Economic Development and Financial Markets

The aim of this chapter is to provide empirically supported evidence regarding regional development and inequalities in the European Union by focusing specifically on the Central and Eastern European countries. The process of European integration has impacted on the growth potential of all regions across Europe. However, there have been very diverse development trajectories in different groups of countries. After their accession to the EU, the Central and Eastern EU countries have followed a relatively common development path. However, the geography of development in these countries provides a more detailed analysis of this trend. The analysis covers the period 2000–2016, starting from the years just before the enlargement until the years after the economic crisis. Statistical analyses of trends in GDP and convergence and the role of metropolitan areas are presented with thematic cartography maps. Results are relevant to regional analysis and policy as well as to the challenges of the European Union for the next programming period 2021–2027.

During the last decades, considerable progress has been made in building democracy in the countries of Central and Eastern Europe. However, building liberal democracies is a complex process, implying not only the procedural conditions for electoral democracy, but also the institutionalization of accountability mechanisms and embedding the democratic values in the patterns of citizen’s behavior and attitudes. In the absence of such mechanisms, democracies remain in the state of hybrid regimes, captured in the gray zone between democracy and autocracy, without guarantees of reaching the final stage of democratic consolidation. The European post- countries vary significantly in terms of consolidation levels of their democratic regimes, ranging from consolidated democracies to semi-authoritarian regimes. The paper attempts to explore the potential causes and available resources for consolidation, using the recent data from internationally comparable surveys and ratings. Based on Wolfgang Merkel’s concept of embedded democracy, the analysis focuses on the importance of consolidating forces in the external environment, encompassing the socio-economic context, the strength of civil society and the influence of external political conditionality. Estimating a multiple linear regression model, we test the relevance of social and economic inequalities, civil society, and international integration as predictors of the level of democratic consolidation.

In this paper, the evolution of income inequality in five Central and Eastern European (CEE) post-socialist countries, members of the European Union (EU)—the Czech Republic, Hungary, Poland, Slovakia, and Slovenia—are examined. The similarities of political and economic changes in these countries allow an integrated analysis of their income inequality developments. Moreover, as these countries represent a unique group around the border between high-income and upper-middle-income countries, the paper can also contribute to the debate on inequality in countries at different levels of economic development. It focuses on several relating and often contradictory theories and empirical evidence from the past few years, trying to offer a comprehensive picture of the progress of inequality in this region. After a short introduction, the theories about the relationship between inequality and growth are summarized. Then, the empirical evidence about income inequality in CEE countries is presented and compared with EU-wide data. Finally, some concluding remarks close the paper.

Our paper builds on the importance of high-tech manufacturing and knowledge-intensive services as significant competitiveness and economic growth drivers in the European Union and offers a fresh approach of the study on the competitiveness of secondary and tertiary high-tech industries across EU member states. Our analysis covers the 2008–2015 period and includes twelve old and new EU members. We opt for a balanced panel data approach in OLS and ARIMA frameworks to investigate the competitiveness of high-technology industries in the EU with the aim of uncovering the nature of the main explanatory factors behind their performance. Our results show that the number of persons employed and the investment rate are both determinants of labour productivity and business profitability, while turnover and personnel costs have a specific influence on productivity and profitability, respectively. The GDP level and the percentage of population with tertiary education are the most significant location-related drivers for high-tech industries’ competitiveness. Overall, industry-related factors are more important for explaining the competitiveness of high-tech sectors compared to location-related factors, while external factors have a marginal impact on high-tech industries’ performance.

In the light of the research which proves that inflation expectations cannot be fully explained by inflation itself, a question about the possible drivers of expectations arises. In this paper, we look for such drivers with the use of the cointegration analysis. We assume that some economic information is incorporated into a mechanism that explains their changes and long-run development (1) and that the drivers of expectations vary across countries (2). The research covers eight non-euro area EU Member States and the time span of years 2001–2016. We distinguish six monetary, financial, and real sphere factors that could affect expectations, and we elaborate on VECMs for each country, respectively, to analyse short- and long-run dependence of variables. We find that long-run relations do exist between variables as well as—in certain cases—short-run relations. The number of variables and the lags suggested by the information criteria lead to relatively complex models, which means that they are difficult to interpret directly. As a result, we propose further research with respect to the same dataset.

