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91. Measuring financial stress and economic sensitivity in CEE countries

Author:
Grzegorz Poniatowski, Katarzyna Waşik, and Maciej Krzak
Publication Date:
01-2014
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
This report presents the methodology for the construction of the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) and investigates the economic situation in twelve Central and East European Countries (CEECs) between 2001 and 2012. The objective of this paper was to capture key features of financial and economic vulnerability and examine the co-movement of economic turmoil and financial disturbances that strongly affected the CEECs in the last decade. The main finding is that the FSI can be used as a leading indicator and can be used to recognize changing trends in the index. A shift in the value of the index proves that EU accession has a positive, but minor influence on financial stability in the CEECs. On the other hand, the impact of the introduction of the euro in Estonia, Slovakia and Slovenia is ambiguous. For most of the countries in our sample, the FSI started to grow rapidly in 2007, reaching its peak around the third quarter of 2008. Consequently, financial stress remained high for a few quarters and started to fall gradually. For a number of countries, we observe higher financial stress in the latest period of our analysis, i.e. 2010-2012. However, the value of the FSI was significantly lower than three years earlier. The results show that indices might be helpful in predicting future recessions. Consequently, the model will be expanded by adding a forecasting module, the launch of which is planned for April 2014.
Topic:
Economics, Finance, Macroeconomics, and Trade
Political Geography:
Europe and Eastern Europe

92. Demand-driven innovation policies in the European Union

Author:
Camilla Jensen and Itzhak Goldberg
Publication Date:
02-2014
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
The objective of the PICK-ME (Policy Incentives for Creation of Knowledge – Methods and Evidence) research project is to provide theoretical and empirical perspectives on innovation which give a greater role to the demand-side aspect of innovation. The main question is how can policy make enterprises more willing to innovate? This task is fulfilled by identifying what we consider the central or most salient aspect of a demand-side innovation- driven economy, which is the small and entrepreneurial yet fast growing and innovative firm. We use the term “Gazelle” to signify this type of firm throughout the paper. The main concern of policy-makers should therefore be how to support Gazelle type of firms through various policies. The effectiveness of different policy instruments are considered. For example, venture capitalism is in the paper identified as an important modern institution that renders exactly the type of coordination necessary to bring about an innovation system more orientated towards the demand side. This is because experienced entrepreneurs with superior skills in terms of judging the marketability of new innovations step in as financiers. Other factor market bottlenecks on the skills side must be targeted through education policies that fosters centers of excellence. R&D incentives are also considered as a separate instrument but more a question for future research since there is no evidence available on R&D incentives as a Gazelle type of policy. Spatial policies to foster more innovation have been popular in the past. But we conclude that whereas the literature often finds that new knowledge is developed in communities of physically proximate firms, there is no overshadowing evidence showing that spatial policies in particular had any impact on generating more of the Gazelle type of firms.
Topic:
European Union, Economy, Innovation, and Private Sector
Political Geography:
Europe

93. Special Economic Zones - 20 years later

Author:
Camilla Jensen
Publication Date:
02-2014
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Topic:
Foreign Direct Investment, Special Economic Zones, and Macroeconomics
Political Geography:
Europe and Poland

94. Cost and Benefits of Labour Mobility between the EU and the Eastern Partnership Partner Countries

Author:
Luca Barbone and Matthias Luecke
Publication Date:
10-2013
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
Migration from Eastern Partnership (EaP) countries has only become a large and important phenomenon over the last twenty years. At its heart, labour migration reflects entrepreneurial decisions by individuals and families looking to improve their lives while facing complex challenges and opportunities. In the past, the language of "migration management" was sometimes used to suggest that migrants and migration needed to be “managed” to achieve government objectives. By contrast, in adopting a migrant-centered perspective, our project aimed to understand, first, EaP migrants’ incentives and the effects of migration on migrants and their families, on non-migrants in the country of origin, and on residents of the destination country. Second, we investigated how labour migration is shaped by and interacts with a wide range of government policies and which policy interventions can enhance the benefits of migration for the affected groups.
Topic:
Demographics, Markets, Migration, Labor Issues, Social Policy, Innovation, and Social Services
Political Geography:
Europe, Central Asia, Caucasus, Eastern Europe, and European Union

95. The EU’s Economic Policy Architecture after the Ratification of the Fiscal Treaty

Author:
Jørgen Mortensen
Publication Date:
08-2013
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, adopted in March 2012 entered into force in January 2013 was presented as a reinforcement of the Stability and Growth Pact. The present Brief argues that this new Treaty does not seem to offer a definitive solution to the problem of finding the appropriate budgetary-monetary policy mix in the EMU and that it may complicate some aspects of the economic policy governance in the Eurozone. This E-brief is based on Jorgen Mortensen’s presentation at the EUROFRAME Conference 2013 "Towards a better governance in the EU?" held on May 24th, 2013.
Topic:
Economic Growth, Economic Policy, Macroeconomics, and Eurozone
Political Geography:
Europe and European Union

