "in region differentials" done for the CIS, I analyze the trends in gender disparities in comparison to EU-12 and EU-15, using data for the period 1985-2005.
The study confirms the existence of slightly different paths in which gender disparities have evolved over time. While in EU-15 women participation in labour market, their remuneration, and position in public life have significantly increased, in majority of the CIS countries a gradual decrease of female labour activity was reported. In addition female representation in politics and public life has shrunken after and during the transition period. On the other hand in such fields as secondary and tertiary education attainment, health, and demography male population in the CIS region has became more disadvantaged, which also leads to enlarging gender gap.
Authored by: Magdalena Rokicka
Published in 2008
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
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
The empirical analysis of the determinants of institutional development in transition countries as well as the qualitative country studies summarized in this publication allow for some optimism concerning a potential impact of the EU on institution building and governance quality in CIS countries. Regression analysis reveals a positive impact of EU cooperation agreements below a membership perspective. Alternatively to the EU, entry into the NATO accession process also exerts incentives for better institutions which are often overlooked. In contrast, WTO membership is not found to have any impact on institution building in CIS countries. While there is room for some EU-related optimism given the results from the regression analysis it depends on the country-specific ENP action plans and programs whether or not ENP cooperation actually leads to Europeanization or institutional convergence towards EU standards in the CIS. The case studies on the effectiveness of Neighborhood Europeanization through ENP in Ukraine, Georgia, and Azerbaijan reveal that current EU policies towards these countries can be, at best, seen as a catalyst but not as a main driver of institutional convergence. A perspective for a stake in the internal market is on the long horizon for Ukraine only. ENP mechanisms for conflict resolution in Georgia and Azerbaijan have been rather weak before the recent clash in Abkhazia and South Ossetia. The top-down institutional convergence, i.e. an EU-first strategy, worked well for Enlargement Europeanization but implemented in the ENP it significantly reduces the leverage of the EU to create a ring of well-governed neighbour states.
Authored by: Thorsten Drautzburg, Andrea Gawrich, Inna Melnykovska, Rainer Schweickert
Published in 2008
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 paper examines the quality of the business climate in the group of the Commonwealth of Independent States (CIS) from the prospective of the level of development of entrepreneurship, and individual countries’ attractiveness to the foreign direct investments (FDI). The analysis suggests that the main obstacles for further improvements of the business climate in this group of countries are high level of corruption, inefficiency in the existing system of tax administration and regulation, discretionary implementation of custom and trade regulations, low level of property rights protection, and macroeconomic instability. Some explanations of the historical and institutional causes of these business impediments are provided.
Although the net FDI inflow to CIS countries has been substantially increased since the time they gained independence, it’s still well bellow than in Central & Eastern Europe Countries (CEE). The number of private enterprises per capita vastly varies within the CIS countries, with some of them approaching the OECD level, but some else lagging far behind. FDI stocks also unequally distribute within the CIS group. Fuel exporting countries are better off than fuel importing countries, although the individual country’s business climate within two groups does not differ significantly.
As a conclusion, paper suggests a number of concrete public policy recommendations aiming to improve business climate in the CIS region. This paper focuses on discussing the deep systemic causes of the existing business and investment climate in the CIS, its potential negative implications for economic growth and possible cures.
Authored by: Vladimir Dubrovskiy, Oleg Ustenko
Published in 2005
People looking out for International Trade theories, This Porters Diamond will be a useful presentation for you!... If requested on mail i will send you any particular Topic in International Business.
All the Best!
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
In Central Asian countries the macroeconomic situation characterized by low level of public
investment. Peculiarities of transition economies led to greater complexity of the investment processes and
strengthened the factors opposing to IFDI.
The aim of this study is to estimate the impact of the removal of NTBs in trade between the EU and its selected CIS partners: Russia, Ukraine, Georgia, Armenia and Azerbaijan (CIS5). The report includes a discussion of methodologies of measurement of non-tariff barriers and the impact of their removal, including a review of previous studies focusing on CEE and CIS regions. Further, we employ a computable general equilibrium model encompassing the following three pillars of trade facilitation: legislative and regulatory approximation, reform of customs rules and procedures and liberalization of the access of foreign providers of services. We conclude that a reduction of NTBs and improved access to the EU market would bring significant benefits to the CIS5 countries in terms of welfare gains, GDP growth, increases in real wages and expansion of international trade. The possible welfare implications of deep integration with the EU range from 5.8% of GDP in Ukraine to sizeable expected gains in Armenia (3.1%), Russia (2.8%), Azerbaijan (1.8%) and Georgia (1.7%).
Authored by: Maryla Maliszewska, Irina Orlova, Svitlana Taran
Published in 2009
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 investigates the evolution and determinants of manufactured exports and FDI in MED-11 countries over the period 1985-2009 as well as the prospects of their evolution under different scenarios pertaining to the evolution of the determinants. The econometric analysis confirmed the role of exchange rate depreciation, the openness of the economy and the quality of institution and infrastructure in fostering manufactured exports and FDI inflows in the Region. The prospects' assessment suggested that a scenario of deeper integration with the EU entails superior performance regarding manufactured exports and FDI than status quo or less integration with the EU but greater regional integration.
Authored by: Khalid Sekkat
Published in 2012
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
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 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
Migration of capital, transnationalization of the world economy jung boramiriotas
Translated version of International Economics Master thesis from the St. Petersburg State University of Economics & Finance in 2008.
(Original is in Russian)
English version is also available.
Site-Selection Process and Agents in FDI PromotionZoran Vaupot
In the last few decades, foreign direct investments
have grown in their importance. We have access to a rich
set of literature about FDI determinants and FDI promotion
activities.
The research about the site-selection process
conducted by foreign investors is much less abundant. We
propose an explanation to this phenomenon and possible
changes in strategic approach by combining conclusions
from existing literature concerning the topics about investment
promotion process, its stakeholders, site-selection
process, and institutional theory.
The main conclusions are that a better customer-centric orientation is needed in the whole process of FDI promotion and that the relatively neglected importance of media should be improved by putting more attention on their role according to the findings of institutional theory; these are also the proposed axes of future research.
The originality of the present research is the combination of theoretical findings with the practical experiences of the author gained while working as an international business consultant.
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
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 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
Prospects for Developing System of State Promotion of Export in the Republic ...ijtsrd
In this article, the author researches Chinese experience of promoting export, areas of state regulation of exports, support for local producers and export support and developed proposals for export promotion in Uzbekistan. Comparative analysis of the economic development of the People’s Republic of China, its impact on international trade and the system of state promotion for exports between Uzbekistan and China, the main problems in the development of the export support system of Uzbekistan and exports promotion in Uzbekistan by exploring the possibilities of using the Chinese experience in the development of the export promotion system. Sarvar Inagamov "Prospects for Developing System of State Promotion of Export in the Republic of Uzbekistan" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-6 | Issue-1 , December 2021, URL: https://www.ijtsrd.com/papers/ijtsrd49082.pdf Paper URL: https://www.ijtsrd.com/economics/international-economics/49082/prospects-for-developing-system-of-state-promotion-of-export-in-the-republic-of-uzbekistan/sarvar-inagamov
After a long period in which state-led development was the dominant economic paradigm, since the 1980s private sector development has been the focus for economic policy makers. It is probably no coincidence that economic growth, stagnant for a few decades in much of the developing world, took off in the 1990s after this policy shift, and has generally remained high (in spite of a wave of crises and recessions in the late 1990s and early 2000s). Privatization has made a great deal of progress in the developing world, particularly in Latin America, though the Middle East and North Africa (MENA) have lagged somewhat.
Authored by: Richard Woodward, Mehdi Safavi, Piotr Kozarzewski
Published in 2012
The 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
In this paper we investigate the effects of EU enlargement on price convergence. The internal market is expected to boost integration and increase efficiency and welfare through a convergence of prices in product markets. Two principal drivers are crucial to explain price developments. On the one hand, higher competition exerts a downward pressure on prices because of lower mark ups. On the other hand, the catching up process of low income countries leads to a rise in the price levels and higher inflation over a transition period. Using comparative price levels for individual product categories price convergence can be established. However, the speed of convergence is rather slow, with half lives around 10 years. The enlargement has slightly stimulated the convergence process, and this impact is robust across different groups of countries. Moreover, the driving forces of convergence are explored. In line with theoretical predictions, the rise in competition exerts a downward pressure on prices, while catching up of low income countries leads to a rise in price levels.
Authored by: Christian Dreger, Konstantin Kholodilin, Kirsten Lommatzsch, Jirka Slacalek, Przemyslaw Wozniak
Published in 2007
The aim of the paper is to analyze theoretically and empirically the likely impact of the reduction in exchange rate uncertainty, due to the EMU accession, on the intensity of FDI inflow into candidate countries. Theoretical models give an ambiguous picture of how exchange rate uncertainty and volatility affect direction and magnitude of FDI inflows. The main contribution of this paper is in finding that exchange rate uncertainty and volatility may negatively influence the decision to locate investment in transition and accession countries. Nominal exchange rate uncertainty seems to particularly hamper FDI inflows in accession countries. The key finding of this paper is that euro adoption is likely to exert a positive influence on FDI inflows in accession countries.
Authored by: Michal Brzozowski
Published in 2003
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
Similar to CASE Network Studies and Analyses 370 - The Motives and Impediments to FDI in the CIS (20)
The report examines the social and economic drivers and impact of circular migration between Belarus and Poland, Slovakia, and the Czech Republic. The core question the authors sought to address was how managing circular migration could, in the long term, help to optimise labour resources in both the country of origin and the destination countries. In the pages that follow, the authors of the report present the current and forecasted labour market and demographic situation in their respective countries as well as the dynamics and characteristics of short-term labour migration flows between Belarus and Poland, Slovakia, and the Czech Republic, concentrating on the period since 2010. They also outline and discuss related policy responses and evaluate prospects for cooperation on circular migration.
Podręcznik został opracowany w celu przekazania trenerom i nauczycielom podstawowej wiedzy, która może być przydatna w prowadzeniu szkoleń promujących pracę rejestrowaną. Prezentuje on z jednej strony korzyści z pracy rejestrowanej, z drugiej – potencjalne koszty związane z pracą nierejestrowaną. W pierwszej kolejności informacje te przedstawiono w odniesieniu do pracowników najemnych (rozdział 2), podkreślając w sposób szczególny to, że negatywne konsekwencje pracy nierejestrowanej są ponoszone przez całe życie. Ze względu na specyficzną sytuację cudzoziemców pracujących w Polsce konsekwencje ponoszone przez tę grupę opisano oddzielnie (rozdział 3). Ponadto zaprezentowano skutki dotyczące pracodawców z szarej strefy z wyodrębnieniem tych, którzy zatrudniają cudzoziemców (rozdział 4). Uzupełnieniem przedstawionych informacji jest opis działań podejmowanych przez państwo w celu ograniczenia zjawiska pracy nierejestrowanej w Polsce (rozdział 5) oraz prowadzonych w Wielkiej Brytanii, czyli w kraju będącym liderem w walce z szarą strefą (rozdział 6).
European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
One of the key instruments applied toward these goals is the retirement age. Formally it is a legally established boundary: once people have crossed it – on average – they significantly lose their ability to perform work (the so-called old-age risk). But since the 1970s, in many developed countries the retirement age has become an instrument of social and labor-market policy. Specifically, in the 1970s and ‘80s, an early retirement age was perceived as a solution allowing a reduction in the supply of labor, particularly among people with relatively low competencies who were approaching retirement age, which is called the lump of labor fallacy. It was often believed that people taking early retirement freed up jobs for the young. But a range of economic evidence shows that the number of jobs is not fixed, and those who retire don’t in fact free up jobs. On the contrary, because of higher spending by pension systems, labor costs rise, which limits the supply of jobs. In general, a good situation on the labor market supports employment of both the youngest and the oldest labor force participants. Additionally, a lower retirement age for women was maintained, which resulted to a high degree from cultural conditions and norms that are typical for traditional societies.
