Issue 7, 2021

This paper aims to investigate the effects of the 2008/2009 financial crisis on the convergence process of the Eastern Partnership (EaP) countries towards the core countries of the European Union (EU-15). To do so, we econometrically test the relationship between the per capita GDP growth rate and selected macroeconomic variables in the period 2004–2018 and three sub-periods: the pre-crisis, the crisis, and the post-crisis period. We hypothesize that the financial crisis had a negative impact on the absolute and conditional convergence process in the analyzed group of countries. The convergence rates are estimated using ordinary least squares (OLS) semi-log regression based on cross-sectional data. The empirical results show that the EaP countries converge towards the EU-15 Member States and that the convergence rates range between 1.6% and 4.3%. Negative effects of the financial crisis on the convergence process are confirmed only for absolute convergence. The two groups of countries form separate clusters, which indicates a considerable heterogeneity of growth. According to the results of this research, the EaP countries should focus on opening their economies to more trade, increase macroeconomic stability and decrease corruption, because improvement in these areas should lead to a faster convergence process.
Keywords: β-convergence; Eastern Partnership; European Union; Financial crisis; Economic growth
JEL: F15; O47; O52

The article examines several developments in the energy sector in Bulgaria through the prism of the “capture” theory (“interest groups” theory), and regulatory capture in particular. It argues that captured state interventions or the lack thereof lead to inefficiencies in the utilities and to socially inferior results, especially in a highly concentrated market, intensive public ownership and questionable NRA independence context. They are liable to hinder effective market liberalisation and green transition efforts.
Keywords: regulation; capture; liberalization; energy
JEL: L51; L94; L95

In this study, I analyze the correlation between stock returns before and after major price shocks. I hypothesize that if a large price move for a given stock takes place after a short period when the stock’s price moves in the same direction, then it may indicate that the fundamentals of the company-specific shock are more completely incorporated in the stock price, significantly increasing the probability of subsequent post-event price reversal. In order to test the study’s hypothesis, I employ the price data for all the stocks that made up the S&P 500 Index during the period from 1993 to 2019, and define significant price moves according to a number of alternative proxies referring to both raw and abnormal stock returns. I find that both large price increases and decreases are followed by significant one to three month price reversals (drifts) if they are preceded by the same- (opposite-) sign short-term cumulative abnormal returns. The effect remains significant after accounting for additional relevant company-specific (size, Market Model beta, historical volatility) and event-specific (stock’s return and trading volume on the event day) factors.
Keywords: Behavioral Finance; Large Price Changes; Overreaction; Stock Price Reversals
JEL: G11; G14; G19

The proposed model estimation of the natural interest rate for Bulgaria is based on the seminal model of Laubach and Williams (2003), as important modifications are implemented in order to capture the specifics of the Bulgarian economy. As a small and open economy, the real effective exchange rate is included in measurement equations as well as the Eurozone output gap. Second, we incorporate stylised facts and observations about the behaviour of the Bulgarian economy, such as the steady-state growth rates of potential output and initial guidance about the level of natural interest rates. We circumvent the “pile-up” issue by imposing certain assumptions about the level and growth rates of potential output and time preferences of economic agents. In order to validate the consistency and reliability of the assumptions, we counterfactually evaluate the past and present BG monetary conditions by estimating the real rate gap, i.e. compare the observed real interest rate (r) against the natural rate (r*).
We find that, contrary to many advanced economies, the natural real interest rate of the Bulgarian economy does not show a declining trend, i.e. the economy after 2008, i.e. it is not under the precondition of “secular stagnation”. This means that BNB’s monetary space is far from being exhausted so far. This is due to the fact, that Bulgarian productivity growth (as a catching-up economy) is predominantly exogenous (imported) and the growth rate of productivity proved sustainable even after 2008 and well compensates for the detrimental demographics. The results from the Taylor rule exercise confirm counterfactually, that the Bulgarian short term interest rates are justified, thus the transition to the inflation targeting regime of ECB is expected to be smooth.
Keywords: NIR; secular stagnation; inflation expectations; real interest rate
JEL: B15; N10; E50; O47

While there are several studies regarding the efficiency of Indian general insurance companies, the field of profit efficiency remains unexplored till date. In the present paper, a quantity-based ratio form model has been adopted for the estimation of profit efficiency. The profit efficiency scores so derived are then decomposed into revenue and cost efficiency components. Bootstrap-based and bias-corrected lower and upper bounds of profit, revenue and cost efficiency scores have also been estimated. The data set includes information pertaining to fifteen general insurance companies for the period 2011-12 to 2016-17. The outcome shows that the public sector insurers have done well in terms of revenue efficiency but needs to be concerned about cost-efficiency. Further, we have explored the linkage of profit, revenue and cost efficiency with solvency ratio and return on equity using Tobit regression. The results show that profit, revenue and cost efficiency have a strong linkage with both solvency ratio and return on equity.
Keywords: General insurance; Profit Efficiency; Revenue Efficiency; Cost Efficiency; Return on Equity; Solvency Ratio; Censored Regression
JEL: C61; D21; G22

