The Political Economy of Development in Southeastern Europe

Expansionary fiscal consolidation (or expansionary fiscal contraction, EFC) is the fundamental macroeconomic policy framework of the euro area. EFC argues that a carefully designed fiscal consolidation could lead to increases in aggregate output and consumption of firms and households through shifts in fiscal policy (expenditure and tax changes). Further, it is suggested that the higher the initial fiscal spending to GDP ratio, the greater the expansionary effect of fiscal spending reductions. The aforementioned argument is completely different from a Keynesian perspective, according to which a reduction in government expenditures or more taxation have contractionary effects on aggregate demand.

This chapter analyses the theoretical pillars of EFC thesis and assesses its implications in specific countries of the euro area in the period 2010–2016. It is argued that permanent fiscal consolidation is detrimental to economic growth in the euro area economies.

This chapter is organized as follows: after a brief introduction, Sect. 2 analyses the pillars of EFC thesis and discusses its main weaknesses. Section 3 analyses the effects of the EFC thesis on key macroeconomic variables in selected eurozone states, and Sect. 4 concludes.

In this chapter, we consider the context of “political risk” and identify a number of alternative frameworks for its definition and measurement, as found in the relevant literature. Given that political risk is very important to large and multinational corporations, it is mostly considered from an enterprise risk management standpoint.

In particular we outline the prevailing definitions of the “political risk” as presented in the literature within the last four decades and classify them in context. Subsequently, based on this classification, we review some of the most prominent approaches for measuring political risk, including the political risk assessment frameworks by ICRG, PRS, BERI, and AON. Based on our findings, we then consider criteria which can be used to select an appropriate measure of political risk depending on the scope and objectives of the risk analyst.

The aim of this chapter is to define the meaning and the role of distance in determining cross-border investment transactions. Specifically it aims, using Serbia as an individual country case at demonstrating the implementation of a model based on Ghemawat’s cultural, administrative, geographic and economic (CAGE) distance framework for testing the key distance-related determinants of the foreign direct investment (FDI) inflows to a country. Since 2000 Serbia has embarked on an extensive political and economic reforms programme, having achieved democratic stability by now. Its economic growth has been mainly driven by foreign direct investments. This chapter analyses how each one of distance dimensions, i.e. cultural, administrative, geographic and economic, affects FDI inflows to Serbia. The empirical application of the model shows that cultural distance affects FDI flows negatively, while administrative, geographic and economic distance have a positive effect on FDI inflows to Serbia.

This chapter contributes to the empirical literature on the role of exchange rate in a country’s trade performance. In particular, we investigate the effects of exchange rate misalignment on long-term export performance of the Serbian economy, by using monthly data for the last decade. International trade theories suggest that a deterioration of export performance should be expected in the conditions of real currency appreciation, while depreciated currency tends to benefit the exporters. However, statistical data on real effective exchange rate and aggregated data of Serbian exports indicate that the ambience of overvalued national currency did not harm export performance. Employing the Engle-Granger test of cointegration, we find no stable long-run relation between the time series data of exchange rate and export, while Granger causality test indicates a unidirectional causality that runs from exchange rate to export. These findings suggest that export dynamics is likely to be affected by a combination of various determinants, both demand- and supply-side variables. By estimating a multiple regression model, we test the potential influence of industrial production index, unit labor costs, fiscal balance, and world demand on aggregate export data. The findings confirm the insignificance of real exchange rate as a determinant of Serbian exports, disregarding the normative theory assumptions, while world demand and industrial achievement significantly impact the export performance. Our study offers potential explanations of export growth in the ambience of real currency appreciation and advocates for a flexible exchange rate policy that would take into account long-term effects on trade performance.

The manifestation of the global economic crisis in 2007 and its consequences have driven the European economy and, more specifically, the Greek economy to new challenges for adjustment to the new era. In 2010, Greece adopted a fiscal adjustment programme in order to fix the fiscal weaknesses of its economy. After almost 7 years since the fiscal adjustment programme was adopted, the Greek economy is even worse off than the parties involved in the Greek programme had foreseen. For this reason, the aim of this chapter is to examine the productive capabilities of the Greek economy as a means to overcome the recession and stagnation. Exports are a tool for overcoming the stagnation of Greek economy that resulted from the internal devaluation policy. According to the latest available data, Greece is still facing a trade deficit. Its trade balance has improved after the integration to fiscal consolidation process mainly because of the reduction in imports. Greece’s accession to the Economic and Monetary Union and the adoption of euro strengthened consumption against investment. We are going to examine the Greek economy’s performance in regard to high-technology exports. High-technology exports generate higher earnings. The study of certain commodities that embody high technology in comparison with EU-28 and OECD member states will reveal the Greek economy’s potential to meet strong competition in the global economy. The methodology that is adopted is comparative advantage theory.

It is since 2009 when the first signs of the coming crisis became apparent, that the country is trying to cope with both its financial issues and also in parallel fix the deeper causes that have led her to the current situation. A milestone in this process was the country’s integration into the financial support mechanisms and the consequent total adoption of the policies imposed by the memoranda of understanding (MoU) between the country and its creditors. However, after three such MoUs and the corresponding adjustment programmes, country’s economic and social status has not yet been normalized, and the root causes have not yet been addressed.

The country and its economy are facing phenomena such as high public debt, intense social inequalities, financial deprivation, recession, declining of peoples’ purchasing power, lack of liquidity, labyrinthian and volatile legislative framework as well as political instability. Taking into account all of these negative facts, it is easily understandable the economic downturn and the continuation of the crisis, with intense self-feeding characteristics.

The causes of the crisis and the failure of the selected economic stabilization policies are a multidimensional and interrelated complex. Greek economy supported its growth over the past decades mainly on domestic consumption, having little presence in sectors with high added value and extrovert characteristics, focusing mainly on traditional business sectors with scarce innovation characteristics.