Until now, the banking sector has been one of the strong points of Poland’s economy. In contrast to banks in the U.S. and leading Western European economies, lenders in Poland came through the 2008 global financial crisis without a scratch, without needing state financial support. But in recent years the industry’s problems have been growing, creating a threat to economic growth and gains in living standards.
For an economy’s productivity to increase, funds can’t go to all companies evenly, and definitely shouldn’t go to those that are most lacking in funds, but to those that will use them most efficiently. This is true of total external financing, and thus funding both from the banking sector and from parabanks, the capital market and funds from public institutions. In Poland, in light of the relatively modest scale of the capital market, banks play a clearly dominant role in external financing of companies. This is why the author of this text focuses on the bank credit allocation efficiency.
The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West.
The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.
This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland.
Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009–2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of
individuals into informal employment, I use a rich set of control variables representing several individual characteristics.
Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is
stable over the analysed time period (2009–2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland.
Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
The rule of law, by securing civil and economic rights, directly contributes to social prosperity and is one of our societies’ greatest achievements. In the European Union (EU), the rule of law is enshrined in the Treaties of its founding and is recognised not just as a necessary condition of a liberal democratic society, but also as an important requirement for a stable, effective, and sustainable market economy. In fact, it was the stability and equality of opportunity provided by the rule of law that enabled the post-war Wirtschaftswunder in Germany and the post-Communist resuscitation of the economy in Poland.
But the rule of law is a living concept that is constantly evolving – both in its formal, de jure dimension, embodied in legislation, and its de facto dimension, or its reception by society. In Poland, in particular, according to the EU, the rule of law has been heavily challenged by government since 2015 and has evolved amid continued pressure exerted on the institutions which execute laws. More recently, the outbreak of the COVID-19 pandemic transformed the perception of the rule of law and its boundaries throughout the EU and beyond (Marzocchi, 2020).
This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported.
In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
Of the EU-28, the smallest Gaps were observed in Sweden (0.7 percent), Croatia (3.5 percent), and Finland (3.6 percent), the largest – in Romania (33.8 percent), Greece (30.1 percent), and Lithuania (25.9 percent). Overall, half of the EU-28 MS recorded a Gap above 9.2 percent. In nominal terms, the largest Gaps were recorded in Italy (EUR 35.4 billion), the United Kingdom (EUR 23.5 billion), and Germany (EUR 22 billion).
The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic.
A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation.
"Many brilliant prophecies have appeared for the future of the EU and our entire planet. I believe that Europe, in its own style, will draw pragmatic conclusions from the crisis, not revolutionary ones; conclusions that will allow us to continue enjoying a Europe without borders. Brussels will demonstrate its usefulness; it will react ably and flexibly. First of all, contrary to the deceitful statements of members of the Polish government, the EU warned of the threats already in 2021. Secondly, already in mid-March EU assistance programs were ready, i.e. earlier than the PiS government’s “shield” program. The conclusion from the crisis will be a strengthening of all the preventive mechanisms that allow us to recognize threats and react in time of need. Research programs will be more strongly directed toward diagnosing and treating infectious diseases. Europe will gain greater self-sufficiency in the area of medical equipment and drugs, and the EU – greater competencies in the area of the health service, thus far entrusted to the member states. The 2021-27 budget must be reconstructed, to supplement the priority of the Green Deal with economic stimulus programs. In this way structural funds, which have the greatest multiplier effect for investment and the labor market, may return to favor. So once again: an addition, as a conclusion from the crisis, and not a reinvention of the EU," writes Dr. Janusz Lewandowski the author of the 162nd mBank-CASE seminar Proceeding.
Dla wielu rodaków europejskość Polski jest oczywista, trudno jest im nawet wyobrazić sobie, jak kształtowałyby się losy naszego kraju bez uczestnictwa w integracji europejskiej. Szczególnie młode pokolenie traktuje osiągnięty przez nas dzięki uczestnictwie w Unii ogromny postęp cywilizacyjny jako coś danego i naturalnego. Jednak świadomość tego, jaki był nasz punkt wyjścia, jaką przeszliśmy drogę i jak przyczyniły się do tego unijne działania oraz jakie wynikały z tego korzyści powinna nam stale towarzyszyć. Bez tej świadomości, starannego weryfikowania faktów i docenienia naszych osiągnięć grozi nam uleganie niesprawdzonym argumentom przeciwników integracji europejskiej i popełnienie nieodwracalnych błędów. Dla tych, którzy chcą poznać te fakty, przygotowany został raport "Nasza Europa. 15 lat Polski w Unii Europejskiej". Podjęto w nim ocenę 15 lat członkostwa Polski z perspektywy doświadczeń procesu integracji, z jego barierami i sukcesami, a także wyzwaniami przyszłości.
Raport jest wynikiem pracy zbiorowej licznych ekspertów z różnych dziedzin, od wielu lat analizujących wielowymiarowe efekty działania instytucji UE oraz współpracy z krajami członkowskimi na podstawie europejskich wartości i mechanizmów. Autorzy podsumowują korzyści członkostwa Polski w Unii Europejskiej na podstawie faktów, nie stroniąc jednakże od własnych ocen i refleksji.
This report is the result of the joint work of a number of experts from various fields who have been - for many years – analysing the multidimensional effects of EU institutions and cooperation with Member States pursuant to European values and mechanisms. The authors summarise the benefits of Poland’s membership in the EU based on facts; however, they do not hide their own views and reflections. They also demonstrate the barriers and challenges to further European integration.
This report was prepared by CASE, one of the oldest independent think tanks in Central and Eastern Europe, utilising its nearly 30 years of experience in providing objective analyses and recommendations with respect to socioeconomic topics. It is both an expression of concern about Poland’s future in the EU, as well as the authors’ contribution to the debate on further European integration.
Poland’s new Employee Capital Plans (PPK) scheme, which is mandatory for employers, started to be implemented in July 2019. The article looks at the systemic solutions applied in the programme from the perspective of the concept of the simultaneous reconstruction of the retirement pension system. The aim is to present arguments for and against the project from the point of view of various actors, and to assess the chances of success for the new system. The article offers a detailed study of legal solutions, an analysis of the literature on the subject, and reports of institutions that supervise pension funds. The results of this analysis point to the lack of cohesion between certain solutions of the 1999 pension reform and expose a lack of consistency in how the reform was carried out, which led to the eventual removal of the capital part of the pension system. The study shows that additional saving for old age is advisable in the country’s current demographic situation and necessary for both economic and social reasons. However, the systemic solutions offered by the government appear to be chiefly designated to serve short-term state interests and do not create sufficient incentives for pension plan participants to join the programme.
Belarus was among the few post-communist countries to resign from comprehensive market reforms and attempt to improve the efficiency of the economy through administrative means, leaving market mechanisms only an auxiliary role. Since its inception, the ‘Belarusian economic model’ has undergone several revisions of a de-statisation and de-regulation kind, but still the Belarusian economy remains dominated by the state. This paper analyses the characteristic features of the Belarusian economic system – especially those related to the public sector – as well as its evolution over time during the period following its independence. The paper concludes that during the post-Soviet period, the Belarusian economy evolved from a quasi-Soviet system based on state property, state planning, support to inefficient enterprises and the massive redistribution of funds to a more flexible hybrid model where the public sector still remains the core of the economy. The case of Belarus shows that presently there is no appropriate theoretical perspective which, in an unmodified form, could be applied to study this type of economic system. Therefore, a new perspective based on an already existing but updated approach or a multidisciplinary approach that incorporates the duality of the Belarusian economy is required.
Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991.
As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
The trade war between the U.S. and China began in March 2018. The American side raised import duties on aluminum and steel from China, which were later extended to other countries, including Canada, Mexico and the EU member states. This drew a negative reaction from those countries and bilateral negotiations with the U.S. In June 2018 America, referring to Section 301 of its 1974 Trade Act, raised tariffs to 25% on 818 groups of products imported from China, arguing that the tariff increase was a response to years of theft of American intellectual property and dishonest trade practices, which has caused the U.S. trade deficit.
Will this trade war mean the collapse of the multilateral trading system and a transition to bilateral relationships? What are the possibilities for increasing tariffs in light of World Trade Organization rules? Can the conflict be resolved using the WTO dispute-resolution mechanism? What are the consequences of the trade war for American consumers and producers, and for suppliers from other countries? How high will tariffs climb as a result of a global trade war? How far can trade volumes and GDP fall if the worst-case scenario comes to pass? Professor Jan J. Michałek and Dr. Przemysław Woźniak give answers to these questions in the mBank-CASE Seminar Proceeding No. 161.
This Report has been prepared for the European Commission, DG TAXUD under contract TAXUD/2017/DE/329, “Study and Reports on the VAT Gap in the EU-28 Member States” and serves as a follow-up to the six reports published between 2013 and 2018.
This Study contains new estimates of the Value Added Tax (VAT) Gap for 2017, as well as updated estimates for 2013-2016. As a novelty in this series of reports, so called “fast VAT Gap estimates” are also presented the year immediately preceding the analysis, namely for 2018. In addition, the study reports the results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). It also scrutinises the Policy Gap in 2017 as well as the contribution that reduced rates and exemptions made to the theoretical VAT revenue losses.
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how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
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The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
3. The CASE Network is a group of economic and social research centers in Poland, Kyrgyzstan,
Ukraine, Georgia, Moldova, and Belarus. Organizations in the network regularly conduct joint re-search
and advisory projects. The research covers a wide spectrum of economic and social issues,
including economic effects of the European integration process, economic relations between the
EU and CIS, monetary policy and euro-accession, innovation and competitiveness, and labour
markets and social policy. The network aims to increase the range and quality of economic re-search
and information available to policy-makers and civil society, and takes an active role in on-going
debates on how to meet the economic challenges facing the EU, post-transition countries
and the global economy.
The CASE network consists of:
• CASE – Center for Social and Economic Research, Warsaw, est. 1991,
www.case-research.eu
• CASE – Center for Social and Economic Research – Kyrgyzstan, est. 1998,
www.case.elcat.kg
• Center for Social and Economic Research - CASE Ukraine, est. 1999,
www.case-ukraine.kiev.ua
• CASE –Transcaucasus Center for Social and Economic Research, est. 2000,
www.case-transcaucasus.org.ge
• Foundation for Social and Economic Research CASE Moldova, est. 2003,
www.case.com.md
• CASE Belarus - Center for Social and Economic Research Belarus, est. 2007.
4. Alina Kudina, Malgorzata Jakubiak
Contents
1. Introduction ...................................................................................................................................7
2. Investment motives .......................................................................................................................8
3. Evidence on determinants of FDI in the current NMS and Western Balkans................................8
4. Determinants of FDI in the CIS ...................................................................................................10
5. FDI inflows in the CIS .................................................................................................................12
6. Survey results .............................................................................................................................13
7. Econometric analysis ..................................................................................................................20
8. Conclusions ................................................................................................................................23
References......................................................................................................................................25
Annexes..........................................................................................................................................27
4 CASE Network Studies & Analyses No. 370
5. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
The Authors
Dr. Alina Kudina, Alina Kudina is an Assistant Professor of International Business at Warwick
Business School and an Associate of the U.K.’s Advanced Institute of Management Research. She
did her PhD at Saϊd Business School, University of Oxford and was a Lecturer at University Col-lege
London before coming to Warwick. Before that she was involved with the Foreign Investment
Advisory Service (the International Finance Corporation, Washington, DC) analysing
the impediments to business conduct and FDI in Russia. Alina has collaborated with CASE from
1998 conducting economic research and policy analysis for the Cabinet of Ministers of Ukraine.
Her main areas of professional interest are: macroeconomics, economic growth, foreign direct in-vestments
and economics of multinational enterprises.
Małgorzata Jakubiak, Vice President of the CASE Foundation, graduated from the University
of Sussex (UK; 1997) and the Department of Economics at the University of Warsaw (1998). Her
main areas of interest include foreign trade and macroeconomics. She has published texts on
trade flows and exchange rates in emerging or transition economies, EU integration with its
neighbours and CIS economies. During 2000–2001 she was working at the CASE mission in
Ukraine as resident consultant.
