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 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
1. This document announces the upcoming Direct Marketing Days in Ukraine conference on May 26-27, 2011. It will focus on dialog over monolog in communications and feature sessions on loyalty programs, social media, mobile marketing, and successful direct marketing projects.
2. National postal services from Europe will present on distance selling strategies and international market entry. Ukrpochta will discuss services for distance sellers.
3. The conference aims to educate attendees on integrating direct marketing tools like social media and mobile into their communications strategies and developing the right competencies for modern marketing managers.
Macroeconomic Developments Report. April 2013Latvijas Banka
This document provides a macroeconomic developments report for April 2013. It summarizes economic conditions in Latvia and its major trade partners. While global growth is projected to be higher in 2013 than 2012, downside risks remain from a slower euro area recovery and issues in certain countries. Latvian exports reached peaks in late 2012, improving competitiveness, though investment activity declined. Domestic demand remains buoyed by private consumption while inflation is slowing.
The paper first considers why central European countries wish to join EMU soon. The main reasons are the risk of macroeconomic instability they face outside the euro zone if they wish to grow quickly. At the same time, Central Europe is highly integrated as regards trade with EMU, so it is little exposed to asymmetric shocks that would require a realignment of exchange rates. Finally, it is argued that there is no cost in terms of slower growth from EMU accession, so that there is no trade-off, as has been claimed, between nominal convergence to EMU and real convergence to EU average GDP levels. Second, the paper assesses whether Central European accession to EMU would be disadvantageous to current members. It concludes that accession cannot increase inflationary pressure on existing EMU members, as has been claimed, but that slow growing members of EMU might suffer increased unemployment, unless they increase the flexibility of their labour markets. Incumbent members may also be unwilling to share power with Central Europeans in EMU institutions.
Authored by: Jacek Rostowski
Published in 2003
1) Estonia has attracted the most foreign direct investment as a percentage of GDP from euro area countries and other Baltic states since adopting the euro.
2) Latvia and Lithuania saw large drops in FDI, mainly due to restructuring at Swedbank.
3) Adopting the euro is expected to help Latvia attract more foreign investment by increasing credibility, though responsible fiscal policy is also important.
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
"Macroeconomic Developments Report", January 2014Latvijas Banka
The document provides an overview of macroeconomic developments in Latvia and its major trade partners. Some key points:
- The IMF revised downwards GDP growth forecasts for many countries, particularly Russia, Estonia, and Finland. However, forecasts for the Eurozone were unchanged.
- In Q3 2013, exports and imports of Latvian goods contracted year-over-year due to weakening external demand and a strong base effect from previous years. Nevertheless, Latvia continued to expand its export market shares.
- In response to low inflation, the ECB and Latvijas Banka both unexpectedly lowered interest rates in November. Credit growth remained subdued as banks retained excess liquidity.
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 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
1. This document announces the upcoming Direct Marketing Days in Ukraine conference on May 26-27, 2011. It will focus on dialog over monolog in communications and feature sessions on loyalty programs, social media, mobile marketing, and successful direct marketing projects.
2. National postal services from Europe will present on distance selling strategies and international market entry. Ukrpochta will discuss services for distance sellers.
3. The conference aims to educate attendees on integrating direct marketing tools like social media and mobile into their communications strategies and developing the right competencies for modern marketing managers.
Macroeconomic Developments Report. April 2013Latvijas Banka
This document provides a macroeconomic developments report for April 2013. It summarizes economic conditions in Latvia and its major trade partners. While global growth is projected to be higher in 2013 than 2012, downside risks remain from a slower euro area recovery and issues in certain countries. Latvian exports reached peaks in late 2012, improving competitiveness, though investment activity declined. Domestic demand remains buoyed by private consumption while inflation is slowing.
The paper first considers why central European countries wish to join EMU soon. The main reasons are the risk of macroeconomic instability they face outside the euro zone if they wish to grow quickly. At the same time, Central Europe is highly integrated as regards trade with EMU, so it is little exposed to asymmetric shocks that would require a realignment of exchange rates. Finally, it is argued that there is no cost in terms of slower growth from EMU accession, so that there is no trade-off, as has been claimed, between nominal convergence to EMU and real convergence to EU average GDP levels. Second, the paper assesses whether Central European accession to EMU would be disadvantageous to current members. It concludes that accession cannot increase inflationary pressure on existing EMU members, as has been claimed, but that slow growing members of EMU might suffer increased unemployment, unless they increase the flexibility of their labour markets. Incumbent members may also be unwilling to share power with Central Europeans in EMU institutions.
Authored by: Jacek Rostowski
Published in 2003
1) Estonia has attracted the most foreign direct investment as a percentage of GDP from euro area countries and other Baltic states since adopting the euro.
2) Latvia and Lithuania saw large drops in FDI, mainly due to restructuring at Swedbank.
3) Adopting the euro is expected to help Latvia attract more foreign investment by increasing credibility, though responsible fiscal policy is also important.
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
"Macroeconomic Developments Report", January 2014Latvijas Banka
The document provides an overview of macroeconomic developments in Latvia and its major trade partners. Some key points:
- The IMF revised downwards GDP growth forecasts for many countries, particularly Russia, Estonia, and Finland. However, forecasts for the Eurozone were unchanged.
- In Q3 2013, exports and imports of Latvian goods contracted year-over-year due to weakening external demand and a strong base effect from previous years. Nevertheless, Latvia continued to expand its export market shares.
- In response to low inflation, the ECB and Latvijas Banka both unexpectedly lowered interest rates in November. Credit growth remained subdued as banks retained excess liquidity.
Volvemos para presentar la edición 2017 de Conexus, la publicación anual que analiza el estado actual de los últimos desarrollos en Industrial Connectivity.
This document provides a summary of a literature review on the impact of European integration on foreign direct investment (FDI) inflows to Central and Eastern European countries. It finds that previous studies show European integration announcements and progress increased FDI to these countries, as investors anticipated improved institutions and access to EU markets. However, most previous studies did not fully account for different stages of EU integration or the impact of the financial crisis. This study aims to address these gaps by examining the effect of specific political, economic, and monetary integration milestones on FDI inflows to 11 Central and Eastern European EU member states from 1995 to 2013.