This study analyzes the long run and short-run impact of transportation and technological infrastructure in attracting FDI in Pakistan, while transportation infrastructure is disaggregated into roads, rail, and air transport, and technological infrastructure is disaggregated into telecommunication, oil, and power consumption. The study uses annual time series data of Pakistan from 1973 to 2018 and applies the ARDL bounds testing approach for analysis. Results show that all the indicators of infrastructure, i.e. roads, railways, air transport, telecommunication infrastructure, power and oil consumption, have a positive and statistically significant impact on FDI in the long run. Oil and power consumption shows a greater impact on FDI because foreign investors associate the country’s development with its energy consumption. Transport infrastructure needs more improvement and development to facilitate foreign investments in the country. Government, as well as the private sector, has to pay attention to improving infrastructure facilities not only to fetch more FDI but for the economic progress of the country. Investment in infrastructure is required to provide better and efficient transport and technological infrastructure to facilitate the production process.
Keywords: FDI; Infrastructure; Transportation; Technology; Pakistan
JEL: C32; F21; O18

The attraction and economic contribution of cities differ across cities in Pakistan. The purpose of this study is to look into what are the drivers of this difference. A balanced panel data set which has equal number of observations for fourteen cross-sectional units (cities), is used for analyzing determinants of economic city size. In-migration is a major factor in determining the economic as well as the physical size of a city. It not only increases the mass but also alters production by increasing labour supply and demand for production. Amenities also significantly influenced city size. Positive amenities of a city tend to increase city size while the negative ones decrease it. Further, the greater the size of the informal sector in a city, the greater it contributes to national growth and GDP. Imports and exports both tend to raise production and consumption in the city, which eventually boosts the size of the city. Finally, the effect of being a port city is also significant and positively relates to the economic size of the city.
Keywords: City; Economic Size; Fixed effect; Specialization; Amenities
JEL: C1; R0; O1; O4

The aim of this paper is to examine the determinants of non-performing loans (NPLs) in Poland. We investigate macroeconomic and bank-specific determinants of NPLs – for a panel of 18 banks from Poland, using annual data for the period 2005-2018. We apply two alternative estimation techniques: fixed-effects model and system Generalised Method of Moments. The results show the bank-specific determinants, with an impact on the amount of NPLs include return on equity and growth of gross loans,, while the most important macroeconomic factors influencing NPLs in Poland are GDP growth, domestic credit to the private sector, public debt and unemployment.
Keywords: Non-performing loans; Macroeconomic determinants; bank-specific determinants; Poland; Generalised Method of Moments
JEL: C23; C51; G21; G2

Research background: The paper accounts for the problem of assessing the factors of the formation of Ukraine’s technological competitiveness in the face of new challenges for the state in the process of developing relations with the EU.
Purpose of the article: The aim of the report is to assess the level of technological competitiveness of the Ukrainian economy and determine the most important factors for its further development in the conditions of association with the EU.
Methods: The article presents the scheme of research of technological competitiveness of Ukraine on the basis of qualitative and economic-statistical analysis, analysis of comparative advantages, cluster and correlation-regression analysis.
Findings & Value added: The analysis of world rankings has shown that the technological competitiveness of Ukraine determines comparative factor advantages in coverage of higher education, availability of scientific staff, and quality of research institutions, but low state support, lack of stability, and problems in institutional development hamper the country’s innovative potential. The identification of competitive advantages in trade in high-tech products demonstrates that Ukraine remains an importer of high-tech products; relatively small comparative competitive advantages among the high-tech products of Ukraine has only products of the aerospace industry. Сluster analysis showed that Ukraine is in the same cluster as Poland. Bulgaria and Romania, which have not yet fully consistent with the level of technological competitiveness of EU leaders; among the strengths of Ukraine are the development of human resources and labour effect. The correlation analysis between the components of the Global Innovation Index and the factors of increasing Ukraine’s competitiveness indicates a moderate link between the development of clusters, the ratio of expenditures on R&D to GDP, and the export of ICT services. In order to increase the level of technological competitiveness of Ukraine: to increase both foreign investments and state financing; improvement of regulatory acts, reduction of corruption, institutional improvement; support of technologies through regional cluster programs or “smart specialisation”; integration into the European Research Area.
Keywords: technological competitiveness; Global Innovation Index; high-tech products; comparative advantages; EU-27 and Ukraine
JEL: C15; F13; F17; O14; O24; O52; O57

