MA Theses 2004

Kateryna Bornukova: “Determinants of Exchange Rate Regime Choice in CIS Countries”

This work is devoted to the investigation of mechanisms of exchange rate regime choice in CIS countries. It pays special attention to the role of fiscal policy, namely to the use of inflation tax. The fiscal pressure is introduced into the theoretical model by including government budget financing constraint. The theoretical model implies that government expenditures have positive impact on flexibility in the countries with high employment ambition. Empirical findings confirm this conclusion: in CIS countries (with high employment ambition) government expenditures are found to have positive influence on the flexibility of the regime, in contrast with CEE countries.

Olha Buinitska: “Impact of Internet on the Border Effect. Case of Transition Countries”

National borders are considered to have large trade deterring effects. To estimate the impact of national border on international trade between eleven transition countries during the period 1997-2001, this paper uses gravity model and method of approximate internal trade generation developed by Wei (1996). We found that averaged over transition countries intranational trade is about 18.5 times as high as international trade with other transition country of similar characteristics. Internet appeared to have negative influence on the size of border effect across transition countries, but this impact is modest. Thus, inclusion of the Internet use measure to the basic regression decreases the estimated border effect from 18.5 to 18, reflecting the fact that positive effect on bilateral export of Internet on use in exporting country is partly offset by negative effect of Internet use in importingcountry.

Ganna Cherednychenko: “Health Inequalities in Ukraine”

The study investigates health inequalities in Ukraine on the basis of the regional data on absence rate of Ukrainian employees for 1990-2002. The results obtained for absence frequency and average duration of a case of absence differ in some aspects. The dynamics of former indicator seems to be tightly linked to changes in health status of employees and is likely to be affected by a number of physical, economic and social environment factors. This suggests that health inequities may be present in Ukraine, and policy interventions may be needed.

Serguei Chervachidze: “Employment Effects of Telecommunications Capital: the Case of Developed and Transitional Countries”

This paper analyzes the effect of investment in telecommunications capital on the economy-wide employment. It uses a two-equation model, which links telecommunications capital investment and employment (as well as output) growth. The major distinction of the model is that the relationship between telecommunications capital and employment, as well as output growth is non-linear, which allows the estimation of the employment-growth and output-growth maximizing levels of telecommunications capital. The model is estimated empirically using a sample of 47 developed, developing, and transitional countries for the period of 1990 to 2001. The results contain evidence of statistically significant, generally positive effects of telecommunications capital on output and employment growth. Furthermore, the employment growth maximizing ratio of telecommunications capital to non-telecommunications capital was estimated to be 5.434%, while the output growth maximizing level of telecom capital to non-telecommunications capital was estimated to be 4.038%. Finally, results indicate underinvestment in telecommunications capital for an average country in the sample.

Roman Chuhay: “The Business Cycle Behavior of Gini Coefficient of the Income Distribution”

In this paper we describe a theoretical framework that allows us to address the business cycle behavior of the income distribution. Our analysis is built around a heterogeneous agents version of the standard neoclassical growth model. Heterogeneity is in two dimensions, initial endowment and non-acquired skills. We show that model admits a simple closed-form expression for the Gini coefficient of the income distribution. To be specific, at any point in time, the Gini coefficient of income distribution can be fully represented by a linear combination of its previous value, Gini coefficient of non-acquired skills and such macroeconomic aggregates as consumption, capital stock and efficient hours worked. We test the model’s prediction by using panel data that covers 14 OECD countries for 1962-1991. We find that our model can explain about 60 per cent of the variation in the Gini coefficient within the countries.

Hanna Fomenko: “The Determinants of Poverty in Ukraine”

Poverty alleviation was defined as one the main goals of social policy in Ukraine. However, detailed analysis of poverty shows that poor status of household depends on the poverty specification. For present analysis were used three different poverty specifications: absolute, relative and subjective. Results of the study showed that even though all chosen factors influences chances of household to be poor in the same direction, but significant difference in comparative value of coefficients suggests that different policy actions should be applied to each specification.

Kateryna Garmel: “The Impact of the EU Enlargement on Foreign Direct Investment in Acceding and Non-Acceding Countries”

This thesis is devoted to the study of the impact of the European Union enlargement on Foreign Direct Investment (FDI) in accedmg and non-acceding countries. The analysis is performed in the context of a dynamic general equilibrium model, which enables us to conduct both qualitative and quantitative investigation of the issue. The EU enlargement event is modeled through the changes in the closeness of environments between countries in the wake of accession and, thus, changes in the extra cost of investing abroad instead of the domestic economy. That effect was introduced in the model through the parameter of “border costs”, empirical evidence on which was thoroughly studied. The simulations of the model, calibrated for the enlargement of 2004, have shown that the enlargement motivates foreigners to increase investment in acceding countries whereas does not appear to influence FDI pattern in non- acceding countries much. In addition, the analysis assesses the short-run and long-run welfare implications of the enlargement for the acceding and non- acceding countries as well as for the EU.