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
This document analyzes Poland's economic convergence towards euro area levels before and after joining the EU in 2004. It finds that Poland experienced strong economic growth averaging higher than the euro area. This led to steady increases in GDP per capita and price levels converging towards euro area averages. Inflation was largely kept under control after adopting an inflation targeting policy. However, public finances suffered from chronic deficits, though public debt remained moderate. The economic crisis that began in 2008 impacted Poland through falling stock prices, a depreciating currency, and slowing credit and GDP growth. Political debates around adopting the euro were ongoing.
Dr Dev Kambhampati | Doing Business in Slovakia - 2014 Country Commercial Gui...Dr Dev Kambhampati
This document provides an overview and guidelines for doing business in Slovakia. It is divided into 10 chapters that cover political and economic environment, selling U.S. products and services, leading sectors, trade regulations, investment climate, trade and project financing, business travel, contacts and events, and Commercial Service assistance. Some key points include: Slovakia has a stable economy and is a good market for U.S. exporters; best prospects are in energy, medical, automotive, and chemicals; when establishing an office follow EU and Slovak laws on data privacy, contracts, and commercial registration. The U.S. Commercial Service can help companies through services like Gold Key matching with local partners.
This paper quantifies transparency of monetary policy in the three EU New Member States that have adopted direct inflation targeting strategy. Two measures of transparency are applied. The institutional measure reflects the extent to which a central bank discloses information that is related to the policymaking process. The behavioural measure reflects the clarity among the financial market participants about the true course of monetary policy. The paper shows an ambiguous association between the two measures of transparency, which may be attributed to the active exchange rate management policy that undermines the actual transparency proxied by the behavioural measure.
Authored by: Mariusz Jarmuzek, Lucjan T. Orlowski, Artur Radziwill
Published in 2004
While CEE economies experienced strong growth in 2017, business insolvencies still increased across the region. Companies did not have enough time to fully benefit from the economic recovery as growth is slowing. Insolvencies are expected to continue rising in 2018 and 2019 as supply constraints like labor shortages increase costs for businesses. Construction companies in particular struggled with high material costs and labor shortages, showing up in insolvency statistics. The economic expansion peak has passed and weaker growth ahead will make conditions more difficult for CEE companies.
Latvijas Bankas "Monthly Newsletter", 10/2016Latvijas Banka
"Highlights":
* Substantial increase in high technology sectors
* Inflation is rising, but to a large extent owing to last year's developments
* External trade in August testifies to the power of Latvian cereal exports
"In Focus":
* #reformasLV or why Latvijas Banka cares about education and healthcare?, autors: Oļegs Krasnopjorovs
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
This document provides an overview of key aspects of doing business and investing in Poland. It discusses Poland's political and legal system, noting it is a parliamentary republic with separation of powers. Economically, Poland follows principles of private ownership and a market-oriented economy. The document also summarizes Poland's intellectual property laws, covering copyright, patents, trademarks, and protections/infringements for each. It provides information on Poland's tax system, trade, infrastructure, and rankings on ease of doing business.
The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution.
The purpose of this paper is to analyze the state of the Ukrainian economy at the end of 2007 and reflect upon what kind of reform program the Ukrainian government should consider, regardless of its political color. The reforms suggested in this paper involve a broad agenda of macroeconomic, social, structural and institutional measures. This agenda goes beyond the purely economic sphere and also addresses issues of legal, administrative and political reforms. The politics and political economy of any future reform effort will not be easy because the country is deeply divided in political, cultural, regional and ethnic terms. In such an environment, crucial reforms and strategic decisions will require a wider cross-party political consensus.
Authored by: Marek Dąbrowski
Published in 2007
This paper confronts the traditional balance-of-payments (BoP) analytical framework (with its dominant focus on the size of a given country’s current account imbalance and its external liabilities) with the contemporary realities of highly integrated international capital markets and cross-country capital mobility. Some key implicit assumptions of the traditional framework like those of a fixed residence of capital owners and home country bias are challenged and an alternative set of assumptions is offered. These reflect the unrestricted character of private capital flows (with no “home country bias” and fixed domicile) determined mostly by the expected rate of return. As a result, the importance of BoP constraints (in their “orthodox” interpretation) diminishes and they disappear completely with respect to individual member states within a highly integrated monetary union. This does not mean, however, immunization from other kinds of macroeconomic risks.
Authored by: Marek Dąbrowski
Published in 2006
The 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 work is done as contribution to the Regional Human Development Report 2004 section 3.7 on “Labor Markets”. The paper focuses on discussing peculiarities of the labor market transition in CIS countries, features of unemployment, labor legislation, and role of the trade unions.
The paper gathers information on the labor markets of CIS and Eastern European countries that was available by summer 2004, and draws policy recommendations based on comparison between these two groups of countries. The main conclusion is that the transformation of labor markets is not complete in any of the CIS countries; most of the problems that prevailed in the early 1990s remain. These include: centralized wage setting in five CIS countries – Belarus, Moldova, Tajikistan, Turkmenistan, and Uzbekistan; extensive unemployment and underemployment, much of which is hidden; ineffective systems of labor relations and social protection; large mismatches between the labor market skills supplied and the skills demanded by new market economies; inadequate official labor market data.
Fortunately, the strong economic growth experienced by most CIS countries since 1999 has increased the demand for labor and is putting downward pressures on unemployment rates. This offers a window of opportunity for policy makers seeking to further transform labor markets, and to modernize labor relations and social protection systems. The above analysis suggests the policy recommendations to speed up further transformation.
Authored by: Olga Pavlova, Oleksandr Rohozynsky
Published in 2005
This document discusses Kazakhstan's entry into the Customs Union with Belarus and Russia in 2010. It analyzes the effects of adopting a common external tariff on Kazakhstan's import structure and volumes. The empirical analysis finds that while overall imports were not significantly affected, the tariff changes likely created some trade diversion. Imports from China saw a significant negative impact, while imports from within the Customs Union saw a small but significant positive impact. However, there is little evidence of trade diversion from higher-value exporters like EU countries. The benefits to Kazakhstan from the new tariff policy alone appear to be limited based on these short-term results.
he paper examines theoretical literature, recent EMU accession examples, and current CEECs performance in search of the optimal currency regime for meeting the Maastricht criteria. Currency board arrangements seems to provide the fastest convergence. For other regimes, the markets may have theoretical and historical reasons to believe in the government's temptation to devalue on the ERM-2 entry. The government should announce the final date, and, possibly indicate the final exchange rate for the regime switch to avoid excessive currency and yield volatility. It should also underscore the central bank’s and EU authorities importance (even if non-existent) in the parity setting process to avoid excessive domestic debt inflation premium ahead of the accession. Recent experience shows that it will be easy to get rid of the remaining influence of cross rates on CEECs exchange rates.