The relationship between domestic saving and investment provides important insights for the integration of national financial markets into the world capital market. In case of perfect financial integration, it is generally assumed that there should be no close relationship between national saving and investment. The aim of this study is to measure the degree of financial integration by exploring the saving-investment nexus in Eastern European countries. We employ panel cointegration and causality tests for the annual time series covering the period of 2000–2016. Empirical results show that there is a strong causality between domestic saving and investment rate by indicating the low degree of financial integration of the Eastern European countries into the world capital market. This finding also implies that Eastern European countries are not attracting enough foreign resources that serve as a stimulant to domestic investment as well as economic growth. As a policy implication, it could be asserted that policy-makers should focus on financial reforms promoting financial integration processes in order to attract enough foreign resources for economic growth.

The objective of our paper is to investigate how the access to finance affects the creation of new business in EU, by identifying the relationship between several indicators, measuring the access to finance, the specifics of business environment, and the dynamics of new business creation. Our analysis includes ten indicators and it is covering the period from 2007 to 2016. We use a fixed effect model on panel data for 18 EU countries. The dependent variable is the nascent entrepreneurship rate, which we use as a proxy for the creation of new business. As independent variables, we use indicators expressing the availability of financial resources and measuring the specifics of business environment. We considered also several control variables. Our results highlight that starting new business in EU countries is significantly linked to easy access to finance. Thus, the creation of new business is encouraged when it is easier to obtain financial resources. Also, the characteristics of business environment are indirectly affecting the creation of new business. Our study contributes to completing the literature in the field by providing empirical evidence regarding the effects of access to finance to the start of new business in the EU.

From year to year, the surety bonds (insurance guarantees) are becoming a more and more popular form of securing receivables of business entities, which is caused by many economic and legal factors. Increasingly, an alternative to civil liability insurance or bills is usually required by law for the purpose of performing a specific activity. Despite the relatively short content and relatively simple structure, the guarantee is an instrument that gives a wide range of possibilities to adapt to the type of transaction being secured, as well as the expectations of those entities that expect such security. It has been eight years since the Environmental Liability Directive 2004/35/CE was fully implemented. New regime, based on the ‘polluter-pays’ principle, has increased environmental liability with regard to prevention and remedying of environmental damage. The paper aims at description of an environmental surety bond as a financial instrument which gives a guarantee from an insurance company ensuring the liabilities of an operator, arising from ELD, will be met. On the one hand, it provides the necessary funds to the local authorities when operator defaults on its obligations and, on the other hand, creates incentives for the companies to promote environmental safeguards.

This chapter shows the possibility of introducing the usage-based insurance (UBI) for the sake of the individualisation of compulsory motor Third-Party liability insurance premiums with the aim of achieving the stability in Central and Eastern European markets and bringing them closer to the state of equilibrium. The chapter presents both the historical perspective of UBI development and the summary of the research carried out over the last decade. It is concerned with the advancement of UBI tariffs and the successful modification of the applicable pricing schemes as well as points to issues that may hinder the market launch of UBI. Finally, it shows that thanks to the usage-based insurance, the industry can minimise the negative effect information asymmetry has on the motor insurance market.

Considering socioeconomic development differences among regions is a key factor to direct investment decisions of institutions targeting to provide service through widespread branch networks in a country. When it comes to the investments of banking and retail sector that have been used as instruments to reduce income and social inequalities in the last decades, the prospect becomes even greater. Recent studies emphasize that there is a strong relationship between the location of commercial banking branches and regional development characteristics. The studies show that the development of banking sector in a region may highly be correlated with the socioeconomic capacity of the region. From this point of view, the aim of this study is to investigate the relationship between locational preferences of banking sector and socioeconomic structure of cities in Turkish case. For this aim, after the introduction, a literature review on the relationship between locational preferences of banking sector and socioeconomic characteristics of cities is given in the second section. In the third section, data gathering and methodology are presented. In the fourth session, the results of the statistical and spatial analyses are discussed. Finally, discussions of the results and concluding remarks are given in the fifth section.