CASE Network Studies & Analyses No. 370 5
6. Alina Kudina, Malgorzata Jakubiak
Abstract
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 effi-ciency-
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.
6 CASE Network Studies & Analyses No. 370
7. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
1. Introduction
The importance of transition economies as investment sites for multinational corporations has
drastically increased over the last decade. With the economic liberalization of the Central and
Eastern European countries and the former Soviet republics, as well as major developments in the
Chinese and East Asian economies, vast market and production opportunities have opened up for
multinational businesses. Although a number of multinational corporations have successfully man-aged
to capitalize on these opportunities, other firms have been significantly less successful in
their internationalization efforts. Various internal and external factors were shown to have consid-erable
effects on the success or failure of multinational businesses in transition economies (Peng
and Heath 1996; Khanna and Palepu 1997; Luo and Peng 1999; Isobe et al 2000; Peng and Luo
2000; Uhlenbruck and De Castro 2000).
Among the transition economies, the region of the Commonwealth of Independent States
(CIS) experienced a boom in foreign direct investment (FDI) in recent years only. The magnitude of
capital inflows resembles the FDI that poured into Central and East European (CEE) countries in
the 1990s. The FDI coming in to the CEE countries in 1999 contributed to a major growth in the
productivity of local industries and services, acting as an important source of modern technology
and managerial knowledge.
The aim of the current analysis is to explore the motives for FDI in the selected CIS countries
(Ukraine, Moldova, Georgia and Kyrgyzstan), and to analyse how the business and industry envi-ronment
in these countries affects foreign investors. The study targets three groups of investors
with potentially different investment motives: market-seekers, resource/labour-seekers and effi-ciency-
seekers (classification based on Dunning, 1993). This analysis will complement earlier re-sults,
which were largely focused on Russia (Rogacheva & Mikerova, (2003), Ledayeva (2007), by
showing what aspects of the investment climate are of particular concern to investors in the CIS. It
will also increase our understanding of the problems that investors are facing in the CIS, through
differentiating among various investment types, which is the novel feature of this analysis.
We approached this task by surveying foreign-owned companies located in the four CIS coun-tries
(120 firms in total). The survey took place in 2007–2008 in Georgia, Kyrgyzstan, Moldova and
Ukraine1. Oil and resource-attracting countries were dropped from the analysis. Thus, we were
able to see analogies with the CEE or SEE (South Eastern European) countries, which have at-tracted
mainly non-oil FDI.
The paper is organized as follows: The first part presents basic theoretical and empirical stud-ies
on the motives for FDI in general and in the CEE/CIS setting in particular. The next section de-scribes
key facts about FDI flows into the region. In the subsequent section, we investigate the
survey findings. This is followed by an econometric analysis of the data. The last section concludes
the paper and offers some suggestions to policy makers.
1 The authors would like to thank researchers from CASE Ukraine, CASE Kyrgyzstan, CASE Transcaucasus,
and CASE Moldova for their help with the administration of the survey, and in particular the researchers from
CASE Ukraine who prepared background material for this study.
CASE Network Studies & Analyses No. 370 7
8. Alina Kudina, Malgorzata Jakubiak
2. Investment motives
The literature on FDI identifies the three most common investment motivations: resource-seeking,
market-seeking and efficiency-seeking (Dunning, 1993). The availability of natural re-sources,
cheap unskilled or semi-skilled labor, creative assets and physical infrastructure promotes
resource-seeking activities. Historically, the most important host country determinant of FDI has
been the availability of natural resources, e.g. minerals, raw materials and agricultural products.
Although a major FDI determinant, the presence of natural resources by itself is not always a
sufficient reason for FDI to take place. A comparative advantage in natural resources usually gives
rise to trade rather than to FDI. Investment usually takes place when resource-abundant countries
either lack the large amounts of capital typically required for resource-extraction or do not have the
technical skills needed to extract or sell raw materials to the rest of the world. In addition, infra-structure
facilities for getting the raw materials out of the host country and to its final destination
have to be in place or need to be created (UNCTAD, 1998).
Labor-seeking investment is usually undertaken by manufacturing and service multi-national
enterprises (MNEs) from countries with high real labor costs. These MNEs set up or acquire sub-sidiaries
in countries with lower real labor costs to supply labor-intensive intermediate or final prod-ucts.
To attract such production, host countries often set up free trade or export processing zones
(Dunning, 1993).
Host countries attract market-seeking investment based on factors such as market size, per
capita income and market growth. For firms, new markets provide a chance to stay competitive
and grow within the industry as well as achieve economies of scale. Traditionally, FDI determinants
such as market size and growth were prevalent in markets for manufacturing products which were
sheltered from international competition by high tariffs or quotas that triggered "tariff-jumping" FDI
(UNCTAD, 1998, 107). Apart from market size and trade restrictions, MNEs may engage in mar-ket-
seeking investment when their main suppliers or customers have set up foreign producing fa-cilities
and in order to maintain their business, they must follow them overseas (Dunning, 1993,
58).
The motivation of efficiency-seeking FDI is to rationalize the structure of established resource-based
or market-seeking investment in such a way that the investing company can gain from the
common governance of geographically dispersed activities. An efficiency-seeking MNE aims to
take advantage of different factor endowments, cultures, institutional arrangements, economic sys-tems
and policies, and market structures by concentrating production in a limited number of loca-tions
to supply multiple markets (Dunning, 1993, 59). In order for efficiency-seeking foreign produc-tion
to take place, cross-border markets must be both well-developed and open, thus it often flour-ishes
in regionally integrated markets (Dunning, 1993, 59).
However, it is worth noting that many of the larger MNEs are pursuing pluralistic objectives
and most engage in FDI that combines the characteristics of each of the above categories. The
motives for foreign production may also change as, for example, in the case of a firm which be-comes
an established and experienced foreign investor (Dunning, 1993, 56).
3. Evidence on determinants of FDI in the current NMS and Western
Balkans
Market-seeking investors
The research on FDI determinants in the Central and Eastern European setting has been
abundant. Table 1 presents these studies according to the researched period and region. A num-ber
of studies found that investors in the Central and Eastern European (CEE) countries were
market-driven. Papers by Resmini (1999) and later ones by Merlevede and Shoors (2004) and
Johnson (2004) show that investors were looking for new market opportunities in the CEE coun-tries.
The same conclusion was obtained by Globerman, Shapiro and Tang (2004). This motive
was of particular importance in the 1990s, when many investors decided to open production facili-ties
in the CEE due to the high import protection in these countries at the time.
8 CASE Network Studies & Analyses No. 370
9. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
Table 1. Studies on FDI determinants in transition according to the analyzed period
Studies Period studied Countries studied
Bevan, Estrin, 2000 1994–1998 CEE
Campos, Kinoshita, 2003 1990–1998 CEE, Baltic, CIS
Carstensen, Toubal, 2003 1993–1999 CEE
Lansbury, Pain, Smidkova, 1996 1991–1993 CEE
Merlevede, Schoors, 2004 1997–1999 CEE, CIS
Resmini, 1999 1990–1995 CEE
Smarzynska, Wei, 2000 1995–1999 Worldwide
Smarzynska, Wei, 2002 1995–1999 USA
Tondel, 2001 1994–1998 CEE, CIS
Bandelj, 2002 1990–2000 CEE
Bevan, Estrin, 2004 1994–2000 CEE
Botric, Skuflic, 2005 1996–2002 SEE
Brada, Kutan, Yigit, 2004 1993–2001 CEE, Balkans
Globerman, Shapiro, Tang, 2004 1995–2001 CEE
Johnson, 2006 1993–2003 CEE
Malesky, 2006 1992–2004 Worldwide
Demekas, Horwath, Ribakova, Wu, 2005 2000–2002 SEE
Hunya, 2002 2000–2002 SEE
Meyer, 2005 late transition Worldwide
Shiells, 2003 2001 CIS
Strach, Everett, 2006 2001 Czech Republic
Note. SEE stands for countries of Southern and Eastern Europe i.e. usually ex-Yugoslavia plus Albania, Bul-garia
and Romania. CEE stands for Central and Eastern European countries, i.e. the Czech Republic, Hun-gary,
Poland, Slovakia (and sometimes Slovenia). CIS stands for the Commonwealth of Independent States.
Resource-seeking investors
It is also widely argued that FDI and the openness of the economy are positively related
(Botric and Skuflic 2005, Resmini 1999, Bevan and Estrin 2000, Smarzynska and Wei 2002).
Campos and Kinoshita (2003) examined the effect of cumulative external liberalization (which re-flected
the removal of trade controls and quotas and the moderation of tariff rates and foreign ex-change
rate restrictions) on FDI inflows and found this indicator to be both highly significant and
positive. Botric and Skuflic (2005) concluded that increasing trade with other economies will con-tribute
to the stronger integration of Southern and Eastern European (SEE) countries with other
economies in the region and positively influence FDI.
Hopes for increased integration with its highly developed neighbour, the EU, usually meant a
fall in overall protection throughout the 1990s. At the end of 1990s and at the beginning of the
2000s, the CEE countries and the Baltic States were already waiting for EU accession. Several
studies examined the effects of having a membership perspective on the willingness of outside
firms to invest in the CEE (Bevan and Estrin 2000, 2004, Merlevede and Shoors 2004, Globerman,
Shapiro, and Tang 2004). Prospects of EU membership were found to be positively and signifi-cantly
related to incoming FDI.
On the one hand, the removal of trade barriers most likely made imports more profitable than
capturing a market through FDI. On the other hand, there is evidence that the fall in protection en-hanced
further FDI inflows. We argue here that in the case of the CEE and the Balkan countries,
prospects of closer economic links with the EU and the fall in the future transaction costs made
foreign firms more eager to exploit the cheap and relatively skilled CEE/SEE labour.
Labour costs, which are classical sources of comparative advantage, were often found signifi-cant
and negative in equations estimating FDI determinants (Demekas, Horvath, Ribakova and Wu
2005, Smarzynska and Wei 2002). Merlevede and Shoors (2004) closely examined the sensitivity
of the influence of labour costs in transition economies by relating this variable with the time vari-able.
They measured the evolution of the unit labour cost in each country during the period studied
relative to other countries in a sample. They found that this variable alone is insignificant, but when
related with the time variable, it reveals a significant, negative impact on FDI. This indicates that
the impact of the relative unit labour cost as a determinant becomes more important during a tran-sition
period. Another aspect considered by investors was the quality of labour. Lansbury, Pain and
CASE Network Studies & Analyses No. 370 9
10. Alina Kudina, Malgorzata Jakubiak
Smidkova (1996) included an indicator of research activity (the relative stock of patents granted to
residents of the host economy) as a measure of the quality of human capital. They found both the
relative labour cost effect and the indicator of research intensity to be significant, which is consis-tent
with the notion that some investors are attracted to Central Europe due to a combination of
relatively low labour costs and the availability of skilled workers in particular sectors and countries.
Efficiency-seeking investors
The efficiency-seeking motive of foreign investors into the CEE countries is a relatively recent
one. It started to gain importance around 2004–2007, when ten new CEE and SEE countries en-tered
the EU. However, signs of this motive were observable even earlier. Campos and Kinoshita
(2003) showed that foreign investors in the CEE and Baltic states were attracted by the existence
of the agglomeration effect, and were positively influenced by the quality of the rule of law and ad-ministration.
The responsiveness of FDI inflows into the CEE countries to differences in relative
taxation vis-à-vis the old EU members could be evidence of the efficiency-seeking motive as well.