Dmytro Goryunov: “The Effectiveness of FDI Promotion in Transition Economies”

The paper examines how effectively FDI promotion instruments are functioning in our region. Unlike the whole world, transition economies demonstrate steady rise of FDI flows. However, globalization processes (such as EU enlargement) put extra challenges for investment policies of Eastern European countries. For example, governments should be certain that usually limited resources allocated to investment promotion are used in efficient ways. However countries of Central and Eastern Europe sometimes exploit FDI promotion instruments, which were proven not to be very effective in the developed world. That’s why it would be useful to test if the world “experience” of using those tools is valid for transition economies. Using several models I show that in the case of this region, all tools (Bilateral Investment Treaties, Double Taxation Treaties and Investment Promotion Agencies) are effective. However, the most productive are Investment Promotion Agencies, which complies with other researchers’ findings.

Oleg Gutsalyuk: “The Relationship between Productivity and Prices: the Case of Ukraine”

This paper aims at estimating the Balassa-Samuelson (B-S) effect in Ukraine. The B-S effect highlights the relationship between relative productivity in a small open economy’s traded and non-traded goods sectors and relative prices in these two sectors. The existence of a positive relationship would indicate that inflation would be, the extent found, driven by productivity growth, which would have implications for monetary policy in Ukraine. To test the relationship between relative productivity and prices, a multivariate time series approach was used (cointegration analysis and error correction models). The data on gross value added and employment disaggregated to 19 economic sectors was used for computing the relative productivity of tradable and non-tradable goods sectors. Two different proxies for prices and six different proxies for relative productivity were constructed for the purposes of testing B-S effect. The results indicate that the relationship between relative prices and relative productivity of tradable and non-tradable goods sectors is weak in Ukraine.

Ludmyla Gvozdyk: “Downward Nominal Wage Rigidity: a Dynamic Model and Microeconomic Evidence”

In the thesis, I evaluate whether downward nominal wage rigidity is affected by changes in the money supply. The issue is firstly addressed in the context of the dynamic general equilibrium business cycle model. This model predicts that unexpected shocks to money supply tend to reduce wage rigidity, while expected shocks are shown to have no effect on wage rigidity. I test the model’s predictions by applying the histogram-location approach to two microeconomic datasets, Ukrainian (ULMS) and American (PSID). I find that the predictions of the theoretical model are in agreement with the evidence from both datasets.

Halyna Herasym: “Private Investment in Human Capital: Effect on Earnings in Ukraine”

This paper explores private returns to human capital in Ukraine before and during the transition from centrally-planned to market economy. One hypothesis tested is that decentralized labor market leads to wider wage dispersion through higher returns to education. We use the data from Ukrainian Longitudinal Monitoring Survey (2003) to estimate extended Mincer earnings equations and investigate the differences in returns to human capital by gender, age, sector of employment and type of ownership of the firm. The evidence shows that the increase in the private returns to education over 13 years of economic transformation is really moderate in Ukraine, as compared to other countries in transition. Although women in 1986 enjoyed significantly higher returns to schooling than men, gender difference is found to be less profound in 2003. The new private firms tend to value education more and experience less, as compared to the state-owned companies. We also find a strong impact of industry-specific characteristics on earnings in Ukraine in both periods.

Alyona Ivus: “The Impact of EU Market Enlargement. The Case of Ukraine’s Trade Reorientation Policy”

This study carries out an extensive empirical investigation of the effect of the previous EU enlargements on the import flows from the excluded developing countries and evaluates the impact of EU Eastern expansion on Ukrainian patterns of trade. The results indicate that for the period of 1958-2000 the total effect of the previous EU enlargements on average developing country’s pattern of trade was positive. However, this effect was decreasing with time and for the period of 1990-2000 export was diverted away from the average developing country. To allow differential impact across sectors, it can be concluded that the EU expansion leads to benefits for the developing countries with the high share of unprotected products in their export structures, but entails looses if the share of sensitive products prevails. The results on the regional trade relations indicate that CIS and Ukrainian export shares to the EU are significantly lower than those of the acceding countries. The increase in exports from the AC to the EU occurred at the expense of the Ukrainian export. Ukraine has a great scope to increase its export further, but the EU trade discrimination prevents this increase. In order for benefits from the EU Eastern enlargement due to lower overall tariff protection, larger internal market and single market rules to prevail over the high level of trade defense measures, the EU trade policy towards Ukraine need to be reviewed.

Oleksandr Kikot: “Essays on Deterring Foreign Direct Investors”

This paper aims to analyse inability of some transition countries to establish proper business environment to attract desired levels of foreign direct investment. The author argues that notorious ability of ‘Bad’ business environment to deter entry of foreigners can be exploited by local Oligarchs to prevent competition for the local enterprises in ‘fair’ privatization and secure their position on local markets. The paper develops two models of Oligarch choice – one with perfect information and the other with imperfect one. The empirical part of the paper tests one of the conditions for observing both local businessmen and foreigners in the same industry simultaneously obtained in the model with perfect information. The bottom line of the paper is that local Oligarchs indeed can use ‘Bad’ business environment to directly deter the entry of foreign direct investors. They also can produce a credible signal about state of business environment, thereby informing foreign direct investors about their entry and production costs in a country.

