The role of risk attitudes and expectations in household borrowing in Estonia

This study investigates the relations between risk attitudes and expectations and different aspects of borrowing by households in Estonia. The central research question is whether risk aversion and optimism provide additional information beyond the main economic and sociodemographic characteristics in explaining borrowing behaviour. The paper uses microdata from the Estonian Household Finance and Consumption Survey (HFCS) to estimate probit and Heckman models. My analysis shows that risk-tolerant households apply for loans more often than risk-averse households do and that their loans are larger. For mortgage loans, risk aversion is related to the probability of having a loan, whereas for no..

Transition Economics

Tax compliance in post-transition: You and your friends matter, not the government

This paper contributes to the literature that seeks to assess the importance of various theories on tax evasion by individuals. The various theories can be distinguished in detail using a very fine-grained survey of Estonian residents that was collected in three rounds from 2018 to 2020. Principal component analysis shows that the survey replies are mutually consistent and form distinct clusters that match key theories on tax evasion. Logit estimations of tax compliance use the principal components and various control variables as covariates. Theories of individual rational choice do not gain support. Factors associated with personal norms and with social norms and customs are important for ..

Transition Economics

An Efficient Long-Run Economic Growth Strategy for Estonia

International tourism and FDI inflows have generated detectable beneficial impacts on the economy of Estonia in the last decades. However, recently, poor international market conditions mostly caused by the trade war and COVID-19 pandemic have been a potential threat to these two factors. Besides, the poor performance of investments in recent years is behind the stagnation of productivity in Estonia. This study examines the dynamics of the effects of these factors on the rate of economic growth in Estonia and provides policy implications in line with sustained recovery. A Nonlinear ARDL technique is employed in this study to investigate the long-run effects of FDI and the degree of tourism s..

Transition Economics

The drivers of SME innovation in the regions of the EU

European Union (EU) innovation policies have for long remained mostly research driven. The fundamental goal has been to achieve a rate of R&D investment of 3% of GDP. Small and medium-sized enterprise (SME) innovation, however, relies on a variety of internal sources —both R&D and non-R&D based— and external drivers, such as collaboration with other firms and research centres, and is profoundly influence by location and context. Given this multiplicity of innovation activities, this study argues that innovation policies fundamentally based on a place-blind increase of R&D investment may not deliver the best outcomes in regions where the capacity of SMEs is to benefit from R&D is limited...

Transition Economics

Network analysis regarding international trade network

We study the effect of globalization of world economy between 1980 and 2010 by using network analysis technics on trade and GDP data of 71 countries in the world. We draw results distinguishing relatively developing and relatively developed countries during this period of time and point out the standing out economies among the BRICS countries during the years of globalization: within our context of study, China and Russia are the countries that already exhibit developed economy characters, India is next in line but have some unusual features, while Brazil and South Africa still have erratic behaviors

Transition Economics

The COVID-19 Curtain: Can Past Communist Regimes Explain the Vaccination Divide in Europe?

As of November 2021, all former Communist countries from Central and Eastern Europe exhibit lower vaccination rates than Western European countries. Can institutional inheritance explain, at least in part, this heterogeneity in vaccination decisions across Europe? To study this question we exploit novel data from the second wave of the SHARE (Survey of Health, Ageing, and Retirement in Europe) Covid-19 Survey fielded in Summer 2021 that covers 27 European countries and Israel. First, we document lower Covid-19 vaccine take-up amongst individuals above 55 years old who were born under Communism in Europe. Next, we turn to reunified Germany to get closer to a causal effect of exposure to Iron ..

Transition Economics

Measuring Market Liquidity and Liquidity Mismatches across Sectors

We offer tools for measuring, monitoring and analysing the liquidity of financial markets in the context of various liquidity aspects. The liquidity mismatch concept makes it possible to assess how liquidity risk acceptance varies across economic sectors. We calculate liquidity indices – that is, liquidity mismatch indicators, and conduct a comparative analysis of the degree of liquidity risk acceptance by various sectors of the Russian economy. The values of liquidity indices in the household sector vary significantly across countries, depending on the degree of population involvement in the stock market. We use the proposed tools to assess the development of financial market segment..

Transition Economics

Organisation of public administration: Agency governance, autonomy and accountability

Good governance of public agencies requires the application of a set of regulatory and managerial tools to find the right balance between autonomy of agencies and adequate oversight from portfolio ministries and other actors. This paper provides insights from EU and OECD good practices, with a detailed analysis of EU acquis requirements for national regulatory agencies. New empirical evidence shows that public administrations in the Western Balkans and European Neighbourhood area lack clear policies and regulations for agency governance and misinterpret the EU acquis. This leads to a proliferation of agencies, duplication of functions and waste of public resources, a lack of accountability t..