96. Does Government Support for Private Innovation Matter? Firm Level Evidence from Turkey and Poland

Author:
Krzysztof Szczygielski, M. Teoman Pamukcu, Sinan Tandogan, and Wojciech Grabowski
Publication Date:
08-2013
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
Mediterranean and EU member countries consider enhancing innovation and R&D an important policy objective. In order to improve economic competitiveness and increase their citizens’ welfare, these countries have been formulating and implementing innovation policies. In recent years, the volume of resources allocated to such policies has considerably increased and the number of instruments used in this framework has widened. Nevertheless, a relatively limited number of studies have been conducted to assess the effectiveness of innovation policies in these countries and formulate proposals for those aspects of policies that are in contradiction with the aims.
Topic:
Government, Economy, Social Policy, and Innovation
Political Geography:
Europe, Central Asia, Turkey, Poland, Mediterranean, and European Union

97. Innovation and the Growth of Service Firms: The Polish Case

Author:
Krzysztof Szczygielski, Richard Woodward, and Wojciech Grabowski
Publication Date:
05-2013
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
Differences in the growth of firms remain a major topic in economics and strategy research. In this paper we investigated the link between innovation performance and employment growth. First we discuss the problem from the theoretical point of view and then we analyze the relationship between innovation performance and the dynamics of employment in the Polish service firms in 2004-2009. Firms that introduced new services or marketing techniques experienced stronger growth. Process innovations contributed to employment reduction. Tellingly, this effect could only be observed in 2008-2009, a subperiod which saw the lowest levels of aggregate demand. This conclusion yields support to the presumption formulated by Pianta (2005) that the impact of innovation on employment growth depends on the macroeconomic situation.
Topic:
Development, Economy, Macroeconomics, Innovation, and Private Sector
Political Geography:
Europe and Poland

98. External vs Internal Determinants of Firm Technology Strategy: Evidence from the Polish Services Sector

Author:
Krzysztof Szczygielski, Richard Woodward, and Wojciech Grabowski
Publication Date:
06-2013
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
The authors use the insights from strategy research and innovation studies to address two principal questions regarding the technology strategy of a firm: what are the distinct elements of technology strategy and what are the strategy determinants? Equipped with Zahra’s (1996) concept of measuring technology strategy, we analyze data from two runs of the Community Innovation Survey for Polish service firms. They propose a set of indicators reflecting four principal fields of technology strategy: pioneer-posture, R&D efforts, technology portfolio, and monitoring activities. Interactions between the strategic variables are analyzed and their determinants are assessed. The results suggest that technology strategies are determined by both factors external to the firm, and by the hitherto less stressed in the CIS-based empirical literature, internal factors. The role of internal factors increases with the macroeconomic environment becoming less favourable.
Topic:
Development, Science and Technology, Innovation, and Private Sector
Political Geography:
Europe and Poland

99. What Affects the Main Engine of Growth in the European Economy? Industrial Interconnectedness and Differences in Performance of Business Services Across the EU25

Author:
Grzegorz Poniatowski and Maciej Sobolewski
Publication Date:
06-2013
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
The main purpose of this study is to determine what are the main factors which stand behind the diversity in performance of business services measured by their contribution to growth in the EU Member States. We show that in addition to typical growth factors which enhance labour productivity, also the extent of interconnectedness of business services with upstream industries is important to explain service-based economic growth. The analysis yields two interesting results. Firstly, the authors show that patterns of industrial interconnectedness of business services are considerably diversified across the EU Member States indicating large differences in the integration of services as supplier with other sectors on a country level. Secondly they show that the diversified growth performance of business services across the EU25 countries can be explained by differences in labour productivity and differences in forward linkages. The results indicate the fundamental role of business services as the main engine of growth in the European economy. This service-based growth is channelled mainly through increases in labour productivity and forward interconnectedness of services with downstream industries. On the policy making level the results indicate that investment in human and intangible capital are crucial for the service-dominated economy as they not only enhance economic growth inside knowledge intensive services but also facilitate transmission of growth impulses to downstream industries by increasing diffusion and integration of services as suppliers of high value added inputs to the economy.
Topic:
Development, European Union, Economy, Economic Growth, Services, Innovation, and Private Sector
Political Geography:
Europe

100. Post-Crisis Lesson for EMU Governance from the Principal-Agent Approach

Author:
Grzegorz Poniatowski and Luca Barbone
Publication Date:
07-2013
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
This paper contributes to the ongoing debate on fiscal consolidation and the questionable effectiveness of the Stability and Growth Pact by addressing the problem of economic governance in the EMU with a game-theoretic principal-agent approach. Following the theory of delegation, we develop a principal-multi agent model where the EMU authorities act as a collective principal that designs contracts for each of two agents that reflect Europe’s ”South” and ”North”. We investigate what happens when agents face hidden-information moral hazard problem and when they are able to coordinate their actions. Bearing in mind the applicability of incentive mechanisms, we discuss the optimal contracts for the principal and each of the agents. We prove that the most efficient solution consists of tailor-made contracts, according to which highly indebted countries must be offered strong incentive mechanisms in the form of substantial penalties but also rewards (e.g., preferential loans). We also stress the importance of taking into account positive spillover effects, which could be facilitated by economic integration and fiscal policy coordination between the EMU Members.
Topic:
Governance, Macroeconomics, and Economic Crisis
Political Geography:
Europe