Authored by: Mateusz Szczurek
Published in 2003
Macroeconomic Developments Report. June 2016Latvijas Banka
This document provides a macroeconomic developments report for June 2016. It summarizes key developments in the external sector and exports, monetary policy and financial markets, domestic demand, aggregate supply, costs and prices, and the balance of payments for Latvia. It also includes forecasts for Latvia's GDP growth and inflation for 2016. Some of the main points covered include weaker-than-expected global economic growth in 2015, accommodative monetary policy decisions by the ECB, private consumption as the main driver of GDP growth in Latvia, and a revised downward GDP growth forecast for Latvia of approximately 2.0% in 2016.
Report on Ukraine for The Financial Times_August-September 2011 issue_Author ...Nataliya Kozachenko
Ukraine has significant economic potential but has struggled to attract foreign direct investment (FDI) due to instability and poor business environment ratings. While it has natural resources, fertile land, and a skilled workforce, its GDP and FDI per capita are much lower than neighboring countries. To increase FDI, Ukraine needs to improve economic freedom, ease of doing business, competitiveness, and reduce corruption. It also needs a clear investment promotion strategy to change negative investor perceptions and promote stability to keep investors during economic downturns. Key sectors for growth include agriculture, infrastructure, and projects around the upcoming Euro 2012 football tournament.
This paper analyses the effect of the EU enlargement process on income convergence among regions in the EU and in the Eastern neighbourhood of the EU. The data used is NUTS II regions in the EU and Oblasts' of Russia over the period 1996-2004. The estimation techniques used take into account both regional and spatial heterogeneity. The main findings are that the regional income differences are reduced within EU15. The income convergence within the EU is mainly driven by reductions in the differences across countries rather than by a reduction in regional differences within countries. When differences in initial conditions in the regions are controlled for by fixed regional effects there are strong evidences of convergence among regions in all studied country groups.
Authored by: Fredrik Wilhelmsson
Published in 2009
The article discusses the opportunities and challenges for foreign asset managers in the pension markets of eight Central and Eastern European countries that joined the EU on May 1, 2004. While the potential for growth is large, early entrants have faced significant regulatory, distribution, and cultural barriers. The Polish pension market is the largest and most promising but still restricts foreign investment and third-party management. Overall distribution challenges and a need for local infrastructure make it difficult for foreign firms to penetrate these emerging markets.
FDI fluctuations followed by GDP fluctuations in Kosovo and favoring particul...nakije.kida
This paper examines the main trends of FDI (Foreign Direct Investment) in Kosovo. Kosovo
as a country that had just emerged from war in 1999, with frequent changes of laws and
adoption of economic liberalization measures made very large strides in democracy and
international recognition of statehood. Fluctuations of FDI in Kosovo in the past 12 years link
these directly in the two macroeconomic indicators clearly express how important is the
stability of the country. GDP growth rate in Kosovo with a great opportunity for investors, one
more chance for the local population to find a new job. The perception of investors that there
is no risk to invest in Kosovo increased FDI flows. Success of Kosovo to boost foreign
investment becomes accessible if not delayed accession to the EU. All these factors have led
to a satisfactory level of the FDI in Kosovo, but economic and political context is crucial.
Kosovo has significant structural mismatch economy compared to countries in the region. This
information allows us to create a more favorable institutional framework for investment,
facilitates an investor to take a decision to invest quickly. From an investment perspective in
Kosovo economic structure, trends seen that capital to invest in some sectors. Investments in
the industrial sector (manufacturing) in mining, energy, construction, trade and services have
been attractive to foreign investors.
This paper draws on the experience of emerging Europe and argues that foreign capital is an enviable development opportunity with tail risks. Financial integration and foreign savings supported growth in the EU12 and EU candidate countries. We argue that this was possible because of EU membership (actual or potential) and its role as an anchor for expectations. In contrast, the eastern partnership states did not benefit from the foreign savings-growth link. But financial integration also led to a buildup of vulnerabilities and now exposes emerging Europe to prolonged uncertainty and financial deleveraging due to eurozone developments. Nonetheless, we believe that external imbalances should not be eradicated—nor should emerging Europe pursue a policy of self-insurance. Instead, what we refer to as an acyclical fiscal policy stance could serve to counterbalance private sector behavior. Going forward, a more proactive macroprudential policy will also be needed to limit financial system vulnerabilities when external imbalances are large.
This paper build on work presented in a World Bank report titled “Golden Growth: Restoring the Lustre of the European Economic Model” (2012) and on Juan Zalduendo’s presentation on “Financial integration. Lessons from CEE and SEE” delivered at the CASE 2011 International Conference on “Europe 2020: Exploring the Future of European Integration” held in Falenty near Warsaw, November 18-19, 2011.
Authored by: Aleksandra Iwulska, Naotaka Sugawara, Juan Zalduendo
Published in 2012
Volvemos para presentar la edición 2017 de Conexus, la publicación anual que analiza el estado actual de los últimos desarrollos en Industrial Connectivity.
This document provides a summary of a literature review on the impact of European integration on foreign direct investment (FDI) inflows to Central and Eastern European countries. It finds that previous studies show European integration announcements and progress increased FDI to these countries, as investors anticipated improved institutions and access to EU markets. However, most previous studies did not fully account for different stages of EU integration or the impact of the financial crisis. This study aims to address these gaps by examining the effect of specific political, economic, and monetary integration milestones on FDI inflows to 11 Central and Eastern European EU member states from 1995 to 2013.
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
This document analyzes Poland's economic convergence towards euro area levels before and after joining the EU in 2004. It finds that Poland experienced strong economic growth averaging higher than the euro area. This led to steady increases in GDP per capita and price levels converging towards euro area averages. Inflation was largely kept under control after adopting an inflation targeting policy. However, public finances suffered from chronic deficits, though public debt remained moderate. The economic crisis that began in 2008 impacted Poland through falling stock prices, a depreciating currency, and slowing credit and GDP growth. Political debates around adopting the euro were ongoing.
