Abstract: The recent global financial turmoil increased bank interest spreads in Estonia to the highest levels recorded since the Russian crisis in 1998-99. The pure spread concept and the two-step estimation approach of Ho and Saunders (1981) have been used to break down the interest spreads in Estonia. The pure spread is determined mainly by risk aversion and the market structure of the banking sector, with money market interest volatility playing quite a modest role in the long-term equilibrium. The regulatory, efficiency, and bank portfolio effects bear roughly equal responsibility for the observed spread, whereas credit risk adds only a tiny portion to the interest markup. Strong liquidity and foreign capital permit lower spreads.

Abstract: Central and Eastern Europe is a region with widely divergent development paths. Until World War II, these countries experienced comparable growth patterns. Whereas Austria and West Germany remained part of the capitalist West and underwent periods of rapid growth, other countries, under state socialist regimes, experienced, on average, far lower growth rates. The lack of data, however, often limits the possibilities of a detailed, quantitative analysis. In this paper, we use a new data set on physical and human capital in seven Central and East European countries for the period 1920-2006 to calculate their effect on economic growth. In addition, we analyze the effect of including the quality of education in human capital. This allows us to perform a growth accounting analysis with the several production factors for Central Europe between 1920 and the present. The difference in growth path across countries is partly explained by differences in technical efficiency.

Abstract: The aim of the paper is to analyze whether there is and, possibly, how strong the gross domestic product (GDP) β-convergence is in a group that includes most postcommunist countries, which, we believe, are a relatively homogeneous group compared to all countries. We use country-level panel data from the 1960-2009 period. In order to verify the β-convergence hypothesis, we use the Bayesian averaging of classical estimates (BACE) approach proposed by Sala-i-Martin et al. (2004). We estimate a convergence model without imposing an a priori assumption regarding the exact set of growth factors used as control variables in the regression. We use twenty potential growth factors (and an initial GDP level as an additional factor) and additional dummy variables (for Central and Eastern European and Commonwealth of Independent States countries) to further reduce the heterogeneity of the considered population. Our research allows us to robustly confirm the existence of β-convergence at a rate of 1.5 percent to 2 perc...

Abstract: This paper aims to explore the competitiveness of firms in transition economies Using a large panel of firms from several Central and East European Countries the paper identifies factors influencing the competitiveness of firms in conditions of transition Competitiveness, measured by firms’ market share, is defined as a function of several elements of firms’ restructuring behaviour such as improvements in cost-efficiency and labour productivity, investment in new machinery and equipment as well as characteristics of firms and their environment such as location, experience, technological intensity of their industries and the intensity of competition To control for the dynamic nature of competitiveness and the potential endogeneity of its determinants, and to distinguish between short and long run effects of firm behaviour, a dynamic panel methodology is employed Our results indicate that the competitiveness of firms in transition economies is enhanced by improvements in their cost efficiency and labour productivity, investment and their previous business experience while stronger competition has a negative impact on it

Abstract: In this paper we use ten-digit trade data that allow an accurate assessment of how the tariff structure of the Russian Federation will change as a result of the phased implementation of its World Trade Organization (WTO) commitments between 2012 and 2020 and how it has changed as a result of Russia's agreement to participate in a customs union with Kazakhstan and Belarus. WTO commitments will progressively and significantly lower the applied tariffs of the Russian Federation. Russian tariffs will ultimately fall to between 45 and 68 percent of their pre-accession levels, with the larger fall being on a weighted average, rather than an unweighted average basis. Nonetheless, bound tariffs will exceed applied tariffs for almost 1,500 tariff lines. Russia's commitments are not unusual, especially when compared to the transition countries that have acceded to the WTO.

Abstract: The process of European integration has necessitated the analysis of the economic convergence between the old and new member states of the European Union (EU). To this end, this paper examines business and consumer surveys (BCS) through the prism of the economic convergence of new member countries. The main aim of this paper is to analyze whether the quality of BCS indicators in transition countries is comparable to the quality of those in developed European countries. This paper provides several extensions to other related BCS studies: (1) it is the first empirical paper to observe each specific BCS indicator and its sector-related macroeconomic variable at the EU level; (2) the data set is extensive, comprising all EU members; and (3) the analysis is based on the recent panel vector autoregressive methodology. It is found that new member states' indicators exhibit pronounced predictive properties and can be used as leading indicators of related macroeconomic variables for even four quarters ahead. This ...

Abstract: In this paper, the authors study the empirical relationship between privatization, income convergence, and economic growth using the open economy versions of two competing growth models. The predictions of the theory are tested empirically for transition countries using static and dynamic panel data estimation techniques. The results for privatization are robust with respect to the estimation method used and reveal that only small-scale privatization is positively associated with growth. The evidence for external openness is mixed and depends on the estimation method employed and the presence of individual time effects for particular years of the sample. In most specifications, the authors document the presence of the income convergence effect. This implies that privatization and external openness have only temporary effects on the rate of growth in transition countries.