However, here the results are mixed so far. Lahreche-Revil (2006) added data on some of the cur-rent
new members2 to the EU15 sample and tried to separate the effects of corporate taxation in
the new EU members for the 1990–2002 sample. His conclusion was that taxation might drive FDI
flows, but only within the EU15. This factor was rather irrelevant in respect to FDI flow from old to
new members. A similar conclusion was obtained earlier by Carstensen and Toubal (2004), who
applied the difference between the statutory tax rates of two countries as a variable determining
bilateral FDI flows for the sample of the CEE countries in 1993–1999 and concluded that the esti-mated
parameter value was small and not significant. On the contrary, Edmiston et al (2003) sug-gested
that the imposition of an additional special tax rate reduced FDI as a percent of GDP and
higher tax rates led to lower inflows of FDI in the former Soviet Union (FSU) and CEE countries.
4. Determinants of FDI in the CIS
Resource-seeking investors
The abundance of natural resources in the CIS has been one of the most important determi-nants
of FDI. Shiells (2003) showed that up until the early 2000s, FDI in the CIS was related to the
extraction of natural resources, the construction of pipelines transporting these energy resources,
large privatizations, and debt/equity swaps to pay for energy supplies. The disappointing level of
FDI at that time reflected the weak investment climate in the region, particularly due to incomplete
structural reforms. Campos and Kinoshita (2003) also found resource-seeking to be the key moti-vation
for FDI in the CIS, whereas this factor had no effect on non-CIS transition countries.
Tondel (2001) stressed that, according to IMF estimates, between 75% and 82% of total FDI in
Azerbaijan was in the oil and gas industries. 30 cents of each dollar invested in other parts of the
economy was also related to investments in the oil and gas industries (Tondel 2001). Up until
2006, the vast majority of incoming FDI in Georgia was related to pipeline transportation. In Ka-zakhstan,
which recorded the second highest FDI per capita in the CIS (after Azerbaijan), most
investments have also been directed towards the natural resource sector. The abundance of en-ergy
resources in Russia were also quoted as an important determinant of FDI (Rogacheva and
Mikerowa 2003, Ledayeva 2007). Ledayeva (2007) noted that after the 1998 Russian financial cri-sis,
the importance of large cities, the availability of oil and gas resources, and the legislative risk
increased, while the importance of sea ports and political risk decreased. The study also showed
that the relatively low costs of production in Russia did not attract FDI.
Market-seeking investors
A number of studies on FDI in the CIS point to the paramount importance of market-seeking
as a motivation for investors. The earliest study of this kind is by Collins and Rodrick (1991). Ac-cess
to the domestic market was reported to be a major motivation for investment at the time when
the Soviet Union was falling apart. The survey was conducted among 54 larger companies operat-
2 Eight new member states that entered the EU in 2004, the CEECs.
10 CASE Network Studies & Analyses No. 370
11. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
ing in the USSR in 1990–91. The second most important motivating factor was the proximity to the
European Community.
The market-seeking motive was also demonstrated to be of high importance in later studies.
Tondel (2001) reports a high relevance of both market-seeking and natural resource-seeking mo-tives
in the CIS. The more recent results by Johnson (2006) also suggest that FDI in the CIS has
been both market and resource-driven. GDP per capita (market size) and oil effect (dummy) were
positive and significant in Johnson’s equations, while wages were negative.
The market-seeking motive was also found to be a determining factor for FDI in Russia. Ac-cording
to the results of the survey by Rogacheva and Mikerova (2003), the main motive for in-vestment
in Russia was market potential (which obtained 9 points out of 10). Natural resources
(especially energy) were also important (6 points). Strategic location (1 point) was the main con-cern
for the multinational companies doing business all over the world. Low costs (1 point) were
recognized as insignificant. Interestingly, the political and economic situation in Russia was con-sidered
stable enough to invest. The market-seeking motive in Russia was also confirmed by Le-dayeva
(2007).
Table 2 compares the studies of motivations for FDI in the CIS versus new EU member states
(NMS). This simplified review shows that foreign investors seek markets both in the CIS and in the
NMS. The difference is that natural resource-seeking factors prevail in the CIS, while factors that
relate to the efficient use of labour and cross-border efficiency are important in the NMS setting.
Table 2. The relation between FDI determinants and the character of investment decision
Group of countries Variables determining FDI inflows
CIS
Resource-seeking factors
Abundance of natural resources
Campos and Kinoshita, 2003
Johnson, 2006
Merlevede and Shoors, 2004
Shiells, 2003
Market-seeking factors
Market size (growth)
Tondel, 2001
Johnson, 2006
Merlevede and Shoors, 2004
Efficiency-seeking factors
N/A
Current new EU members
and Western Balkans
Resource-seeking factors
Labour
Demekas, Horvath, Ribakova and Wu, 2005
Smarzynska and Wei, 2002
Merlevede and Shoors, 2004
Lansbury, Pain and Smidkova, 1996
Market-seeking factors
Market size (growth)
Johnson, 2006
Merlevede nad Shoors, 2004
Population
Johnson, 2006
Efficiency-seeking factors
Institutions
Campos and Kinoshita, 2003
Transition progress
Tondel, 2001
Agglomeration
Campos and Kinoshita, 2003
Privatization method
Merlevede and Shoors 2004
Botric and Skuflic 2005
Source: own elaboration.
CASE Network Studies & Analyses No. 370 11
12. Alina Kudina, Malgorzata Jakubiak
5. FDI inflows in the CIS
FDI inflows to the CIS region as a whole averaged about USD 19 billion a year in 2000–2006.
Over half of this (USD 11 billion a year on average) went to the Russian Federation (see Figure 1).
This investment was mainly directed towards the extraction and transportation of energy re-sources.
Two other CIS countries with abundant energy-resources, i.e. Kazakhstan and Azerbai-jan,
attracted USD 3 billion and USD 1 billion per annum respectively during 2000–2006.
For comparison, the eight CEE countries which joined the EU in 20043 recorded a total of USD
25 billion FDI inflows per annum on average in 2000–2006. The largest country of this group, Po-land,
attracted an average of USD 9 billion per year, most of which was directed towards financial
intermediation and the manufacturing sectors. Poland was followed by the Czech Republic, which
attracted USD 6 billion per year on average in 2000–2006.
Figure 1. FDI inflows to the CIS, 1997–2006
30 000
25 000
20 000
15 000
10 000
5 000
0
-5 000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
USD million
Russian Federation
Kazakhstan
Ukraine
Azerbaijan
Georgia
Turkmenistan*
Belarus
Armenia
Moldova
Tajikistan
Uzbekistan
Kyrgyzstan
Note. * - Turkmenistan was in the CIS in 1991–2005; associate member since 2005.
Source: UNCTAD.
The highest FDI stocks per capita in the CIS were recorded by energy-producing and energy-transit
countries (see Figure 2). Azerbaijan and Kazakhstan accumulated over USD 1,500 per cap-ita
in 2005. The FDI stock per capita in Russia was close to 1,000 USD, and that of Georgia was
about 500 USD. To compare, per capita FDI stock in Croatia in 2005 was 2,800 USD, and in Ro-mania
and Bulgaria it was over 1,000 USD. FDI per capita in CEE countries ranged from 2,700
USD in Poland to 9,400 USD in Estonia.
Some of the CIS economies are very FDI-dependent, although their FDI per capita is not very
high. Tajikistan has been the extreme example here. FDI inflows in the 2000s accounted for the
majority of all investment in the country, which basically reflected the lack of domestic resources.
Over 1/3 of overall investment in the resource-rich Azerbaijan and Kazakhstan and in the con-sumption-
driven Moldova were made by foreigners during 2000–2006. On the other hand, Uzbeki-stan,
Belarus and Russia are not very FDI-dependent. Less than 10% of all investment in these
countries came from foreign firms.
In spite of the afore-mentioned exceptions (Tajikistan, Azerbaijan and Kazakhstan), the CIS
countries are, on average, less FDI-dependent than the CEE and SEE countries. The average
share of foreign firms in total investment in the eight NMS (without Bulgaria and Romania) in 2000–
2006 was around 23%, while in the SEE countries4 it was 26%. This also reflects the fact that the
CIS countries are on average still less open to FDI than their Central and South East European
neighbours.
3 The Czech Republic, Estonia, Hungary, Latvia, Lithuania. Poland, Slovakia and Slovenia.
4 Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia and Montenegro.
12 CASE Network Studies & Analyses No. 370
13. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
Figure 2. FDI stock per capita in the CIS in 2005
USD
0 500 1000 1500 2000
Azerbaijan
Kazakhstan
Russian Federation
Georgia
Armenia
Ukraine
Moldova
Turkmenistan*
Belarus
Kyrgyzstan
Tajikistan
Uzbekistan
Note. * - Turkmenistan was in the CIS in 1991–2005; associate member since 2005.
Source: UNCTAD.
Table 3. FDI inflows in percent of domestic investment in CIS, 1997–2006
Countries 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Commonwealth of Inde-pendent
States (CIS) 8.9 9.8 13.4 8.4 9.0 10.5 14.2 17.7 13.3 17.1
Tajikistan 11.1 16.9 3.7 39.6 11.6 48.3 13.0 100.0* 27.5 100.0*
Azerbaijan 71.7 60.0 27.2 2.5 16.8 65.5 83.9 72.0 30.7 --
Kazakhstan 36.7 33.1 53.9 40.5 53.9 43.8 29.4 36.9 11.9 27.6
Moldova, Republic of 20.5 20.2 17.5 64.1 41.7 31.0 20.1 27.1 28.0 29.7
Georgia 37.4 28.7 11.3 17.4 15.2 20.1 32.3 33.6 24.0 54.5
Armenia 19.5 72.0 40.3 29.6 18.7 22.1 18.7 27.2 19.0 16.4
Turkmenistan** 9.8 4.8 8.2 8.9 11.8 22.1 17.5 27.0 24.3 40.2
Kyrgyzstan 37.9 51.7 22.6 -- 1.9 1.8 17.4 54.4 11.3 45.7
Ukraine 6.3 9.1 8.2 9.7 10.6 8.5 13.8 11.7 43.0 21.0
Russian Federation 6.6 6.3 11.7 6.2 4.7 5.6 10.0 14.3 9.2 16.3
Belarus 9.9 5.1 13.9 4.5 3.4 7.7 3.8 2.6 4.0 3.4
Uzbekistan 3.2 3.1 2.6 2.3 3.2 3.0 3.3 7.0 3.0 5.4
Note. * - own estimate.
** - Turkmenistan was in the CIS in 1991–2005; associate member since 2005.
Source: UNCTAD.
In our subsequent research, oil and resource-attracting countries were dropped from the
analysis as we wanted to capture possible analogies with the CEE/SEE countries (which have at-tracted
mainly non-oil FDI). FDI in the CEE/SEE countries contributed to a major growth in produc-tivity,
which is why this kind of investment is of the interest in this paper. Taken together, the sur-vey
covers countries that attracted about 16% of the overall FDI flows to the CIS in 2006.
6. Survey results
Survey design
This section presents the results of the survey of 120 foreign owned-companies located in
Georgia, Moldova, Kyrgyzstan and Ukraine. The representatives of these companies in each coun-try
were asked a set of identical questions about the reasons to invest in the CIS, their business
environment, and impediments to their everyday activities. The survey was conducted in 2007–
2008.
CASE Network Studies & Analyses No. 370 13
14. Alina Kudina, Malgorzata Jakubiak
While drafting the questionnaire, existing findings on the investment motives in the CIS, CEE
and SEE (described in the preceding part of this paper) were considered. The questions about the
business environment of the foreign-owned firms were formulated in such a way that allowed us to
draw conclusions about the nature of production chains and check for the existence of various
linkages between foreign-owned and local firms. There is evidence that the existence of such link-ages
(especially of the vertical type) facilitated knowledge spillovers from foreign-owned to domes-tically-
owned firms in the EU NMS in the 1990s. The most relevant examples may be those of Ro-mania
and Lithuania (see Javorcik and Spartaneu 2006, Altomonte and Pennings 2006, Smazyn-ska-
Javorcik 2004). Therefore, it was interesting to check whether such spillovers could be de-tected
in the CIS as well.