Dr Dev Kambhampati | Doing Business in Slovakia - 2014 Country Commercial Gui...Dr Dev Kambhampati
This document provides an overview and guidelines for doing business in Slovakia. It is divided into 10 chapters that cover political and economic environment, selling U.S. products and services, leading sectors, trade regulations, investment climate, trade and project financing, business travel, contacts and events, and Commercial Service assistance. Some key points include: Slovakia has a stable economy and is a good market for U.S. exporters; best prospects are in energy, medical, automotive, and chemicals; when establishing an office follow EU and Slovak laws on data privacy, contracts, and commercial registration. The U.S. Commercial Service can help companies through services like Gold Key matching with local partners.
This paper quantifies transparency of monetary policy in the three EU New Member States that have adopted direct inflation targeting strategy. Two measures of transparency are applied. The institutional measure reflects the extent to which a central bank discloses information that is related to the policymaking process. The behavioural measure reflects the clarity among the financial market participants about the true course of monetary policy. The paper shows an ambiguous association between the two measures of transparency, which may be attributed to the active exchange rate management policy that undermines the actual transparency proxied by the behavioural measure.
Authored by: Mariusz Jarmuzek, Lucjan T. Orlowski, Artur Radziwill
Published in 2004
While CEE economies experienced strong growth in 2017, business insolvencies still increased across the region. Companies did not have enough time to fully benefit from the economic recovery as growth is slowing. Insolvencies are expected to continue rising in 2018 and 2019 as supply constraints like labor shortages increase costs for businesses. Construction companies in particular struggled with high material costs and labor shortages, showing up in insolvency statistics. The economic expansion peak has passed and weaker growth ahead will make conditions more difficult for CEE companies.
Latvijas Bankas "Monthly Newsletter", 10/2016Latvijas Banka
"Highlights":
* Substantial increase in high technology sectors
* Inflation is rising, but to a large extent owing to last year's developments
* External trade in August testifies to the power of Latvian cereal exports
"In Focus":
* #reformasLV or why Latvijas Banka cares about education and healthcare?, autors: Oļegs Krasnopjorovs
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
This document provides an overview of key aspects of doing business and investing in Poland. It discusses Poland's political and legal system, noting it is a parliamentary republic with separation of powers. Economically, Poland follows principles of private ownership and a market-oriented economy. The document also summarizes Poland's intellectual property laws, covering copyright, patents, trademarks, and protections/infringements for each. It provides information on Poland's tax system, trade, infrastructure, and rankings on ease of doing business.
The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution.
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Authored by: Marek Dąbrowski
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Authored by: Marek Dąbrowski
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FDI fluctuations followed by GDP fluctuations in Kosovo and favoring particul...nakije.kida
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information allows us to create a more favorable institutional framework for investment,
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Les Roumains et les Bulgares apportent plus qu'ils ne coûtentThierry Labro
Romanian and Bulgarian immigrants who arrived in Sweden between 2007-2010 make a substantial positive contribution to public finances on average. The average net fiscal contribution is estimated to be around 30,000 Swedish kronor per person per year, which is about one-sixth of the average public spending per capita. This positive contribution results because immigrants pay less in taxes due to lower average incomes but cost less in transfers and public services than the average person, since few are over retirement age. The results suggest Romanian and Bulgarian immigrants more than pay for themselves fiscally and provide net revenue to public coffers.
Global FDI flows collapsed with the global financial crisis in 2008 and remain 40% below pre-crisis levels. A major reason for this is the EU. While FDI flows in the rest of the world recovered by 2010, the EU continues to struggle due to structural factors that are undermining the quality of the EU’s investment environment. This paper analyses why and puts forward policy options.
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This paper provides a detailed investigation of the investment flows between Russia and Sweden in the last decade and a half. The paper also argues that it is hard to predict aggregate bilateral flows with great precision, in particular for such a large economy
as the Russian, and empirical models tend to generate expected flows from Sweden to Russia that are larger than the ones observed.
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1. Cross-Cultural Business Conference 2018
May 17th
-18th
, 2018
University of Applied Sciences Upper Austria, School of Management, Campus Steyr
Zoran Vaupot
Faculty of Business Studies, Catholic Institute, Slovenia
_________________________________________________
FDI in Slovenia: A love-hate relationship
____________________________
ABSTRACT
Similar recent history (former communist economies), geographical position (central Europe), relatively
small size (except Poland), political systems (parliamentary democracies) and EU membership define
Visegrad countries as the perfect group to compare with Slovenia.
When we analyse the stock of inward foreign direct investments (IFDI) in comparison to GDP in
Slovenia and all Visegrad countries, noticeable differences appear. With 30.5% (December 2016) the
stock of IFDI in Slovenia was much lower than the comparable data for Poland (39.4%), Slovakia
(48.8%), Czech Republic (60.0%) and Hungary (64.3%). Also the trend of the IFDI share of GDP
shows that the differences between Slovenia and Visegrad countries will not diminish noticeably in the
forthcoming years.
We try to verify whether the explanation of this phenomenon can be realized with the help of well-
known cross-cultural models. In other words, is there a country-specific cultural dimension which
influences whether Slovenia receives less IFDI than the Visegrad countries? In what ways is this
dimension an influence on Slovenia receiving less IFDI?
We conclude that the lack of IFDI has to be attributed to Slovenian particularities rather than significant
cross-cultural differences when compared to Poland, Hungary, Czech Republic and Slovakia.
1. INTRODUCTION
The fall of communist ideology resulted in historic changes in Eastern European countries in the ’90s.
Among them especially Hungary, Slovakia, Czech Republic and Poland registered a quick growth of
inward foreign direct investments (IFDI), which was especially the result of the privatization process in
the first decade after the socio-political change. Later on these countries became not only the
European champions in attracting FDI but also one of the most prominent regions for foreign investors
worldwide.
On the other side Slovenia, part of the former Yugoslavia, gained its independence in 1991. The
communist political system of the former country was a bit less rigorous and consequently the
economic system was slightly more market-oriented in comparison to the other four mentioned
countries. So, Slovenia’s economy in the beginning of the ’90s was in somewhat better shape and
more internationally competitive, although it suffered from the important loss of the former Yugoslav
market during several years after gaining its independence.