Transition Economics

A Simple EU Model in EViews

Many studies with different methods (CGE models, DSGE models, structural gravity equations) have recently evaluated EU's Single Market. The problem with all these studies is that they use complex models with data sets which are not replicable. The aim of this paper is to develop a simple EU model which uses readily accessible data, and which is replicable in EViews. First the 10 equations macro model is used to evaluate Austria's EU membership since 1995. Then the same prototype model is applied to make a comparison of the integration effects of a selected number of EU Member States. Our simple EU model covers the essential economic effects of EU integration of EU's Single Market, the introd..

Transition Economics

Does Economic Growth Stimulate Energy Consumption? The Role of Human Capital and R&D Expenditures in China

This study evaluates the link between human capital, energy consumption, and economic growth using data for the Chinese economy from 1971 to 2018. To test the cointegration relationship between disaggregated energy, human capital, and economic growth, a bounds testing approach is applied by taking the structural breaks into consideration. The estimated results confirm that these variables are integrated. Further, human capital accumulation has a statistically significant negative effect on all types of energy consumption. We note a positive link between energy usage and economic growth. However, a significant negative relationship is found between R&D expenditures, and energy consumption. Th..

Transition Economics

Technological Diffusion and Productivity Convergence across European Regions: A Spatial Approach over the Period 2000-2015

What are the drivers of growth and convergence in productivity at regional level? Differences in the stock of human capital across regions are hypothesized to be the major cause of differences in the speed by which following regions converge and catch-up with the most advanced ones. In addition, we test the role played by R&D expenditures and institutions exploiting a database covering European regions from 1995 to 2015, which includes regional total factor productivity (TFP) computed by the conventional residual approach. We find robust empirical evidence for these hypotheses in terms of both model specifications and sectoral disaggregation.

Transition Economics

Income Comparison and Happiness within Households

This paper applies the German Socio-Economic Panel to analyse the effect of within household income comparison on individual life satisfaction. Our estimates indicate, a primary breadwinner wife decreases spousal individual happiness by roughly nine per cent. To state the economic significance, a €70,000 increase in external, peer reference income corresponds to a similar individual happiness decrease. The estimates suggest envy effects among couples and provide mixed evidence for gender roles to influence subjective well-being. Based on subsample estimations, our results are driven by younger birth year quartiles, lower education and total income households, East German couples and househ..

Transition Economics

Health, an ageing labour force, and the economy: does health moderate the relationship between population age-structure and economic growth?

Research often suggests that population ageing will be detrimental for the economy due to increased labour market exits and lost productivity, however the role of population health and disability at older ages is not well established. We estimate the relationship between the size of the older working age population and economic growth across 180 countries from 1990 to 2017 to explore whether a healthy older working age population, as measured by age-specific Years Lived with Disability (YLDs), can moderate the relationship between an ageing labour force and real per capita GDP growth. Using country and year fixed effects models, we find that although an increase in the 55–69 year old share..

Transition Economics

Ethnicity and risk sharing network formation: Evidence from rural Viet Nam

Ethnic inequality remains a persistent challenge for Viet Nam. This paper aims at better understanding this ethnic gap through exploring the formation of risk sharing networks in rural areas. It first investigates the differences in risk sharing networks between the ethnic minorities and the Kinh majority, in terms of size and similarity attributes of the networks. Second, it relies on the concept of ethnic homophily in link formation to explain the mechanisms leading to those differences. In particular, it disentangles the effect of demographic and local distribution of ethnic groups on risk-sharing network formation from cultural and social distance between ethnic groups, while controlling..

Transition Economics

Estimating business and financial cycles in Slovenia

In this paper we utilize a multivariate STSM model in order to estimate trend and cyclical components on a set of business and financial economic variables for Slovenia. The results show that financial cycles are somewhat longer compared to business cycles. Comparing the standard deviations of financial and business cycles give inconclusive results on average, but excluding particular macroeconomic variables that are by definition more volatile, we see that also standard deviations of financial cycles tend to be larger. From the economic policy implications point of view the results might not come as a surprise, but are utterly important for additionally implementing financial stability goal..