Abstract: We study the dynamic effects of research and development (RD (2) the larger the sales, the higher the increase in private RD and (3) the effect of R&D subsidies decreases with persistency of subsidizing Firms

Abstract: This paper examines whether there has been convergence of cost and profit efficiency levels among all European Union (EU) member and candidate countries following the process of legislative harmonization, using dynamic panel data models. The test results indicate evidence of β-convergence and σ-convergence in both cost and profit efficiency among all EU member and candidate countries. Hence, the results provide evidence in favor of the process of banking markets integration in the European Union. The results also indicate that the mean cost efficiency levels are higher than those of profit efficiency, verifying the importance of inefficiencies on the revenue side of banking activity in EU banking markets. The results further suggest that there have been significant efficiency gains in the newer member and candidate countries' banking sectors.

Abstract: This paper examines the empirical validity of the covered interest parity (CIP) hypothesis in the Czech Republic, Hungary, Poland, and Romania. Before the global financial crisis, CIP was mostly satisfied for the first three countries but not for Romania. During and after the crisis, deviations from CIP have been substantial in all cases but with large differences across the countries. Estimations tie the observed pattern to developments in both global and country-specific risks. In the case of the Czech Republic, increased global risks led to a lower risk premium, indicating that Czech assets functioned as a "safe haven." In Hungary and Poland, increased global risks led to higher risk premiums, suggesting a flight to quality out of Hungarian and Polish assets. Finally, for Romania the deviations from CIP were unrelated to developments in global or local financial risks, reflecting a repressed financial system.

Abstract: This paper investigates the dynamics of inflation and hospitality industry prices in a stochastic time-series framework using unit root tests, cointegration, and the vector error correction model in the seasonally unadjusted data from January 2000 to December 2011 by using the data expressed in the levels, which are near random walk. The cointegration relation implies a common stochastic trend of variables, which are modeled in the empirical analysis. Inflation rate and hospitality industry prices are found to be integrated of order one with a nonzero mean, suggesting that the present level of prices can be composed as a sum of all the previous shocks to inflation and hospitality industry prices. The general price level has an effect on hospitality industry prices in the short run, but less in the long-term equilibrium price relation in the dynamic specifications.

Abstract: This paper examines the changes that have taken place in European production networks in the automotive industry since the mid-1990s, when the European Union [EU] integration process intensified. Descriptive analysis suggests that advances in European integration have led to a spatial extension of the networks to the east rather than to a replacement of traditional locations. Using an extended gravity panel data model, econometric results corroborate that EU membership and comparative advantages are key determining factors to being integrated in cross-border production networks. Moreover, other variables such as good quality infrastructure, a minimum threshold of development, a headquarters effect, as well as other unobserved country characteristics also seem to matter. These results open the door to the implementation of regional and industrial policies in order to strengthen these European production networks.

Abstract: This paper provides an insight into the realm of financial contagion, and applies a meta-analytical approach to focus on Central and Eastern European (CEE) economies. Our results show that, on average, asset market correlations have increased, albeit moderately, during turbulent periods as compared to more tranquil times. The selected financial crises are found to vary in terms of their contagiousness. Interestingly, the level of development in a given country is not shown to significantly influence the susceptibility to contagion. Our testing of CEE transition economies indicates that, relative to the sample average, they are less susceptible to financial contagion. An interesting finding relating to CEE transition countries is that they seem to have been affected mostly by crises originating in the United States, even though we have also considered crises originating in Russia and the Czech Republic in the sample.

Abstract: This paper investigates the determinants of the relative participation in undergraduate higher education in Slovenia. The determinants of participation in higher education can be investigated at the micro or macro level. Using regression analysis we focus on the macro-level determinants of the increasing relative rate at which the relevant population of youth participates in undergraduate higher education in Slovenia from 1980-81 to 2006-7. Since 1980 the relative participation in higher education has increased more than twice the initial level. We investigate possible reasons for that dramatic increase in association with the overall economic conditions, the financial conditions of individuals, the expected benefits from undergraduate higher education, the proportion of the relevant population who fulfilled the enrollment requirements, the changing personal and social values related to higher education, and the supply side variables of higher education. In a regression analysis we include trend and autor...

Abstract: The paper analyzes how central banks pay attention to foreign exchange exposure and the profit function in pursuing monetary policy. The results of the paper document that in practice, central banks do not take the microeconomic approach based on profit maximization in making decisions on the level of foreign exchange reserves or the magnitude of the open foreign exchange position. According to the authors' estimations, only the interest rate differential plays a role in central banks' decisions. Central banks do not seem to take into account in their foreign exchange interventions any possible negative impacts on the profit and loss statement that may result from an adverse exchange rate trend, the costs of sterilizing foreign exchange interventions, or high exchange rate volatility.