Based on a historic agreement from the 14
th
century
1
, former Czechoslovakia, Poland and Hungary in
1991 created the so-called Visegrad group. Known first also as the V3 it later changed into the V4 as
the result of the dissolution of Czechoslovakia into the Czech Republic and Slovakia in 1993. The
complacency of Slovenia but also the hesitation of the founding members of the Visegrad group (due
to the war conflict in former Yugoslavia) resulted in Slovenia not joining the Visegrad group at that
time.
1
The name of the Group is derived from a meeting of the Bohemian (Czech), Polish, and Hungarian rulers in
Visegrád in 1335. Charles I of Hungary, Casimir III of Poland, and John of Bohemia agreed to create new
commercial routes to bypass the staple port Vienna and obtain easier access to other European markets.
2. Nevertheless, the excellent political and economic relations of Slovenia with all V4 members are
today’s fact, especially with growing awareness that the seventy-year long Slovenian experience with
the former South-Slav political entities was preceded by several centuries of common Central
European heritage, mostly within the Habsburg Monarchy and Austro-Hungarian Empire.
In order to find an answer to whether there is any specific dimension of Slovenia’s culture that could
help us to explain such a different role of IFDI in the national economy of Slovenia, in comparison to all
Visegrad countries, we will start with establishing a theoretical framework. It will include selected
research from the field of FDI and especially the importance of privatization. The second part of the
theoretical framework is devoted to the topics of culture and cultural distance, where we argue and
finally select the theoretical model which will enable us to present a relevant cross-cultural comparison
between the culture of Slovenia and all other four cultures of the Visegrad countries. In the empirical
part, and based on the presented comparison, we continue our research to find a more appropriate
cultural dimension which we connect to the topic of communication. We also present historical events
in Slovenia in the last three decades which support the theoretical conclusion previously presented.
After the influences are defined, we ask ourselves about the possible macro political measures that
governmental politics can use or even avoid in order to support faster growth of the inflow of FDI into
the economy of Slovenia.
2. THEORETICAL FRAMEWORK
2.1. Foreign direct investments and privatization
From a wider perspective it seems nowadays that one of the most important differences between
Slovenia and the Visegrad countries is the attitude toward foreign investors. With its dominant part in
state ownership in the last years Slovenia is now announcing the official governmental readiness to
privatize a substantial part of the state-owned companies
2
. This process has already been more or
less finished in all other Visegrad countries. It is not only a larger share of the state-owned companies
which were privatized but we also observe the faster growth of new, Greenfield investments. These
are reasons why the relative stock of IFDI in all Visegrad countries is substantially higher than in
Slovenia, as presented in Figure 1 where we compare the parts of IFDI stock with the GDP of each
country.
Figure 2: Part of inward FDI stock in comparison with GDP.
Source: OECD (https://data.oecd.org/)
2
According to the OECD data, the book value of equity of majority SOEs and minority-SOEs relative to GDP in
Slovenia is the highest in Europe for majority state-owned companies (over 50%) or the second highest if minority
stakes are also included (between 10% and 50%). According to the OECD Public Ownership Index the extent to
which the state owns, controls, or is involved in business in Slovenia is above the average in the EU and in the
Central and Eastern European (CEE) peer countries, particularly in the network industries (electricity, gas, rail,
transport, air transport, postal services and telecommunications).
Source: https://ec.europa.eu/info/sites/info/files/file_import/ip031_en_2.pdf
60,01
64,29
39,41
48,84
30,53
20
40
60
80
2010 2011 2012 2013 2014 2015 2016
IFDIstock/GDP(%)
Czech Republic Hungary Poland
Slovak Republic Slovenia
3. At least partially, the faster privatization led V4 countries to also stronger growth in new investments.
Let’s just mention three research in this area which confirm our statement.
Calderόn et al. (2004) analyse data from 72 countries for the period 1987–2001. They find that
companies who were primarily targeting their investments toward the purchase of existing state-owned
companies also invest in new companies in the following years (so-called spillover effect). In
industrialized countries the volume of new investments is similar to the size of initial investment in the
privatization of the state-owned company. The authors estimate that at the macroeconomic level
investment in the purchase of existing state-owned enterprises in the scope of 1% of GDP results in
subsequent new investments of the same volume. In developing countries (among which we also
include Slovenia and Visegrad countries), the result is even higher: 1.5% of GDP in new investments
as the result of 1% of GDP of the original investments in the privatization of existing state-owned
enterprises. One of the most important findings of the study is the forecast that countries can also
expect future growth of IFDI in new companies, also as a consequence of privatization.
The second study, which we mention and most suits our geographical region, is from next year when
Merlevede and Schoors (2005) analyse the link between the privatization method (direct sale to the
best bidder and indirect sales methods: internal purchases by managers and/or employees and
voucher privatization) and the volume of IFDI. With multivariate analysis, which includes data for eight
new members of the EU (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and
Slovenia) they prove as significant the impact of direct sales to the best bidder on the increase of the
volume of IFDI. Such an influence is not proven with any of the indirect sales methods. This tends
toward a conclusion that the choice of indirect selling methods is a negative sign for potential foreign
investors who interpret it as a fear of selling to foreign companies. This can lead to the decision from
potential foreign investors that the ideas about investing (not only in the privatization process) are
delayed or even abandoned. In addition, the use of indirect privatization methods can cause the new
domestic private owners to stop the restructuring of the privatized state enterprise, which can lead
foreign investors to postpone or cancel investment projects since they may interpret the behaviour of
the domestic owners as rejecting the expected positive effects that potential foreign owners could
cause in the privatized companies.
To find specific answers to our topic, the closest is the survey from the end of the last decade when
Mukherjee and Suetrong (2009) prove the two-way link between privatization and the volume of FDI in
new investments: privatization promotes FDI in new companies and these Greenfield investments
promote incentives for privatization. Their explanation of this phenomenon is interesting: they explain
that the purchase of a domestic state-owned company by a foreign investor is later on understood as a
way of reducing competition in the domestic market, by which the domestic market becomes more
attractive for new investments after privatization.
Our intermediate conclusion concerning the relative comparison of the IFDI stock between Slovenia
and Visegrad countries is that the presented significant differences are the result of three main factors:
- the principal method chosen in the 1
st
phase of privatization in the ’90s (Slovenia did not
choose direct sales but rather indirect sales: internal purchases by managers and/or
employees and voucher privatization),
- the long and closed (as the result of privatisation methods chosen) process of privatization in
the ’90s (it signalled to foreign investors a clear non-welcome in Slovenia’s privatization
process and investment activity in general),
- we add to the above factors often hostile general public opinion expressed toward foreign
investors created by small groups with particular interest, mostly hidden behind most
influential political parties and non-governmental organizations with political agenda and
promoted by the dominant media in Slovenia who tend to defend so-called “national interest”
and express open hostility toward globalization and liberalization.