Description of the sample
The sample consisted of 30 foreign-owned companies in Ukraine, 30 foreign-owned firms in
Moldova, 30 foreign-owned companies in Georgia, 29 in Kyrgyzstan and 1 in Kazakhstan. The
median company in our sample had been in business for 8 years, had revenues of about USD 4.7
mn, and employed 145 people. Company profiles differed significantly among the countries. The
Ukrainian companies were the largest in the sample with average annual revenues 5 times those
of the Moldovan companies, which in turn still earned twice as much as Kyrgyz companies, which
were the smallest in the sample. The average market share of the Georgian companies was less
than 20%, whereas in Ukraine and Kyrgyzstan it was higher at 28%. Still, it was the Moldovan for-eign-
owned companies which held leading positions in the local markets with an average market
share of about 47%.
Table 4. Sample statistics
Profile Min Max Average
1. Years in the country
Ukraine 2 18 8.4
Moldova 2 17* 8.8*
Kyrgyzstan 2 15 7.7
Georgia 1.0 17.0 6.2
2. Annual revenue (turnover) of the subsidiary, million USD
Ukraine 0.03 1,233.0 80.7
Moldova 0.009 121.1 13.8
Kyrgyzstan 0.3 30.0 6.8
Georgia 0.3 280.0 43.7
3. Total amount of capital invested, million USD
Ukraine 0.06 600.0 67.1
Moldova 0.0004 112.4 21.0
Kyrgyzstan 0.2 50.0 8.7
Georgia 0.15 160.0 39.9
4. Personnel employed
Ukraine 7 3,500 502
Moldova 10 1,653 370
Kyrgyzstan 6 1,200 232
Georgia 12 1,200 237
5. Domestic market share,%
Ukraine 0.5 100.0 28.8
Moldova 0.4 99.1 46.6
Kyrgyzstan 5.0 100.0 28.7
Georgia 0.0 100.0 19.6
Note. Numbers are simple averages. * - for Moldova, the numbers exclude answers given by three compa-nies,
which stated that they have been inthe market (while being foreign-owned) for 60–134 years ago. We
disregarded those answers, as it seems that respondents were usually describing when the given firm
started its activities (probably being initially foreign-owned), instead of answering when an enterprise was re-privatised
in the post-Soviet years.
Source: survey results.
14 CASE Network Studies & Analyses No. 370
15. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
Most foreign companies operating in these countries started their business in the 1990s. In
Moldova, Ukraine and Kyrgyzstan, foreign subsidiaries have been on the CIS market for an aver-age
of 8–9 years. In, Georgia, the average amount of time FDI has stayed in the local market was
about 6 years.
On average, companies differed significantly among countries in terms of the size of their
business. Foreign companies invested much more in Ukraine and Georgia compared to Moldova
and Kyrgyzstan, thus gaining higher revenues. The annual revenue of companies investing in
Ukraine was about USD 80mn, which is more than 5 times higher than Moldovan companies, while
the amount of capital invested exceeded the average investment of Moldovan companies by al-most
three times. The foreign companies working in Kyrgyzstan that participated in our research
were the smallest in terms of the scope of their business.
As for personnel employed, Ukrainian foreign companies were also the largest (with an aver-age
of 500 employees), followed by Moldovan (370), Georgian (237), and Kyrgyz companies (232).
The distribution of companies according to the personnel employed seemed to be close to the
normal distribution with the exception of the ‘thick tail’ in the upper end. The thick tail is made of
several large companies which employ more than 1,000 workers.
The industry structure of the interviewed companies reflects FDI distribution by industry in the
countries, at least in Ukraine and in Moldova (compare Table 5 below with Appendix 2). Most com-panies
interviewed are active in the financial services, the food industry, trade, transport & com-munications,
and construction. These activities are developing very fast in the CIS countries, pro-ducing
high revenues and thus attracting foreign investors. At the same time, substantial invest-ment
inflow is the key reason behind the rise of these sectors.
Table 5. Distribution of surveyed companies by sector
Industry Ukraine Moldova Kyrgyzstan Georgia Total
Agriculture 1 1 2
Food industry 4 4 7 4 19
Woodworking, pulp and paper industry,
publishing 1 1 2
Textile and leather industry 1 1 1 3
Oil refineries 3 1 2 6
Production of chemicals 2 1 1 4
Machinery and equipment 2 1 3
Mining 1 2 3
Energy 1 3 4
Financial services 4 7 4 8 23
Retail and wholesale trade 7 2 4 1 14
Transport & Communications 3 4 4 1 12
Construction 1 4 4 9
Other activities 3 5 2 6 16
Total 30 30 30 30 120
Source: survey results.
Factors attracting investors into the CIS
One of the main objectives of this survey was to explore the nature of FDI that is flowing into CIS
countries. As mentioned above, investment motives are often classified either as market-seeking
(when investing firm wants to supply products and services to a recipient country market) or as re-source-
seeking (intending to benefit from cost-efficient production in a recipient country) and/or as
efficiency-seeking (looking for labour-productivity advantage or local specific creative assets).
We tested the investment motives by asking interviewees to answer several questions: about
the strategic role of the subsidiary established in the host CIS country, about their investment mo-tives,
and about the share of exported production (for details, see Appendix 1).
Market seeking
This motive clearly appeared to be the dominant one in the sample. Most of the companies
that participated in the survey held a substantial share of the recipient country’s market. The aver-
CASE Network Studies & Analyses No. 370 15
16. Alina Kudina, Malgorzata Jakubiak
age domestic market share for Ukrainian and Kyrgyz firms was close to 30%, while Moldovan in-vestors
held leading positions with average market share of about 47%. Only in Georgia did foreign
investors estimate that they possesed less than 20% of the local market share. This means that
the majority of the surveyed firms not only managed to supply their host markets, but also secure
dominant positions in these markets.
The percentage of local production of final and intermediate goods that is exported was rather
low at 17% and 30% on average (see question 7; Appendix 1), with the exception of Moldova5.
About 70% of all production of final goods is earmarked for local markets. Some companies even
mentioned that they faced a lot of problems when trying to export their products to other countries,
particularly to Russia.
Figure 3. Strategic roles of CIS subsidiaries in the operations of their parent companies
not important cannot say very important
0 1 2 3 4 5 6
supply existing products to host country
and other CIS markets
develop new products for domestic market
and other CIS markets
exploit host country cost-effective
production to export products to established
(e.g. European) markets
Ukraine
Moldova
Kyrgyzstan
Georgia
Note. Numbers are simple averages.
Source: survey results.
Figure 4. Reasons to invest in the CIS
0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5
to serve host country market
skilled labour
availability of low-cost input factors (e.g.
cheap labour, energy, raw materials)
to achieve access to a new regional market
to access the host country research and
technological expertise
Ukraine
Moldova
Kyrgyzstan
Georgia
Note. higher number indicates that a given reason is more important. Numbers are simple averages.
Source: survey results.
5 Where the majority of both intermediate and final goods are exported.
16 CASE Network Studies & Analyses No. 370
17. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
The role of the CIS affiliates in the operations of their parent companies as suppliers of exist-ing
products to the host country market and to other CIS markets was found to be rather important
(see Figure 3). The companies noted high levels of demand in the growing markets, which is very
positive for the further expansion of their businesses.
This outcome is supported by the assessment of investment motives. The interviewees were
asked to grade reasons for initiating business activity in the CIS by ranking each of the options on
a scale of 1 (unimportant) to 5 (very important). Most companies mentioned the ability ‘to serve the
host country market’ as the most important motive in all four economies (see Figure 4). On the top
of this, companies in Moldova and Kyrgyzstan mentioned the ability to avoid import duties while
supplying the domestic market as another reason to invest.
Resource-seeking
The second and third most important investment motives varied across the countries, although
they were predominantly concentrated on the use of low-cost factors of production (including natu-ral
resources) and skilled labour. In Ukraine and in Georgia, the second most important motive was
the availability of low-cost input factors, i.e. cheap labour, energy and raw materials. This is ex-plained
by the availability of rich natural resources along with cheap labour force and by the close
proximity to the EU in the case of Ukraine. In the case of Georgia it is probably explained by high
investments in pipeline transportation. The desire to use Kyrgyz skilled labour, followed by the
availability of low-cost input factors were also behind the decision to invest in Kyrgyzstan. Interest-ingly,
the second most important motive for investing in Moldova was the ability to access the new
regional market (Central and Eastern European), which can be attributed to the country’s proximity
to the ‘new’ EU states. This motive can be also attributed to the willingness to exploit Moldovan
labour and other resources (graded as the third most important motive). The possibility to access
regional markets was also found to be an important factor for investors in Georgia (meaning ac-cess
to whole Southern Caucasus) and in Kyrgyzstan (Central Asia).
Efficiency-seeking
Access to a country’s research and technological expertise was found to be the least important
reason to invest in the CIS (see Figure 4), which suggests that investors do not yet seek efficiency
in the CIS. This was confirmed by the answer that the exploitation of the cost-effective production
in the CIS for the purpose of exporting products to the EU was not important for the strategy of the
parent companies. Moreover, the surveyed firms export rather small volumes of intermediate
goods (17% of the production of firms producing intermediate goods is exported, on average),
which means that they are weakly integrated into vertical production chains6.
The survey results indicated that market-seeking is the predominant motive for investing in the
four analyzed countries. The second most important motive is for seeking resources.. Foreign in-vestors
do not yet seek efficiency in the surveyed CIS firms.
Industrial organisation of FDI in the CIS
When analyzing industry-specific FDI determinants, we relied upon Jacobides (2008) who as-sumes
that the similarities and dissimilarities in the use of factors of production in the vertically in-tegrated
production chains among countries shape globalisation prospects and the effects that FDI
may produce in a host country. Hence, the second part of our questionnaire was designed to re-veal
the impact of FDI in a recipient country. The companies were asked to estimate the extent to
which their business can be divided into separate components and the degree of similarity of verti-cal
and horizontal value-chain structures between home and recipient countries, as well as give
feedback on the performance of their CIS subsidiary. Also, some additional questions allow us to
draw conclusions on the importance of industry-level FDI determinants.
Recipients estimated the similarity of industry value-chain structure at 3.4 points (on a scale of
1 to 5 scale, where 1 is not similar and 5 is very similar). Country averages did not differ much,
though the answers of Moldovan FDIs suggested a higher degree of similarity. When asked to dis-
6 With the exception of the Moldovan companies. foreign subsidiaries producing intermediate goods in
Moldova export over 50% of their production.
CASE Network Studies & Analyses No. 370 17
18. Alina Kudina, Malgorzata Jakubiak
tinguish between the differences/similarities in vertical and horizontal industry structures (referring
to the vertical structure in terms of the systems of in-bound logistics, manufacturing, outbound lo-gistics,
and organised sales), and horizontal industry structures (defined as the number of industry
participants, their functions and market shares), the respondents gave similar answers, broadly
indicating that they were unable to assess the degree of similarity/dissimilarity of vertical vis-a-vis
horizontal value chains.
The differences between home and host country value-chain structures were not perceived as
a significant impediment for business expansion in the recipient country. The total average was
estimated at 2.0 points, while the results varied among countries (see Question 21 in Appendix 1).
Foreign companies that established their businesses in Kyrgyzstan estimated the impact of differ-ent
structures as insignificant (1.2 points), Ukrainian and Georgian ones as rather insignificant (2.1
and 2.0 points respectively), while the impact on Moldovan subsidiaries was unknown (2.8 points).
The activities of foreign affiliates depended largely on the parent companies’ multinational
businesses. 42% of companies’ value chain components are supplied from the home countries,
while only 17% are provided by local suppliers (see Question 15 in Appendix 1 for details). An es-pecially
large share of value chain components (about 60%) are imported by Ukrainian foreign af-filiates,
whereas Moldovan, Georgian and Kyrgyz companies import only 21%, 46% and 39% re-spectively.
Ukraine’s reliance on imports can be explained by the fact that a many of the firms that
participated in the survey are engaged in retail trade.