The recipe chosen on the basis of the memorandum policies may not have been appropriate, since at macroeconomic level it was clearly confronting crisis results, but, in combating the deeper causes of it and in securing a sustainable path for economic growth and development, failed to bring the desired results. The absence of anti-cyclical policies that could break the vicious circle of recession, makes it increasingly difficult for the country to recover.

In this study, we will try based on logical arguments, but also on a series of statistical data and indicators, from sources like the OECD, World Bank, Eurostat, World Economic Forum and Greek authorities, to analyse the course of Greek economy, evaluate the results of the selected policies and formulate some appropriate policy proposals.

In accordance with the various theories of growth and expansion, credit institutions aim at maximizing their efficiency. According to the strategic plans required by European institutions and regulators, efficiency maximization refers to incentives and means of growth and expansion. The present chapter examines the response of the four Greek systemic banking groups to the challenges faced during the recent financial crisis and focuses on financial data and corporate governance. The financial data used in the research come from their published annual financial statements for the years 2004–2015 and the basic macroeconomic data for the same period. The analysis follows a data panel statistical and econometric approach by using the above financial data for the four systemic banking groups. The study period covers the phases of precrisis expansion of the Greek banking sector, as well as its shrinkage during the crisis, leading in evidence that group consolidation levels are influenced by spatial factors. Furthermore, the chapter provides a financial and spatial analysis framework in order to outline future trends in the development of the Greek banking system.

There is plentiful evidence in the literature suggesting a positive causality relationship between savings and national income. Nevertheless, the views on the direction of the causality relationship between savings and economic growth are rather controversial. The Solow model-based view supports to the hypothesis of “income-driven growth” and hence asserts that the causality relation operates from national savings to income. Savings play a major role in providing national capacity for investment and thus lead to the higher economic growth. On the other hand, the Keynesian model-based view, by advocating “income-led savings growth”, claims that causality operates from national income to savings. Namely, savings, as the non-consumed part of the income, are affected by changes in the level of income rather than determining the level of income. Therefore, there is no opportunity to influence the economic growth rate by implementing the policies aiming to increase the rate of savings. This study aims to investigate the validity of the views related to the Solow and Keynesian-based models for the Turkish economy by using Johansen cointegration analysis and Granger causality test. Thus, empirical results also show whether policies that encourage savings would be effective in order to accelerate economic growth in Turkey.

The scope of this paper is to examine the parameters and factors that energy security and national security consist of, how they interact between them, and finally how they are applied in the case of Israel.

Reference is made to certain aspects of international political economy; considering the way that international relations view the world—through states, anarchy, and diplomatic practice—ultimately depends upon which approach is chosen: realism, liberalism, or the critical approach. The theory of realism and its different versions will be finally taken into consideration in order to explain the notions of energy security and national security in the case of a state.

A general overview of the relevant literature follows regarding both concepts: energy security and national security. Based on the analysis, a conceptual framework is given, where these concepts are presented in a model that describes their correlation and also refers to the parameters each one consists of. Α primary study was conducted to explore the relationship between the two aforementioned variables: energy security (independent variable, IV) and natural security (dependent variable, DV). The aim was to validate the outcomes of the study on the State of Israel and understand any variances and deviations that might occur in this case.

The findings of the research confirm the conceptual framework while demonstrating the implications of the examined concepts regarding the state of energy security and national security in the case of Israel. The interviewees believe that the security of energy is of vital importance for the State of Israel, and this is proven in a number of actual cases, while its effect and contribution to the country’s national security go without question.

We document the impact of financial advisors in the announcement returns of M&A deals for the UK and the US financial services sectors. Our sample includes 1438 M&A deals announced during the period January 1999 to January 2010. The acquirer in these deals is a UK or US public listed firm in the financial sector, but there are no restrictions for the country of origin, the sector, or the listing status for the target firms. We provide some contrary evidence to prior studies that documented a positive relationship between various measures of financial advisor quality and M&A returns. Our results show that acquiring firms performing in-house M&As, rather than hiring financial advisors, have consistently achieved higher abnormal returns. Furthermore, acquiring firms hiring top-tier advisors within our sample achieve lower abnormal returns than the acquirers hiring lower-tier advisors. In addition, acquiring firms hiring top-tier advisors achieve low (negative) returns in M&As where targets are publicly listed. However, consistent with prior research, our findings suggest that top-tier advisors are able to achieve the highest deal completion rates amongst any other tier of advisors and commanded the highest fees. The question thus also revolves around not only whether financial advisors add value but rather whether their added value and knowledge also seem to be compensated by the huge sums of money they get paid. Achieving higher returns will be a justification of financial advisory excellence and higher premium fees. Overall, returns around the M&A announcement in this sector are perceived pessimistically. Our results also imply that financial advisors are not equally important across all deal types. Top-tier advisors perform much more complex deals which are on average at least ten times larger in size than any other M&A deal.

The paper’s objective is to examine whether a state’s national interest and influence are promoted through international institutions. It relies on the theory of Realism, according to which institutions enable states to coordinate even though there are asymmetric benefits for each state, since power is the decisive variable which defines how each institution is formed and operates. The analytical framework of this paper is developed within the confines of international political economy. The dependent variable is national interest, and the independent variables are international development cooperation (on a bilateral level) and shareholding in international lending institutions. The focus is on these variables because each directly affects the national sovereignty of the recipient country and alters its domestic structure. By examining the case of the United States (through the USAID) and its role in the International Monetary Fund and the World Bank in Afghanistan, Pakistan, and Iraq, conflict-engaged countries and crucial to US interests, I conclude that international lending institutions mainly promote the national interest of the leading power within the institutions.