4. 2.2. Concept of distance and cultural distance
The concept of “distance” in international research is concentrated in three main areas which are
defined by different types or dimensions of distance: geographical, psychic and cultural. These studies
have mainly focused on how distances impact on firms’ international expansion. As stated by Ojala
(2015), we also acknowledge certain distance concepts that have received attention more recently.
For example, Xu and Shenkar (2002) focused on how institutional distance affects foreign direct
investment by multinational enterprises, Peretto and Smulders (2002) investigated how technological
distance reduces the spillovers between firms and Estrin et al. (2009) examined how human resource
distance impacts on the entry mode choices of multinational enterprises.
The importance of geographic distance (which can be defined as physical separation between one
location and another, involving the space between the domestic location of a firm and the foreign
location in which it is selling/investing, or exploring possible sales/investments) has been analysed
within the concept of gravity models, which were originally used by economists to explain the flow of
international trade, and later also in the field of analysing foreign direct investment and international
migration. The theoretical basis of the gravity models is based on Newton's universal law of gravity.
Tinbergen (1958), the first winner of the Nobel Awards for Economics (1969), applied this law in the
field of international exchange flows. His hypothesis was that exchanges between two countries
depend on the economic power of the individual country and the geographical distance that separates
them. This distance is used as an approximation of the volume of transport and other trade costs
affecting exchange. Tinbergen’s model has been improved by many authors through the decades, for
example: Linnemann (1966), Bergstrand (1985), Blonigen et al. (2007), Garretsen and Peeters (2009)
and Shepotylo (2012). By better definition, improved measurement and addition of new variables
(population, international agreements, prices, exchange rates…) the gravity models are still improving
their explanatory power but the basic idea of importance of geographical distance remains.
The psychic distance encompasses the disturbance in information flows between organizations and
foreign markets caused by actors’ perceptions (Ojala 2015). According to Nebus and Chai (2014) the
differences between dimensions of psychic distance (geography, culture, language, politics, the level
of education, the economic situation, the level of industrial development, time zones, etc.) disturb
information flow between actors and increase perceived psychic distance; in other words, human
awareness, understanding, and perceptions concerning these factors impact on psychic distance. As
stated by Ellis (2008), the psychic distance is asymmetrical in nature, and the assessments made by
sellers and their buyers are inherently inequivalent. Applying this finding to the region of Central
Europe, we can say that citizens of relatively small Central European countries, especially at the
beginning of the 90s had much better overall knowledge about the socio-economic situation,
geography, culture and language of large Western economies than vice versa.
The cultural distance is mostly seen as an important component of the psychic distance. We generally
agree that “culture” refers to the collection of assumptions, values, and normative behaviours of a
group of people (Kwok et al. 2005). There are many studies about how culture and cultural distance
affects international business. Still one of the most popular tools for measuring cultural distance is so
called Cultural Distance Index proposed by Kogut and Singh (1988). As stated by Yeganeh (2014),
more than 310 empirical studies have relied on the Kogut–Singh Index (KSI) to investigate the effects
of cultural distance on a variety of business and management phenomena including firms' market
selections, entry mode choices, international acquisitions, joint ventures and alliances, organizational
performance, technology transfer, headquarters–subsidiary relations, and international human
resources management. But the empirical research on the impact of cultural distance has often led to
mixed, inconclusive, and even conflicting results. As a result, many scholars expressed their more or
less evident opposition against this concept, let's just mention Harzing (2003) and Shenkar (2012).
5. Based on the methodological shortcomings of the KSI, Yeganeh (2014) introduces an improved
version of a tool for measuring cultural distance between countries named WMA (which stands for:
Weighted, Mahalanobian and Asymmetrical). Although well theoretically founded especially in its
mathematical dimension in comparison to the original KSI, the newly proposed measurement does not
avoid some of the existing criticisms already used against KSI. The usage of Hofstede’s data brings
the same limitations: they were collected several decades ago and many things have changed since
(e.g. end of Cold war, decline of communism, some countries do not exist anymore-e.g. Soviet Union,
Yugoslavia, Czechoslovakia-and some were established since-Slovenia, Czech Republic, Slovakia…)
and we should neither forget that these data were collected within one multinational company (IBM)
which is risky to be used as a proxy for the whole national culture of each country. Also many other
aspects of Hofstede’s critics have been presented by Drogendijk and Zander (2010). Taking these
limitations into consideration the GLOBE project (House et al. 2004) seems to introduce certain
improvements. Using findings from Hofstede (1980), Schwartz (1994), Smith and Peterson (1995),
Chidester and Inglehart (1998) and others, they established nine cultural dimensions that make it
possible to capture the similarities and/or differences in norms, values, beliefs and practices among
societies. Since not all national cultures are included in the GLOBE research (Slovakia is missing and
Czech Republic has been excluded from some measures due to "pervasive response bias") we cannot
use these results in our research.
3. CULTURAL DISTANCE AND CULTURE OF FEAR
3.1. Cultural distance between Slovenia and Visegrad countries
The presented serious limitations in the cultural distance measurement led us to the decision to
choose the concept presented by Kaasa et al. (2016) who presented a new dataset of cultural
distance measures both at the country and regional levels in Europe. The composite index of cultural
distance was calculated on the basis of the cultural dimensions created using data from the European
Values Survey and the European Social Survey based on Hofstede’s (1980, 2001) descriptions. The
values of the composite index (which is an arithmetic average of the four indices of cultural distance)
range from 0 to 8.96. The values of the index of cultural distance, according to power distance range
from 0 to 16.40, according to uncertainty avoidance from 0 to 17.43, according to masculinity from 0 to
17.03 and according to individualism from 0 to 13.97. We can observe that separate distances
somehow “neutralize” among themselves since the maximum result of the composite index is smaller
than the results of all individual distances.