The majority of imported value chain components (received from parent companies) were
technologies and know-how (42% of total), followed by materials (24%). Components and parts
accounted for about 20% and final products accounted for about 14% (see Question 8 in Appendix
1). As for the open option, the majority of Ukrainian companies reported that marketing technolo-gies
brought from parent companies were highly valuable. Also, in all the countries surveyed, fi-nancing
and working capital were named as important resources received from a parent company.
Among other resources mentioned were consulting services with regard to major business proc-esses
and equipment.
The companies were also asked to comment on the degree to which the success of their busi-ness
depended on the performance of local and multinational partners. The results showed that,
on average, the success of the operations of a subsidiary depended more on the performance of
international industry participants (3.4 points) than on the performance of local industry participants
(3.0 points). This confirmed the earlier findings about the importance of the parent company and its
multinational links to subsidiaries. Unfortunately, the local environment is not developed enough to
offer the companies products which are of the necessary quality for their business, so they have to
maintain close links with their international partners.
The average number of key local suppliers among all four countries was significantly below the
number of key local customers/distributors; the total average among the four countries was 18 and
74 respectively. This finding supports the previously-described outcome of our research on the
market-oriented nature of investment in CIS countries. While much of the resources are supplied
from abroad, the final products are targeted to internal markets, which explains the significant
number of local distributors and customers.
Overall, the results suggest rather pessimistic implications for the influence of technological
spillovers on the productivity of domestic firms. It was shown in studies examining CEE data that
the highest productivity-increasing gain for local firms takes place when foreign-owned, technologi-cally
superior firms buy local supplies, teach suppliers and make them acquire new technologies.
Only then do positive technological spillovers occur. However, in the case of this sample, it seems
that spillovers from FDI, even if they exist, are rather limited to certain firms and/or sectors of eco-nomic
activity. Moldova had the most favourable suppliers to customers ratio, which suggests that
the potential for spillovers may be the highest there. But even in Moldova, the average number of
domestic customers of a foreign subsidiary was three times higher than the average number of lo-cal
suppliers. Foreign firms in the surveyed CIS markets seemed to buy supplies locally only when
necessary, and concentrated instead on capturing domestic demand.
Major impediments
In order to investigate the investors’ attitudes towards the investment climate in the CIS, we
asked respondents to name the greatest impediments to doing business in the host countries.
18 CASE Network Studies & Analyses No. 370
19. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
Each of the respondents ranked the importance of problems from 1 to 5 (with 1 being the least im-portant
and 5 being the most important).
The most urgent problems named in the surveyed CIS countries were the volatility of the po-litical
environment, the uncertainty of the economic situation, the ambiguity of the legal system and
the high levels of corruption. However, the top three problems differed among countries. Political
and economic instability together with the lack of physical infrastructure were of particular concern
for the foreign companies operating in Kyrgyzstan and Georgia. All other problems (with the excep-tion
of finding a business partner in Georgia) were deemed relatively less important in light of the
three mentioned above. Ukraine and Moldova are more stable in political terms and foreign inves-tors
perceive extensive bureaucracy, corruption and uncertainties connected to domestic legisla-tions
as the main obstacles for their businesses operating in these countries. Neither the difficulties
related to the newly-established Ukrainian government in late 2007, nor the problems with the un-certain
status of Transnistria in Moldova were named by foreigners as major obstacles to expand-ing
business activities in these two European CIS countries.
Table 6. Assessment of problems faced by foreign investors in the CIS
Problem Ukraine Moldova Kyrgyzstan Georgia Total
average
Volatility of the political environment 3.4 3.3 4.5 2.8 3.5
Uncertainty about the economic environment 3.3 3.4 4.4 2.9 3.5
Ambiguity of the legal system 3.9 3.5 3.5 2.7 3.4
Corruption 4.0 3.9 3.1 2.1 3.3
Bureaucracy 3.9 3.9 3.1 2.0 3.2
Lack of physical infrastructure 2.5 2.8 3.9 2.9 3.0
Backward technology 2.4 2.9 3.1 2.4 2.7
Lack of business skills 2.4 2.6 3.1 2.7 2.7
Finding a suitable partner 2.5 2.9 2.3 2.8 2.6
Problems in establishing clear ownership
conditions 3.2 2.9 1.7 2.4 2.6
Note. Higher number indicates that a given impediment is more important. Numbers are simple averages.
Source: survey results.
High levels of corruption in the CIS are widely acknowledged as a serious deterrent to FDI in-flows,
as confirmed by the Corruption Perception Index of 2006, in which Ukraine was ranked 104th
and Kyrgyzstan 145th out of 163 developed and developing countries in the world (Transparency
International, Global Corruption report 2007). Interestingly, Moldova ranked relatively lower at 81st
(Transparency International, Global Corruption report 2007). Perception of corruption in Georgia is
relatively low, most likely due to the successful efforts of Georgian authorities to fight petty corrup-tion.
Problems in establishing clear property rights appeared to be relatively important obstacles
faced by firms operating in Ukraine and Moldova, but were not very problematic for firms in Geor-gia
or Kyrgyzstan. The existing infrastructure, technology and management skills of the local work-force
did not seem to be much of a problem for foreign investors operating in Ukraine and
Moldova, however they were perceived as important obstacles in Georgia. Finding a suitable part-ner
did not seem to be a problem either in Ukraine or in Kyrgyzstan, whereas it was identified as a
relatively important obstacle in Moldova and Georgia. Among other impediments, investors men-tioned
problems with tax administration, which involves difficulties in paying taxes, in obtaining VAT
refunds, and in dealing with complicated tax regulations.
Performance of subsidiaries
Interestingly, companies that have invested in Kyrgyzstan assessed the performance of local
subsidiaries as very good (4.5 points). Foreign firms in Ukraine and Moldova were also perceived
by their representatives as performing relatively well (Ukraine scored 4.3 points and Moldova
scored 4.1 points) while Georgian subsidiaries were rated as performing relatively worse at 3.7
points (although still considered “relatively successful”).
CASE Network Studies & Analyses No. 370 19
20. Alina Kudina, Malgorzata Jakubiak
7. Econometric analysis
In this section we will present findings from the subsequent econometric analysis we con-ducted
based on the survey results. In particular, we were interested to see whether there were
any differences among the three different types of investors (market-seekers, resource-seekers
and efficiency-seekers) with respect to their levels of satisfaction with their CIS operations, prob-lems
they were encountering in their countries of operation, and particularities of their modes of
operation.
To estimate our models we employed an ordered logistic analysis (based on a maximum like-lihood
estimation) as we were working with the categorical data. This method is the most appropri-ate
for this type of data as it allows obtaining consistent, efficient, and powerful estimates (see
Greene, 2002; Agresti, 2002 and Allison, 1999). We used STATA 9.0 to conduct the estimation.
Dependent variables
We employed a number of dependent variables in this study. Our first dependent variable was
the manager’s perception of the subsidiary’s performance. This and all other variables in our sur-vey
were measured on a five-point Likert scale. More specifically, the question was, “Please evalu-ate
the performance of your [the country where the subsidiary is] subsidiary”. This, of course, is not
a true measure of performance as such, but a satisfaction rating, which is also subject to individual
biases. However, by analyzing managers’ satisfaction with the performance of a subsidiary we are
in a position to gauge which factors contribute to higher or lower satisfaction with performance.
The other dependent variables employed were the various problems the survey par-ticipants
are encountering during their operations in the host countries. We tried all 10 in-dividual
problems specified in the questionnaire. However, we will only report six of them
(the ones which yielded significant results). These variables are: 1) volatility of the political
environment, 2) uncertainty of the economic environment, 3) ambiguity of the legal system,
4) corruption, 5) difficulties in finding a suitable partner, and 6) problems in establishing
clear ownership conditions. With these dependent variables, we analyzed how the different
investment motivations/orientations of a subsidiary and other firm-specific and industry-related
variables affected the perceived problems of operating in the respective countries.
Independent Variables
This study employed a number of independent/explanatory variables in order to explain possi-ble
differences in the perceived performance and problems of operating in a particular country. As
previously mentioned, the key independent variables employed were related to the investment mo-tive/
orientation of the subsidiary. These were the answers to question 10 of the questionnaire,
namely ‘Why did you choose to invest in [the country where the subsidiary is]?’ The following five
options were considered: 1) cheap input factors; 2) skilled labor; 3) local market; 4) regional mar-ket;
and 5) local R&D expertise.
The two other independent variables employed were related to the similarities/differences in
the industry’s value chain structures between host and home countries. These factors have been
shown to affect the investor’s behavior to a significant extent (see Jacobides, 2008). The corre-sponding
two variables are called ‘Sector Similarity’ and ‘Sector Modularity’, which were listed as
the answers to questions 20 and 16 of the questionnaire, respectively.
The next two independent variables were linked to the subsidiary’s embedded-ness/
dependence on the host/home country environment a propos the links with the local/global
value chain partners. The corresponding variables were called ‘Local Relationships’ and ‘Foreign
Relationships’ and constituted the answers to questions 13 and 14 of the questionnaire, respec-tively.
The remaining control variables were measured on a continuous scale and related to basic
firm characteristics, e.g. turnover (annual, USD mn), years of operation, personnel, investment (ini-tial,
USD mn), market share (per cent, in a host country). Also, we added country dummy variables
to control for country effects.
20 CASE Network Studies & Analyses No. 370
21. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
The Results
The results of our analysis are reported in Table 7. The table shows 7 specifications with the
dependent variables described. The first specification (S1) analyzed the factors which influenced
the performance of the foreign owned companies in the CIS. We found that having market-, skilled
labor-, and cheap input-orientation positively affected the performance, with market-orientation
having the strongest impact in the absolute value. Hence, we found that market-seeking compa-nies
were more likely to perform better in our sample of CIS countries7. Also, the similarity of the
value chains along with the ease of breaking the production process into separate parts increased
the probability of good performance of the part of the subsidiaries.
The other variables turned out to be insignificant, apart from the dummy for Georgia (with a
negative sign) reflecting that the companies operating in Georgia were less likely to report satisfac-tion
from their performance than firms in other countries.
The other 6 specifications analyzed factors which affect the perceived problems of MNEs’ op-erations
in the CIS countries. Differentiating among the different investment orientations, we found
that investors who seek cheap inputs in the CIS were more likely to complain about the ambiguity
of the legal system and problems in establishing clear property rights. As legal matters are one of
the key factors which determine the success of resource-seeking operations, i.e. all contractual
arrangements related to the use of the key resource, we found them to be of paramount impor-tance
for this type of investor.
At the same time, investors who are seeking skilled labor are most likely to be affected by the
uncertainty of the economic environment. We would expect these investors to produce something
relatively sophisticated for the local market/exports, and since economic uncertainty amplifies all
business-related risks, then this problem becomes of the highest concern to them.
Interestingly, market-seeking investors did not seem to name any specific problem as having
higher importance than the rest. The situation was somewhat different with investors who were try-ing
to access the regional market; For them the problem was more likely in finding a suitable part-ner.
Finally, corruption was more likely to be reported as a problem by investors who were seeking
to tap in into R&D expertise in the CIS region. Interestingly, the same type of investors (i.e. those
interested in R&D potential) were found to be less likely to complain about corruption. This is a
surprising outcome, which so far we have failed to explain.
Out of the other variables, sector similarity appeared to be one of the most important allevia-tors
of problems which were encountered in the CIS by foreign investors (as all coefficients have
negative signs), hence the similarity of the value chains helped to overcome the problems inves-tors
are experiencing in the region. This is in line with the global expansion logic put forward in
Jacobides (2008). Sector modularity (i.e. the ease of fragmenting the production process) on the
other hand, only helped to alleviate the uncertainty of the economic environment to investors into
the CIS.
Investment in activity, which is embedded in local value chains, lowered the probability of
complaining about the legal systems in the CIS, whereas close links with foreign value chain part-ners
amplified the problems caused by the uncertainty of the economic environment. As previously
mentioned, significant involvement with local partners created a number of situations where legal
matters could potentially arise, which then must be resolved within highly imperfect local legal sys-tems.