Transition Economics

Banks’ interest rate setting and transitions between liquidity surplus and deficit

Assuming that a central bank is successful in steering money market interest rates, commercial banks’ loan rate setting behaviour is not expected to change during a transition between liquidity surplus and deficit. However, this logic does not hold if a bank employs different money market instruments for the lending and borrowing activities. In this environment, it may be appropriate to adjust the loan rates when a bank transitions between liquidity surplus and deficit (i.e. switches between the benchmark money market rates). This strategy is fundamentally different from linking the loan rates to the average cost of funding (i.e. the average between retail and wholesale funding rates). The..

Transition Economics

Warning: Some Transaction Prices can be Detrimental to your House Price Index

There is a broad consensus in international statistical organizations such as Eurostat, the European Central Bank, and the International Monetary Fund that price indices should be constructed using transaction data. However, transaction data often lag behind actual market developments in the primary housing market (i.e., the market for new-builds) as prices are typically set months or years before the transactions are finalized. We find that for two large Polish cities (Warsaw and Poznan), secondary market house price indices (HPIs) (for existing properties) lead primary indices (for new builds) by, on average, eight quarters. In Poland and other countries with large primary-markets, this la..

Transition Economics

The transmission of euro area monetary policy to financially euroised countries

This paper provides a comprehensive analysis of the interest rate pass-through of euro area monetary policy to retail rates outside the euro area, contributing to the literature on the consequences of unofficial financial euroisation and on the transmission channels of monetary policy spillovers. The results suggest that in the long run, more than one third of all euro retail rates in euroised countries of central, eastern and south-eastern Europe (CESEE) are linked to the euro area shadow rate. Compared to euro area monetary policy, the share of cointegration of the domestic monetary policy rate is lower, suggesting that domestic central banks in euroised countries with independent monetary..

Transition Economics

Stable marriage in the eyes of the law

We present a framework to study household consumption under the assumption of marital stability in the presence of divorce legislation. Using this model, we derive nonparametric conditions that allow us to identify the intrahousehold consumption allocation. We study two integral dimensions of divorce legislation. First, we consider a regime governing divorce itself. The legislation either allows partners to divorce unilaterally at will or requires the mutual consent of both partners to dissolve the marriage. Second, for couples with children, we consider the implications of sole and joint custody arrangements for marital stability. Under sole custody, children reside with the custodian paren..

Transition Economics

Social Costs of Obesity in the Czech Republic

Increasing prevalence of obesity is a pressing public health issue in the Czech Republic as well as world-wide, affecting up to 2.1 billion people. In the Czech Republic, 20-25% of adults and an increasing number of children are obese now. Given that obesity is a chronic disease which is associated with several serious comorbidities, it generates large social costs. The main aim of this study was to estimate both direct and indirect costs of obesity in the Czech Republic. Social costs of obesity are estimated using the cost-of-illness approach. Population attributable fractions (PAF) are computed based on prevalence of obesity in the Czech Republic and relative risks of 19 comorbidities. Dir..

Transition Economics

Electricity Outages and Health Outcomes of Children: Empirical Evidence from Transition Economy

The electricity prices in developing countries are relatively low to recover its costs of generation and provision. This results in under-investment in infrastructure, which usually leads to frequent outages or rolling blackouts by the electricity suppliers. Outages may have an adverse impact on the household's welfare including the health of household members. Using household-level panel data "Life in Kyrgyzstan" (LIK), and a coarsened exact matching (cem) procedure this paper investigates whether there is a relationship between outages and the health of children. Specifically, I study the differences in the anthropometric outcomes of children aged 5 and below (given by the z-scores) living..

Transition Economics

Bank transactions embeddings help to uncover current macroeconomics

Macroeconomic indexes are of high importance for banks: many risk-control decisions utilize these indexes. A typical workflow of these indexes evaluation is costly and protracted, with a lag between the actual date and available index being a couple of months. Banks predict such indexes now using autoregressive models to make decisions in a rapidly changing environment. However, autoregressive models fail in complex scenarios related to appearances of crises. We propose to use clients' financial transactions data from a large Russian bank to get such indexes. Financial transactions are long, and a number of clients is huge, so we develop an efficient approach that allows fast and accurate es..

Transition Economics

Do Cohesion Funds foster regional trade integration? A structural gravity analysis for the EU regions

This paper uses a structural gravity model to explore the regional trade and welfare impact of the EU Cohesion Policy Transport Infrastructure Investment programme estimated using a novel dataset of the Generalised Transport Costs for the EU regions at the NUTS2 level. The results indicate that on average additional investment in transport infrastructure can increase NUTS2 total regional exports by 0.40% and regional real GDP 1.13%. Central and Eastern European Regions enjoy the highest exports and GDP gains, while few Western European regions experience a negligible decrease in wages, which may occur as a result of factor price convergence.