The use of Kaasa et al. (2016) dataset of cultural distance measures shows that cultural distances
between Slovenia and the other four countries are relatively small. As we can observe from the
graphical presentation of the composite index results in Figure 3, all distances between Slovenia and
other countries are smaller than 1.00. The biggest distance is measured between Poland and Hungary
(1.31) which is still relatively low taking into account the scale of the composite index. A closer look at
every separate distance result shows that Slovenia Power distance (defined as to what extent unequal
distribution of power in organisations and institutions and hierarchical relations are accepted in a
culture) differs significantly only from Hungary (2.66) but then also Hungary differs from the other three
countries (Slovakia=2.20, Czech Republic=1.95 and Poland=1.21). A similar situation in the case of
Individualism (defined as the extent to which people prefer to act as individuals rather than as
members of groups): Slovenia differs significantly from Poland (3.58) and Slovakia (2.26) but again
Hungary (with practically no difference in comparison to Slovenia: 0.01) differs significantly also from
Poland (3.24) and Slovakia (2.00). The results of the remaining two distances (Uncertainty avoidance
which reveals to what degree people feel comfortable with uncertainty and Masculinity which shows to
what degree masculine values, such as orientation toward achievement and success, assertiveness
and competitiveness, prevail over values like modesty and good relationships, caring, solidarity,
tolerance, and the quality of life) show no significant differences between the results of Slovenia and
the other four countries.
6. Figure 4: Cultural distance: composite index.
Source: Kaasa, A.; Vadi, M.; Varblane, U. (2016) A new dataset of cultural distances for European countries and
regions. Research in International Business and Finance, 37: 231–241. Adapted by the author.
In order to put these results into the wider perspective, we also present the work of Inglehart and
Welzel (2005) who introduce their “cultural zones” based on the results of the World Values Surveys
3
research. According to Inglehart and Welzel, the polarization between the worldviews of people in rich
societies is dramatically different from those in poor societies. This includes variance across the range
of political, social and religious norms and beliefs. The polarisation lies along two dimensions:
traditional versus secular-rational values, and survival versus self-expression values. In Figure 5 we
can observe the position of the national cultures of Poland, Hungary, Slovakia, Slovenia and the
Czech Republic. All five cultures are positioned within ex-communist and Catholic Europe. With the
exception of Poland, all the other four are closer to the secular-rational values. Slovenia and the
Czech Republic have more expressed self-expression values which position them closer to the most
developed countries worldwide.
Figure 6: Inglehart–Welzel Cultural Map of the World. Adapted by Koyos.
Source: https://upload.wikimedia.org/wikipedia/commons/6/6a/Inglehart_Values_Map.svg
3
The World Values Survey (www.worldvaluessurvey.org) is a global network of social scientists studying
changing values and their impact on social and political life, led by an international team of scholars, with the
WVS Association and WVSA Secretariat headquartered in Vienna, Austria.
SLOVENIA
Poland
Slovakia
Czech
Republic
Hungary
0,97
0,44
0,720,81
1,31 0,21
1,15 0,67
0,41
1,17
7. 3.2. Culture of fear and public opinion
Using well-known cross-cultural comparison research, we were not able to identify any specific cultural
characteristic which differentiates Slovenian culture from those of all Visegrad countries. In other
words, the national culture of Slovenia does differ in some aspects from the cultures of the other four
countries but, then again also these countries differ among themselves so they do not present a
unified group with a clear distinction in comparison to Slovenia in any of the presented cultural
dimensions. So, maybe there is another characteristic of Slovenia’s culture that could help us to
explain the presented difference in roles that FDI plays in Slovenia and the other four countries? When
trying to find an answer to this question, we will first cite Šarić et al. (2010):
“Slovenia’s history of foreign dominance became topical during the EU integration process. Despite the
pro-European element in Slovenia’s position… there is also an accompanying fear of the foreign.
Slovenia’s relation to foreign countries today is therefore still presented as a threat to financial and
economic sovereignty.”
The historical fact is that Slovenes first gained their national sovereignty in the form of an independent
country in 1991. Before that, the nation of Slovenia lived for centuries and without interruption as a
constitutional part of different countries or kingdoms, which was not the case with any of the Visegrad
countries. When the expected independence was finally gained, quite logically the fear of losing it
appeared. It’s been an ideal moment to reinforce/redefine so-called “culture of fear” which can be
defined as the concept that people may incite fear in the general public to achieve political or
workplace goals through emotional bias, which was popularized by the American sociologist Barry
Glassner (2010). But is the fear against foreigners (and, by consequence also foreign investors)
already innate or incited deliberately as the result of activities in forming the “culture of fear”? We cite
Hahn-Holbrook et al. (2010):
“Humans everywhere are born with a firm dislike of stimuli such as hunger, cold, pain, and loud noises,
whereas other aversions manifest later. Fearful reactions, for instance, often develop just when the
relevant danger would first be encountered.”
Clearly, fear of foreign investors in Slovenia is not an innate characteristic of Slovenia's population and
neither of any other. It is true that because of the explained historical reasons the fear of foreigners is
a part of Slovenian culture already for a very long time. That fact simplified the task of those
individuals and interest groups who after 1991 decided to promote the fear of foreign investors,
although we cannot present any important case where foreign investors would cause long-term and/or
substantial problems to Slovenian society. On the contrary, when we compare data published by the
Bank of Slovenia
4
in 2016 the wages per employee paid by firms with FDI were 12.7% higher than the
average wage per employee in Slovenia overall. Firms with FDI likewise achieved higher net profit per
employee and higher value-added per employee.
So, why then is Slovenian public opinion
5
as a part of the national culture so negatively oriented
toward foreign investors? For decades now academics have presented numerous proofs concerning
the net benefits of foreign direct investments at the national level. It is widely accepted that the
benefits are far more important than the problems caused by the foreign investors (Arnold et al. 2011;
Bamber et al. 2014; Farole and Winkler 2012). The real, dominant issue in the literature but also in
real life is not whether to accept foreign investments but rather how to promote countries/regions as
attractive investment locations and how to define the appropriate local policy?
4
Source:
https://bankaslovenije.blob.core.windows.net/publication-files/gdgehbqhcgcbgz_direct_investment_2016.pdf
5
Defined as the opinion or attitude of the public regarding a particular matter.