As to the latter finding, it can be explained by the fact that the closer the links with the foreign
partners are, the more a firm relies on import/export operations which make it dependent on mac-roeconomic
stability in the host country in terms of the exchange rate stability, inflation, monetary
policy etc.
A number of firm-level variables appeared to correlate significantly with the problems caused
by the ambiguities of the legal system as well. The number of years of operation in the CIS was
negatively related to the difficulties caused by this ambiguity, i.e. if a CIS subsidiary was relatively
younger, the probability of legal obstacles being a problem was higher. The companies which had
been in the country for a few years had already developed some capabilities which helped them
deal with this ambiguity, something which younger companies lacked.
7 Or rather are more likely to positively assess their performance in the CIS. In the subsequent discussion,
we ignore the fact that these are the perceptions of the managers, not the financial results themselves.
CASE Network Studies & Analyses No. 370 21
22. Alina Kudina, Malgorzata Jakubiak
Table 7. Estimation Results
Independent Dependent Variables
Variables Perfor
mance
Political
Environm.
Economic
Environm.
Legal
System
Corrup-tion
Finding a
partner
Ownership
Rights
FDI Motives: S1 S2 S3 S4 S5 S6 S7
Cheap factors 0.39*
(0.10)
-0.11
(0.62)
-0.25
(0.27)
0.43**
(0.05)
0.04
(0.85)
-0.40
(0.51)
0.47*
(0.07)
Skilled labour 0.49*
(0.07)
0.19
(0.45)
0.45*
(0.09)
0.14
(0.58)
0.14
(0.57)
0.28
(0.28)
-0.11
(0.69)
Local Market 0.53*
(0.07)
-0.5
(0.84)
0.19
(0.47)
0.09
(0.67)
0.05
(0.82)
0.28
(0.23)
-0.04
(0.87)
Regional Market 0.17
(0.327)
0.20
(0.19)
0.19
(0.47)
0.23
(0.12)
0.21
(0.15)
0.32**
(0.04)
0.11
(0.51)
R&D expertise 0.09
(0.797)
0.38
(0.19)
0.35**
(0.03)
0.23
(0.37)
-0.57**
(0.04)
-0.07
(0.76)
0.42
(0.12)
Other Variables
Local relationships -0.23
(0.33)
-0.09
(0.23)
-0.19
(0.41)
-0.38*
(0.06)
-0.20
(0.32)
0.12
(0.58)
-0.07
(0.74)
Foreign relationships 0.15
(0.48)
0.06
(0.75)
0.42**
(0.05)
0.11
(0.59)
0.22
(0.28)
-0.24
(0.23)
0.14
(0.53)
Sector similarity 0.64**
(0.02)
-0.28
(0.23)
-0.75***
(0.00)
-0.13
(0.55)
-0.05**
(0.03)
-0.33
(0.15)
-0.47**
(0.05)
Sector modularity 0.42**
(0.05)
0.06
(0.38)
-0.58**
(0.02)
-0.013
(0.95)
-0.32
(0.11)
0.07
(0.74)
0.23
(0.34)
Turnover -0.01
(0.34)
0.00
(0.97)
-0.01
(0.18)
-0.02**
(0.04)
-0.01
(0.56)
0.01
(0.58)
0.01*
(0.07)
Years of operation -0.01 -0.01
(0.72)
-0.03
(0.16)
-0.03**
(0.04)
0.01
(0.57)
0.00
(0.90)
-0.01
(0.58)
Personnel -0.00
(0.97)
0.00
(0.29)
-0.01
(0.17)
-0.01*
(0.09)
0.00
(0.97)
0.00
(0.72)
-0.001
(0.31)
Investment 0.01
(0.27)
0.01
(0.62)
0.01
(0.18)
-0.01
(0.24)
-0.01
(0.91)
-0.001
(0.86)
-0.001
(0.36)
Market Share 0.01
(0.19)
-0.01
(0.79)
-0.01
(0.55)
-0.02**
(0.05)
0.01
(0.39)
0.004
(0.66)
-0.004
(0.61)
D-Ukraine 0.61
(0.462)
-2.89***
(0.00)
-1.15
(0.16)
1.79**
(0.02)
2.11***
(0.00)
0.69
(0.39)
4.33***
(0.00)
D-Georgia -1.58*
(0.05)
-3.98***
(0.00)
-3.59***
(0.00)
-1.76**
(0.02)
-1.72**
(0.02)
1.76**
(0.20)
3.04***
(0.00)
D-Moldova -1.32
(0.15)
-3.39***
(0.00)
-1.83**
(0.02)
1.33*
(0.08)
2.19***
(0.00)
1.58**
(0.040
3.91***
(0.00)
Pseudo R-squared 0.26 0.23 0.35 0.19 0.20 0.09 0.21
LR chi2 49.25 59.63 81.40 47.31 55.64 24.18 55.70
Number of observa-tions
87 88 88 88 88 88 88
* p-values in parentheses
Similarly, the size of the company (as measured by both turnover and number of employees)
negatively affected the legal ambiguity as well, i.e. the smaller a company was, the more likely it
was to suffer from legal problems. Again, smaller companies probably do not have enough re-sources
to deal effectively with legal problems, whereas bigger companies have more leeway
which allows them to overcome related difficulties. A company’s market share was also negatively
related to legal ambiguities. We think that effect here is similar to the size effect as bigger compa-nies
typically have a larger market share and vice versa. We interpreted these findings in the fol-lowing
way: It is possible that given the imperfect nature of legal systems in the CIS, larger compa-nies
are able to lobby effectively, so that once a company is “big enough”, it can cope with the am-biguity
of legal systems relatively well and is less likely to report difficulties. In other words, it is
possible that informal links with policy makers are more important for bigger companies in the CIS
than any given institutional solution.
22 CASE Network Studies & Analyses No. 370
23. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
On the contrary, the relationship between the size of the company (turnover) and problems in
establishing clear property rights is positive. The bigger the company, the greater the probability
that property rights are problematic. This can be explained by the fact that property rights/corporate
governance issues become more significant as the company grows larger, and given the short-comings
of the legal systems in the surveyed countries, these problems are likely to amplify in sig-nificance
at that stage.
The country effects proved to be one of the most significant factors affecting the various prob-lems
foreign companies are facing in the CIS. This is not surprising, if one takes into account the
previously described differences among countries with regard to their perceptions of major prob-lems.
8. Conclusions
In this paper, we analyzed of the motives of FDI flowing in to the CIS, focusing on the selected
CIS countries. We also explored the problems which foreign investors encounter in these coun-tries.
Furthermore, we analysed how different investors’ profiles (market-, resource- and efficiency-seeking)
affected the problems they are encountering in their countries of operation, and the par-ticularities
of their modes of operation.
Our analysis showed that market-seeking was a dominant motive for investors in our sample.
The companies hold substantial shares of recipient country markets, and only export a small por-tion
of their products. The growing CIS markets produce high demand, which foreign investors aim
to capture in expanding their business to this region. This motivation is similar to the motivation
foreign investors in the CEE countries had in the early 1990s. Our econometric analysis revealed
that the market-seeking orientation was also the most profitable one. It had the most positive effect
on investment performance, followed by skilled labour- and cheap input orientations. Hence, serv-ing
the local market was the most beneficial strategy for investors.
The second and third most important investment motives varied across the countries, though
they were predominantly focused on the use of low-cost factors of production (including natural
resources) and skilled labour. We expect that together with closer integration with the global econ-omy
(and particularly with the EU in the case of the European CIS countries) and the fall in overall
protection, low-cost CIS labour will attract new waves of investments, similar to what has been
happening in the CEE and SEE countries. It is very important, though, that the skills of the CIS la-bour
force were able match the needs of the labour markets at that stage. Investors do not yet
seek efficiency by producing in the CIS, which is one of the key reasons for investment in the
CEE/SEE countries.
There is a need to address the following impediments so that they do not override the potential
profits from using cheap CIS labour: the political instability in Kyrgyzstan and Georgia, and the ex-tensive
bureaucracy, corruption and uncertainties connected to domestic legislation in Moldova
and Ukraine.
Our econometric analysis showed that the ambiguity of the legal system and problems in es-tablishing
clear property rights were the biggest concerns for investors seeking cheap factors of
production in the CIS, whereas the uncertainty of the economic environment was most harmful for
investors seeking skilled labour. The latter problem was also the most significant for investors who
are trying to tap in into local R&D. Thus improving macroeconomic stability should be of primary
importance to governments that wish to attract skilled labour- and R&D-seeking FDI, which are the
two types of investors that bring the greatest benefits to the development of the host country.
The problems stemming from the ambiguity the legal system are also amplified if a foreign
company has close links with local businesses, is of a smaller size and younger age. Hence, im-proving
the legal system will help foreign companies to develop their operations in CIS countries
with less trouble, and thus contribute to the host country’s development much sooner.
Overall, the results suggest rather pessimistic implications for the influence of technological
spillovers on the productivity of domestic firms. In studies examining CEE data, it was apparent
that the highest productivity-increasing gain for local firms took place when foreign-owned and
technologically superior firms bought local supplies, taught suppliers and made them acquire new
technologies. Only in this case do positive technological spillovers take place. However, in the
case of our sample, it seemed that potential spillovers from FDI are rather limited to certain firms
and/or sectors of economic activity. Moldova has the most favourable suppliers/customers ratio,
CASE Network Studies & Analyses No. 370 23
24. Alina Kudina, Malgorzata Jakubiak
which suggests that the potential for spillovers may be highest in that country. But even in
Moldova, the average number of domestic customers of a foreign subsidiary is three times higher
than the average number of local suppliers. Foreign firms in the surveyed CIS economies seem to
buy supplies locally only when necessary, and prefer to concentrate on capturing domestic de-mand.
Policy makers can assist in attracting more and higher quality FDI into CIS countries by:
− Securing greater macroeconomic and political stability, and reducing the ambiguity of the
legal system;
− Removing legal deficiencies to stimulate a more active role for foreign companies in their in-teractions
with local businesses, as well as the development of the infrastructure (transport, indus-trial);
− Reducing corruption levels in order to attract efficiency-seeking (R&D) investment. Political
willingness is the key here as it will define the effectiveness of any action taken in this respect;
− Promoting linkages with the domestic economy (through business incubators, information
clearing houses) and/or building local technological capabilities (support R&D, high tech industrial
parks, training institutions).This would be helpful in the longer-term. More immediately an im-provement
in intellectual property rights would go a long way in attracting greater amounts of
higher quality FDI.
24 CASE Network Studies & Analyses No. 370
25. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
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26 CASE Network Studies & Analyses No. 370
27. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
Annexes
Appendix 1. Detailed results of the survey
Profiles Min 1st
quartile
2nd
quartile
3rd
quartile Max Average
Ukraine
1. Years in the country 2.0 4.5 9.0 11.0 18.0 8.4
2. Annual revenue (turnover) of the subsidi-ary,
million USD 0.03 3.1 10.5 67.7 1233.0 80.7
3. Personnel employed 7.0 38.0 136.0 272.8 3500.0 501.5
4. Total amount of your capital invested in
the subsidiary, million USD 0.06 0.17 3.5 49.8 600.0 67.1
5. Market share in the country,% 0.5 15 22.0 27.0 100.0 28.8
Moldova
1. Years in the country 2.0 7.0 9.0 12.0 17.0 8.8
2. Annual revenue (turnover) of the subsidi-ary,
million USD 0.0091 0.3 1.8 5.2 121.1 13.8
3. Personnel employed 10.0 82.0 297.0 440.0 1653.0 369.2
4. Total amount of your capital invested in
the subsidiary, million USD 0.0004 0.3 3.0 32.6 112.4 21.0
5. Market share in the country,% 0.3790 30.0 44.0 70.0 99.1 46.6
Kyrgyzstan
1. Years in the country 2.0 4.0 8.0 10.8 15.0 7.7
2. Annual revenue (turnover) of the subsidi-ary,
million USD 0.3 1.8 3.0 7.0 30.0 6.8
3. Personnel employed 6.0 50.0 120.0 300.0 1200.0 232.4
4. Total amount of your capital invested in
the subsidiary, million USD 0.2 0.5 3.0 10.0 50.0 8.7
5. Market share in the country,% 5.0 10.0 20.0 30.0 100.0 28.67
Georgia
1. Years in the country 1 3 4 10 17 6.2
2. Annual revenue (turnover) of the subsidi-ary,
million USD 0.25 1.50 6.00 68.00 280 43.7
3. Personnel employed 12 35.00 120.00 302.50 1200 237.6
4. Total amount of your capital invested in
the subsidiary, million USD 0.1500 7.10 20.00 66.25 160 39.9
5. Market share in the country,% 0.0 2.0 8.0 25.0 100.0 19.6
% Ukraine Moldova Kyr-gyzstan
7.What percentage of the following is ex-ported?