Abstract: Cross-border banking directed toward the new member states (NMS) of the European Union has grown substantially in the last ten years. Aligning politically and economically with the rest of Europe through membership in the European Union and the Economic and Monetary Union (EMU) has played an important role in this expansion. The channels through which the creation of the euro led to increased cross-border banking among the original members of the EMU help but do not fully explain the increased flow of cross-border banking from the EMU to the NMS. This indicates that for the NMS, joining the European Union and eventually the EMU changes the perceptions of EMU banks regarding the benefits of expanding. The improved perception leads to almost an immediate expansion of banking from the EMU at a rate that is higher than it would be if only pure market effects were taken into account.

Abstract: Using data from publicly available corporate reports, this study performs computations of effective tax rates for Romanian-listed companies between 2000 and 2010, while introducing two alternative measures of effective tax rates meant to capture the burden triggered by nonprofit taxes and labor-related taxes. It was found that the effective tax rate computed as the ratio of profit tax to pretax income was below the statutory corporate income tax rate throughout the period, except for 2009 and 2010 (when an alternative minimum tax was levied). When computing the effective tax rate as a ratio between total taxes and contributions charged to companies' accounts and net profit before all taxes and contributions, the results are consistent with those found by World Bank/PricewaterhouseCoopers in their series of Doing Business/Paying Taxes surveys. The last of the effective tax rates computed by plotting all the taxes and contributions borne to companies' turnover showed a declining trend over the period, excep...

Abstract: This paper investigates the (a)symmetry between stock market returns in Central and Eastern European (CEE) countries (Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, and Poland) on the one hand, and in the eurozone, Russia, and the United States on the other. Correlation asymmetry is investigated by applying a dynamic version of the test developed by Hong et al. (2007). The results show that the correlation when returns fall simultaneously in two stock markets (lower-tail correlation) normally exceeds the correlation when returns increase simultaneously (upper-tail correlation). The CEE stock markets that are the most correlated (as measured by Pearson's correlation) with the stock markets of the eurozone, Russia, and the United States exhibit a higher degree of symmetry between upper- and lower-tail correlation than do CEE markets that are less strongly correlated with these other markets. The dynamic version of Hong et al.'s test revealed that there were more periods of asymmetric correlat...

Abstract: Romanian enterprise is widely considered to be inefficient relative to that found in other postcommunist nations in Central and Eastern Europe. This paper places the relative (in)efficiency of Romanian firms in context by estimating stochastic frontier production functions using Romanian microdata. We find that, on average, Romanian firms are 10 percent less efficient than firms in Poland, Hungary, and the Czech Republic. Evidence suggests that the measurable industrial drivers of technical efficiency tend to be consistent across countries, suggesting that the relative inefficiency of Romanian enterprise is due to institutional factors.

Abstract: The paper studies the firm's decision to apply for credit and the acceptance/rejection of a credit application. The results suggest that low access to credit of small and young firms, certainly in Central and Eastern Europe (CEE), is mainly due to low application rates. However, there is evidence to suggest that firms may be anticipating the bank's decision on a loan application by not applying for credit. Using the Heckman methodology suggests that marginal applications are more likely to be rejected. There are significant country and regional differences in applications, with the latter also evident in the rejection decision. There is no evidence that rural firms have significantly lower application or acceptance rates, given their other characteristics, or that foreign firms crowd domestic ones out of the market for credit. Finally, the credit process differs between CEE and other transition countries in Eurasia.

Abstract: This paper presents survey-based measures of the inflation expectations of consumers, companies, and financial sector analysts in Poland. It then goes on to provide the results of testing the featu...

Abstract: The purpose of this study is to identify the common and different determinants of youth unemployment in the eastern and western regions of Russia, and especially to determine whether there are spatial effects. Dynamic panel models were estimated using the Arellano-Bond method; these models included four boundary-weighted matrices and four types of explanatory variables: (1) variables characterizing the demographic situation in a region, (2) variables on the migration processes in a region, (3) variables characterizing the economic situation in a region, and (4) variables on the export-import activity of a region.

Abstract: The distribution of land rights is an important economic and political issue, and it played a central role in the transition process in Europe and Asia. This paper analyzes the impact of the distribution of land on household welfare by using subjective well-being data from a rural household survey in Moldova, the poorest country in Europe. The recent land reform in Moldova provides a natural experiment on the impact of land ownership distribution on subjective well-being. We find that household land holdings have a positive effect on subjective well-being, but neighbors' average land holdings have a negative effect on subjective well-being. People, regardless of the land distribution and even given the relatively low living standards of these households, rate their welfare by looking at how much other people possess.

Abstract: The aim of this paper is to empirically examine the effect of switching regimes, from exchange rate targeting to inflation targeting, on monetary policy conduct in developing economies An augmented Taylor rule is estimated within a panel switching regression for a group of developing countries that have historically experienced such a switch and a group of comparable countries that in the same period continued to target the exchange rate Results suggest that under inflation targeting, the investigated countries retained their focus on inflation, but their reaction to it moderated The output gap and the change in the exchange rate are found to be not significant, suggesting that these countries likely implemented a monetary policy geared toward strict inflation targeting