Source: https://www.collinsdictionary.com/dictionary/english/public-opinion
8. Fewer academic contributions exist about the negative influences of foreign investments on certain
groups of individuals or business sectors (Aitken and Harrison 1999; Djankov and Hoekman 2000;
Konings 2001). The negative influence can be in different forms. For example, as appearance of the
new foreign competitor on the local market, this especially causes problems in the case of previous
monopoly. And the negative influence can also be expressed as a threat of appearance of the new,
foreign investor who is ready to invest into the brownfield investment projects of existing private or
state ownership which was previously already meant/planned to be acquired by the selected local
investors. When this happens, the local investors will certainly do everything to fight the “foreign
threat”, also by influencing public opinion. The causality relations between the main actors in
influencing public opinion are in fact very complicated. We cite Baum and Potter (2008):
“In short, scholars have investigated every conceivable causal link between the public, decision makers
(foreign and domestic), and the media… Information asymmetry largely dictates the dynamics between
the public and its leaders-specifically the degree to which the public is informationally disadvantaged,
thereby allowing leaders to sustain their preferred frames on information. The media play the crucial role
of collecting, framing, and distributing information-the key market commodity. Without question, leaders
place great value on controlling this commodity.”
In other words, who controls media controls public opinion. And what is the real reason why public
opinion in Slovenia was created and supported by the media against foreign investors, since there has
not been any really important negative experience with them since 1991? First, we divide the period
from 1991–2018 into the two sub-periods: 1991–2008 and 2009–2018.
The privatization process of the state-owned
6
companies in Slovenia has been defined by the law and
started in 1992. Although the methodology of privatization has been the compromise of different
political views, clearly the orientation toward indirect sales methods (internal purchases by managers
and/or employees and voucher privatization) has been chosen. These two methods have been used
by more than 90% of all companies because they enabled discounts of share prices of 50% and also
prevented an entrance of external (especially foreign) investors into the ownership structure. Until
2008 the concentration of ownership in the hands of managers and local investment funds was an
ongoing process. The communicated politics of “national interest” and demonization of foreign
ownership created public opinion in the way that small owners shouldn’t sell their shares to anybody
other than managers of the companies they were working for. Financed generously by the domestic
state-owned banks this process ended in 2008 with the appearance of the international financial crisis.
A clear cut of irrational financing of MBO’s
7
since 2009 provoked huge problems in several important
Slovenian groups (Pivovarna Lasko, Istrabenz, Merkur, SCT, Vegrad, Primorje, Viator-Vektor…). They
either went bankrupt or their shares have been confiscated, mostly by the banks which had problems
with non-performing assets themselves. In 2013 a “bad bank” (DUTB) was created which acquired
non-performing assets from state-owned banks and purchased some claims from other banks in order
to consolidate exposures and ensure more effective management of assets. In reality it is only since
the establishment of the DUTB that Slovenian media somehow changed the message about the
general “danger of foreign investors” (which are now officially welcomed to buy the shares of de facto
nationalized companies, controlled by the DUTB) into the message that “state-owned companies…”
(controlled by the Slovenian Sovereign Holding-SDH-fully state-owned company, which has the largest
portfolio of state capital assets in Slovenia) “…should be carefully privatized”. So, the general aversion
against foreign investors is replaced by an official welcome in the Greenfield and selected Brownfield
projects but a de facto non-welcome in the process of privatization remains.
6
Precisely, the former Yugoslavia’s socialist system introduced the concept of so-called “social property” defined
literally as “the property of everybody and nobody”.
7
The credits granted by the banks had no real coverage and one of the crucial criteria to obtain the credit was the
political acceptance of the credit taker.
9. The state-owned bank NLB (Nova Ljubljanska banka) is an excellent case
8
to show what the above
statement means in real life.
4. CONCLUSION
The Slovenian government still controls about 50% of the economy and about 45% of the banking
sector
9
. Taking these numbers into account it becomes clear that the role of foreign investments in
Slovenia is much less important than in all the compared countries of the Visegrad group.
A small number of existing companies which were available to receive foreign investments in ‘90s and
the privatization methods chosen, signalled to foreign investors a clear non-welcome in Slovenia’s
privatization process and investment activity in general which later reflected also in the limited number
of Greenfield foreign investments.
We were not able to confirm any cultural dimension from the model chosen that would present an
obvious cultural distance between Slovenia and the group of Visegrad countries. It is within the larger
psychic distance concept (which includes dimensions as geography, culture, language, politics, the
level of education, the economic situation, the level of industrial development, time zones, etc.) that we
selected “politics” as a dimension which could represent the difference. That kind of politics which
tolerates and even supports (through the public ownership or direct control of the media) the existence
of the “culture of fear” whose constitutional part in Slovenia was (and still is) fear of foreign investors.
This fear is in fact a communication issue. But it is not an issue of bad communication (with non-
wanted results) but rather of carefully planned communication where the publicly hidden goal of
individuals and groups with special interests has been perfectly achieved.
Of course, concrete investment decisions depend not only on media and public opinion, but strongly
on institutional quality, tax systems (Slovakia, Hungary) and educational qualities. But to strengthen
the role of these qualities a change in the situation first requires a change in the sense that the real
national interest will prevail over the partial interests of small but economically powerful local
individuals and groups. They use governmental politics, political parties, some non-governmental
organizations (and even own media) with two basic goals: to limit market presence of potential foreign
competitors and to disable their active role in the privatization process of the companies which were
either meant to be privatized by “the chosen ones” or should simply remain under government control.
In order to employ the “right” employees, to select the “right” suppliers and to donate or finance the
“right” receivers. In other words, it requires Slovenia to leave the situation of a captured state.
10
8
Slovenia promised to sell 50% of NLB in 2017 and another 25% in 2018 in exchange for the European
Commission’s approval of state aid to the bank in 2013. The promise has not been kept and the Slovenian
government is actually negotiating with the European commission how to avoid fulfilment of the agreement since
the privatisation of Nova Ljubljanska banka could have a negative effect on the current government parties’ (left
and centre-left) results on elections which are held mid-2018.
9
Source: https://www.reuters.com/article/us-alibaba-easyhome/alibaba-broadens-offline-reach-with-865-million-
easyhome-stake-idUSKBN1FV045
10
According to Transparency International, state capture is one of the most pervasive forms of corruption, where
companies, institutions or powerful individuals use corruption such as the buying of laws, amendments, decrees
or sentences, as well as illegal contributions to political parties and candidates, to influence and shape a country’s
policy, legal environment and economy to their own interests.
Source: https://www.transparency.org/whatwedo/answer/state_capture_an_overview
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