Georgia Total
- intermediate products 12.63 51.7 1.1 3.0 17.1
- final products 10.63 58.6 28.8 23.7 30.4
8.Which products the subsidiary re-ceives
from a parent company? Ukraine Moldova Kyr-gyzstan
Georgia Total % of
total
- technology, know-how 17 22 26 21 86 41.95
- materials 8 8 17 16 49 23.90
- components parts 7 4 16 14 41 20.00
- final products 10 7 11 1 29 14.15
- others (please specify) 0.00
Total 42 41 70 52 205 100.00
Ukraine Moldova Kyr-gyzstan
Georgia Total
9.What is the strategic role of the subsidiary in your MNE group’s operations? Please rank from 1 to
5 (1 – unimportant, 5 – very important):
a) supply existing products to country's and
other CIS markets 4.3 3.3 5.0 3.1 3.9
b) develop new products for country's and other
CIS markets 2.7 3.1 3.3 2.5 2.9
CASE Network Studies & Analyses No. 370 27
28. Alina Kudina, Malgorzata Jakubiak
Ukraine Moldova Kyr-gyzstan
Georgia Total
c) exploit country's cost-effective production to
export products to established (e.g. European
markets) 1.7 2.0 2.1 1.6 1.9
10. Why did you choose to invest in the country? Please evaluate each of the reasons presented
below. Please rank from 1 to 5. (1 – the least important, 5 – the most important):
a) availability of low-cost input factors (e.g.
cheap labor; energy; raw materials) 2.8 3.4 3.4 3.2 3.2
b) skilled labor 2.6 3.5 3.6 3.0 3.2
c) to serve country's market 4.1 3.8 4.6 3.3 4.0
d) to achieve access to a new regional (Central
and Eastern European) market 2.3 3.6 3.2 3.0 3.0
e) to access the countrys' research and techno-logical
expertise 1.5 2.3 1.3 1.2 1.6
f) other (please specify)
11. What do you think are the current problems investors face in the country? Please rank from 1 to
5. (1 – the least important, 5 – the most important):
a) volatility of the political environment 3.4 3.3 4.5 2.8 3.5
b) uncertainty of the economic environment 3.3 3.4 4.4 2.9 3.5
c) ambiguity of the legal system 3.9 3.5 3.5 2.7 3.4
d) corruption 4.0 3.9 3.1 2.1 3.3
e) bureaucracy 3.9 3.9 3.1 2.0 3.2
f) finding a suitable partner 2.5 2.9 2.3 2.8 2.6
g) problems in establishing clear ownership
conditions 3.2 2.9 1.7 2.4 2.6
h) lack of physical infrastructure 2.5 2.8 3.9 2.9 3.0
i) backward technology 2.4 2.9 3.1 2.4 2.7
j) lack of business skills 2.4 2.6 3.1 2.7 2.7
12. Does your parent MNE company have investments in other Eastern European countries?
Yes 19 28 13 17 77
No 11 2 17 13 43
13. What is the extent to which the success of your operations in the recipient country depend on
the performance of and relationships to other local industry participants (e.g. other supply chain
partners, providers, etc)? Please rank from 1 to 5. (1 – very small, 5 – very substantial)
Score 3.5 3.6 2.4 2.5 3.0
14. What is the extent to which the success of your operations in the recipient country depend on
the performance of and relationships to other international industry participants (e.g. other supply
chain partners, providers, etc)? Please rank from 1 to 5. (1 – very small, 5 – very substantial)
Score 3.6 3.4 3.8 2.6 3.4
15. What part of the value chain components or activities are NOT produced in house by your sub-sidiary?
% of the respondents 43.4 12.0 48.5 31.0 33.7
15 a. Imported to the country from the home
country (or other subsidiaries), % 61.1 21.1 38.8 46.0 41.8
15 b. Supplied by local (recipient country) com-panies,
% 26.1 13.8 10.3 16.0 16.6
16. How easy is it to break up the activities of your sector in separate components / modules? (i.e.,
to what extent are there or can there be firms specializing in each part of the value chain?) Please
rank from 1 to 5. (1 – very difficult, 5 – very easy)
Score 2.7 3.0 3.1 2.3 2.8
17. What is the number of your local key suppliers/partners? Please indicate
% of the respondents 12.4 27.9 13.2 17.5 18.2
18. What is the number of your local key customers/distributors? Please indicate
% of the respondents 53.4 82.4 85.8 71.9 74.3
19. Does your company have close relationships with buyers/suppliers in your home country?
Please rank from 1 to 5. (1 – not at all, 5 – very close):
Score 3.5 3.9 3.5 3.6 3.6
20. How similar is the structure of your industry in your home country to the structure of the indus-try
in the recipient country? Please rank from 1 to 5. (1 – not at all, 5 – greatly):
Score 3.2 3.6 3.1 3.7 3.4
28 CASE Network Studies & Analyses No. 370
29. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
Ukraine Moldova Kyr-gyzstan
Georgia Total
20 a. The vertical structure of the industry in my home country is the same as in the recipient coun-try.
(i.e., there are similar segments along the value chain) Please rank from 1 to 5. (1 – not at all, 5 –
greatly):
Score 3.3 3.2 3.2 3.5 3.3
20 b. The horizontal structure of the industry in my home country is the same as in Ukraine (i.e., the
industry participants in the recipient country are like those in the home country) Please rank from 1
to 5. (1 – not at all, 5 – greatly):
Score 2.9 3.2 2.8 3.5 3.1
21. To what extent did differences in the structure of the value chain or the way firms in the industry
collaborate pose a problem for your expansion? Please rank from 1 to 5. (1 – not at all, 5 – they are a
great problem):
Score 2.1 2.8 1.2 2.0 2.0
22. (If there were some problems due to the value chain / industry structure), we anticipated the dif-ferences
in the industry structure in the recipient country Please rank from 1 to 5. (1 – strongly agree,
5 – strongly disagree):
Score 2.4 2.7 3.9 2.6 2.9
23. How difficult was it for you to overcome the differences in the industry structure? Please rank
from 1 to 5. (1 – quite easy, 5 – very difficult)
Score 2.3 2.9 1.8 2.2 2.3
24. How easy is it for your company to work in the recipient country? Please rank from 1 to 5. (1 –
very difficult, 5 – very easy)
Score 3.2 3.2 3.7 3.5 3.4
25. Please evaluate the performance of your subsidiary. Please rank from 1 to 5. (1 – very poor, 5 –
very successful)
Score 4.3 4.1 4.5 3.7 4.2
CASE Network Studies & Analyses No. 370 29
30. Alina Kudina, Malgorzata Jakubiak
Appendix 2. Statistics on FDI in CIS8
Table 1. FDI stock in Moldova by economic activities, 2000–2005, %
2000 2001 2002 2003 2004 2005
Agriculture 3.4 4.9 5.7 5.2 6.0 5.9
Manufacturing 14.5 26.7 26.0 31.8 22.3 21.0
Production and distribution of energy 12.8 17.6 10.2 8.8 10.6 7.9
Construction 1.8 1.4 1.2 1.3 1.7 2.6
Wholesale and retail sale 9.0 7.9 6.5 6.9 15.4 11.6
Transport and telecommunications 43.8 24.3 31.1 24.9 22.5 21.3
Financial activities 1.3 2.4 2.6 1.2 1.4 1.4
Real estate transactions 7.1 7.6 8.2 10.6 12.6 16.9
Public administration 0.7 1.0 1.0 1.7 1.6 3.8
Education 2.1 2.0 1.8 1.6 1.1 1.4
Health and social assistance 0.3 0.1 0.3 0.4 1.5 1.0
Other sectors 3.0 4.1 5.4 5.6 3.3 3.9
Total 100.0 100.0 100.0 100.0 100.0 100.0
Source: Moldovan National Bureau of Statistics.
Table 2. FDI stock in Ukraine by economic activities, 2002–2006, %
2002 2003 2004 2005 2006
Agriculture, hunting and forestry 2 2 3 2 2
Fishery 0 0 0 0 0
Industry 54 52 50 43 31
of which food industry and processing of agricultural
products 18 16 15 12 7
Construction 3 3 3 3 2
Wholesale and retail trade 17 17 17 18 12
Hotels and restaurants 3 3 3 3 2
Transport and communication 7 7 8 7 5
Financial activity 8 8 7 8 6
Real estate 4 4 6 7 6
State management 0 0 0 0 0
Education 0 0 0 0 0
Public health protection and social help 3 2 2 2 1
Collective, civil and private services 1 2 2 2 1
Investment undistributed by regions* 0 0 0 4 32
Total 100 100 100 100 100
Total, millions of USD 4 555 5 472 6 794 9 047 16 375
Note. * Data on direct investment are obtained from the National Bank of Ukraine and State Property Fund of
Ukraine (on difference between market and nominal value of shares, property, etc., not published in statisti-cal
reports of selected enterprises).
Data are for the beginning of a year.
Source: State Statistics Committee of Ukraine.
Table 3. FDI stock in Kyrgyzstan by economic activities, 2002–2006, thsd USD
2000 2001 2002 2003 2004 2005 2006
Agriculture,hunting and forestry 40.8 130.1 805.3 2009.9 9752.7 763.4 3561.0
Mining industry 4607.6 4320.7 5058.2 12285.4 9952.2 24309.6 55779.8
Manufacturing industry 44026.0 50897.4 52802.4 73164.4 92972.8 94799.6 141013.8
Production and distribution of en-ergy,
gas and water 31.5 322.6 2202.8 103.8 11.2
Construction 4670.3 129.3 2166.7 5037.7 5818.2 12121.0 9116.2
Trade and repair of motor vehi-cles,
household appliances and
articles of personal use 14686.9 23267.3 19737.8 22626.9 24579.1 21834.6 26693.1
Hotels and restaurants 10587.5 6962.6 4812.0 1960.6 960.8 2485.0 1946.5
8 We were not able to receive the statistics for Georgia in a comparable format.
30 CASE Network Studies & Analyses No. 370
31. THE MOTIVES AND IMPEDIMENTS TO FDI IN THE CIS
2000 2001 2002 2003 2004 2005 2006
Transport and communication 3078.5 2309.2 7954.8 4670.4 6880.1 4746.0 9276.7
Financial activity 1560.3 469.5 6005.6 3960.5 10813.5 41024.1 61847.7
Real estate operations and rent
services 5600.1 1377.3 13171.7 3544.8 8791.7 7369.4 25281.6
Government management 1393.5 677.3 75.3 250.9
Education 72.6 80.1 2612.2 9325.0 1000.2 0.2 0.9
Health care and social services 0.5 14.9 6.3 5317.6 762.9 0.3 804.2
Housing,social and personal ser-vices
676.8 130.1 501.6 1336.2 421.1 673.9 5.6
Total 89607.9 90088.5 115666.1 146955.5 175585.4 210306.2 335589.2
Source: Moldovan National Bureau of Statistics.
CASE Network Studies & Analyses No. 370 31