Transition Economics

The best practices and potential of smallholders’ participation in short value chains in the Western Balkans and Turkey

The overall objective of this report is to identify and conduct analysis of short food supply chains (SFSCs) among small farmers in the Western Balkans and Turkey. The report’s analyses are based on the primary data collected from 397 smallholder farmers through semi-structured interviews in all Western Balkan countries/territories (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia) and Turkey. The report analyses shed light on several issues related to smallholders and SFSCs, such as types of sales channels used by small farmers for selling their products; the level of information about and knowledge of the SFSC; contractual arrangements applied; the use of food..

Transition Economics

"Wild" Tariff Schemes: Evidence from the Republic of Georgia

Consumers often struggle to grasp complicated pricing plans, including increasing block rate (IBR) schemes, which have been used for decades by utilities in many parts of the world. The assumption that they encourage conservation has, however, recently been challenged (Ito, 2014). We take advantage of the unique IBR tariffs for electricity in the Republic of Georgia - where "overage" is penalized more heavily than in conventional IBR - to ask whether consumers respond to price, and to which price specifically. Based on the data from several waves of the Georgia Household Budget Survey, we find evidence of "notches," namely missing probability mass on the right of the lowest block cutoff and ..

Transition Economics

Agricultural markets in Ukraine: current situation and market outlook until 2030

This report presents the current situation and an outlook for the major Ukrainian agricultural commodity markets until 2030 along with the update of the Ukraine country model in AGMEMOD. AGMEMOD is a system of partial equilibrium, medium-term, dynamic, multi-market and multi-country econometric models that is applied for generating projections for agricultural commodity markets of the EU and neighbour countries. In the current work, the database and the behavioural functions representing market agents of the Ukraine country model have been updated. The outlook results for 2030 show that while the quantity of wheat produced in Ukraine will increase only marginally, maize is expected to become..

Transition Economics

A Conflict of State-led Initiative and Economic Rationality: Focusing on the State Language and Lingua Franca in Uzbekistan

To untangle the root of contradictions across linguistic development in post-Soviet Uzbekistan, we explicitly introduce linguistic factors into the transaction cost theory of new institutional economics and the concepts of institutional connectivity and complementarity proposed by comparative institutional analysis in an attempt to construct a theoretical framework for comprehending the dilemma between the state-led initiative and economic rationality regarding linguistic issues in the post-Soviet space. In light of these theoretical considerations, we propose three types of conceptual institutional settings and examine a case study of Uzbekistan that lacks robustness of institutional comple..

Transition Economics

The impact of foreign capital inflows on poverty in Vietnam: An empirical investigation

This study investigates the impact of foreign capital inflows on poverty in Vietnam, using annual time series data from 1990 to 2018. The study was motivated by the need to establish if burgeoning foreign capital inflows in Vietnam can support the poverty alleviation agenda. Foreign direct investment (FDI) and external debt were used as proxies for foreign capital inflows; and infant mortality rate, Human Development Index (HDI) and household consumption expenditure were used as poverty proxies. Using the autoregressive distributed lag (ARDL) approach, the study found foreign direct investment to reduce poverty in the short run and long run when household consumption expenditure was used as ..

Transition Economics

An Autocratic Middle-Class in Azerbaijan: Does State Dependency Lead to Authoritarian Resiliency

It is often assumed in the ’political economy research of the last decade, as well as by theories on democratization waves and the fall of authoritarian states, that the rise of a middle class eventually leads to a democratic transition. Throughout the 20th century, many democratic transitions were led by mass mobilizations of the middle classes. Middle-class movements and industrial worker groups were associated with higher democratic support and mobilization from 1900 to 2013 (NAVCO 2014). In her book The Autocratic Middle Class: How State Dependency Reduces the Demand for Democracy (2020), Bryn Rosenfeld studies this relationship in the post-Soviet region. A large portion of this articl..

Transition Economics

Regression analysis of selected technical and economic parameters of the residential market in the Czech Republic

Currently, there is an increasing interest in the real estate market and many small and large investors regularly monitor real estate prices and price trends at the national and regional level. The covid-19 pandemic has caused a change in long-term trends in the real estate market. The paper deals with a regression analysis of selected technical and economic parameters that affect the real estate market in the Czech Republic. Specifically, these parameters are: the relationship between the average mortgage rate and the price of an apartment for sale, the relationship between the average mortgage rate and the number of properties offered for sale and the influence of the existence of a terrac..

Transition Economics