The crisis caused by Covid-19 is very dangerous for the social and economic stability of the regions of the Russian Federation. There is a deterioration in the dynamics of the budget deficit of the constituent entities of the Russian Federation in 2020. The Government of the Russian Federation is planning to provide non-targeted financial support to the budgets of the constituent entities of the Russian Federation, while maintaining the existing approaches to the distribution of subsidies for equalization, to mitigate it. The long-term dependence of the majority of the country’s regions on Federal budget subsidies and the implemented policy of artificial financial equalization of the regions can give rise to dependent moods in weak regions and deprive them of an incentive to develop strong regions. In the context of budget deficits at the regional and especially at the local levels, the search for additional sources of funding to solve the tasks that are socially significant for the territories becomes particularly urgent. The most effective way to finance municipal projects is to combine the funds of citizens, businesses, local and regional budgets. Regions should find alternative sources of financing for their projects, including through “people’s financing” and the activation of the territorial self-government development based on the crowdfunding mechanism and its use in building an effective network of interaction between business structures and local self-government bodies.
The article solves the following problems: the dynamics, problems and prospects of development in Russia of such instruments of “people’s financing” as initiative budgeting and self-taxation are analyzed. The current scheme of self-taxation of citizens in the country was developed with a list of its shortcomings in implementation. Examples of implemented crowd projects for the development of territories of the Russian Federation, primarily in the field of public initiatives, are considered. A crowdsourcing platform, which has allowed to influence the process of territorial self-government in Russia since 2018, was identified and described. The scheme of network interaction between business structures and local governments based on crowdfunding IT platforms is proposed. Methodological recommendations for the implementation of this scheme are given. The use of the crowdfunding mechanism in the territorial self-government of regions can help to solve the tasks set out in a number of state programs of the Russian Federation.
Keywords: territorial development; investment mechanisms; crowdfunding; network interaction
JEL: R1

Post-conflict recovery in underdeveloped and developing countries is always a challenge for political leadership. Liberia has been the victim of 14 years of civil war, due to which GDP experienced a downfall by over 90% making the economic growth process halted. This paper traces the extent of Liberia’s collapse and examines the patterns of post-conflict recovery as an application complexity theory and a model which can be followed by other conflict confronting developing countries. The Paper explores challenges faced by Liberia in strengthening rapid, inclusive, and sustained economic growth and how these challenges were converted into opportunities through dynamic leadership and institutional process that had roots in complexity theory. It examines the policy framework and institutional reforms which set the pace for sustainable economic growth in Liberia. Because of visionary steps by leadership, the economic growth, which was very low before 1999, showed positive improvement after the election in 2005. It was concluded that from 2005 to 2014, the per capita GDP growth rate had been approximately 63% which indicated the remarkable performance of the Liberian Government. Paper presents theoretical perspective to understand challenges of socioeconomic growth and mechanism for its revival in poor conflict-hit underdeveloped and developing countries.
Keywords: leadership; post-conflict; policy; challenges; political; institutional reforms; complexity theory
JEL: O21; O43; O55

In the study, we propose a model for the sustainable development of the Bulgarian mountain tourism resorts. The model is developed based on the limitation of the seasonality in their supply and overcoming the results of the pandemic. The winter tourism is the second most competitive and meaningful type of tourism in Bulgaria after the recreational sea tourism. The country has significant natural resources in the mountainous territory, however, the quality of tourism supply in the mountain regions is significantly restricted due to the seasonality factor. The problems have deepened after the closure of the biggest winter resort in the country, Bansko, at the beginning of 2020 due to the pandemic crisis. In the current situation, not only seasonality is a limiting factor for the development of tourism. This requires the use of various research techniques to provide new solutions for the organisation of the tourism process. In the publication, we have used quantitative and qualitative methods, induction, deduction, expert and consumer studies, brainstorming, logic methods, modelling and idealisation to identify the causes of the problems in tourism and find adequate solutions to deal with them. The purpose is to find opportunities for extending the season and overcoming the decline of journeys and visits of mountain resorts. The proposed method does not cover all the possibilities for mountain regions development in Bulgaria but is a relevant solution for the current situation. It can be used as a possibility for sustainable development in other tourism resorts limited by seasonality or crisis.
Keywords: seasonality; extension of the tourist season; consequences of seasonality; strategies for limiting the seasonality; crisis; sustainable development
JEL: Z32; Q01