Iryna Kolodchak: “Ukraine and Inflation Targeting: Establishing Initial Conditions”

A growing number of transition and developed economies are practicing inflation targeting in their monetary framework. The Ukraine is among many countries that may consider implementation of an inflation targeting framework in its monetary policy. This thesis provides the analysis of the initial conditions that support the successful implementation of an inflation targeting framework. Ukraine is compared to its peer economies and to other emerging and developed countries. Economic structure and economic condition variables are implemented in the analysis. The policy implications arise from the empirical research of the selection of significant factors that are consistent with the economic theory.

Artem Korzhenevych: “How Close to Europe Is Ukraine: Trade Policy Analysis”

The future of the relations between Ukraine and the enlarged European Union is often discussed in media. EU officials repeatedly stress the need for reducing trade restrictiveness from the side of Ukraine in order to improve bilateral cooperation. The purpose of the thesis is to reveal whether Ukraine follows the requirements of the EU and tries to decrease the barriers to trade. Trade regime of Ukraine (system of tariffs and quotas) in the years 1994-2003 is analyzed. The year-to-year changes in trade policy are measured by the Trade Restrictiveness Index, which is calculated using CGE approach. As a result, permanent rise in restrictiveness of Ukrainian trade policy with regard to the EU is uncovered starting 1997, with major increase following the adoption of the new basic law in year 2001. As for year 2003, the overall level of trade restrictiveness is comparable with benchmark levels for Poland and Hungary in the beginning of their way to Europe. The conclusion is that though Ukraine’s trade regime overall is not very hard, there is really no movement towards less restrictive trade policy with regard to the EU.

Dmytro Kuzmenko: “Income Mobility in Ukraine”

The study is devoted to the analysis of income mobility in Ukraine. The issue of income mobility is examined on both macro and microeconomic levels using a number of statistic and econometric tools. The findings of the study include the analysis of mobility direction, mobility intensity, the behaviour of income movements of people in different income intervals, and the adjustment of different individual skills and characteristics in the transition period.

Iryna Maksymenko: “Estimating the Natural Rate of Interest. Case of Ukraine”

Successful monetary policy is one of the aspects of the stabilization policy that is extremely important for transition economy. However, monetary authority needs a good indicator of the stance of the economy. During the last years natural interest rate becomes more and more important as the monetary policy indicator. In this paper we have estimated the natural rate of interest for the Ukrainian economy using structural VAR model. Natural rate of interest was found to be volatile, but less than the real interest rate. Thus, high variability of the natural rate of interest could make it difficult for the monetary authority to follow its trend closely. Besides, during the years 2001-2002 of stable inflation and high economic growth it was registered a convergence of the real interest rate to the natural rate. Moreover, it was found that natural rate of interest is going up with GDP upturns and decline during the recession, thus, inducing economy for further growth. Thus, natural rate of interest could become an important indicator for the National Bank of Ukraine to improve its monetary policy, and adjust instruments more quickly to the shocks.

Tetyana Martynenko: “Regional Migration and the Evolution of Regional Unemployment Pattern in Ukraine”

Interregional labor migration is traditionally considered as one of the main mechanism in equilibrating regional labor market disparities in the developed countries. This paper examines regional mobility as a possible solution for the problem of structure inefficiency in Ukraine economy. Theory traditionally explains migration by regional disparities in main indicators of economic performance (wages and unemployment rate). However, as empirical results show, this is not the case for Ukraine. I try to find possible explanation for regional labor mobility adding some social, public goods/servives and infrastructure factors. On the basis of the constructed model the conclusion is made that for the early period of transition wage and unemployment differences between Ukrainian regions can be considered as a plausible explanation for regional labor mobility, while for the recent years these variables are not reliable. Possible causes of this phenomenon are presented.

Viktoriya Menkova: “Digital Divide and Cross Country Diffusion of the Internet”

This paper explores the issue of “digital divide” – the gap between countries that have highly developed technologies, measured by the Internet adoption, and those which do not – by utilizing a classical approach towards convergence estimation across countries. The estimated results suggest that there exists both an absolute and conditional convergence, implying that the “digital divide” bridges over time so that inequality between countries in terms of the Internet development vanishes over time, or that the extent of inequality does not become larger. The main factors stipulating the diffusion process of the Internet which reduces the “digital divide” are determined. The results show such indicators as GDP per capita, costs of connection, and infrastructure development to be of paramount importance for the adoption of the Internet. Finally, the findings are subject to a sensitivity check, which shows the main results to be quite robust.

Vyacheslav Mikhed: “Evaluation of Active Labour Market Policies in Ukraine Using Micro Level Registry Data”

This study is aimed to evaluate efficiency of Active Labor Market Policies in Ukraine, namely efficiency of training program and public works program using micro level registry data from Kyiv employment center during years 2000-2003. The results of the duration data analysis show that participation in the training has positive effect on the transition from the unemployment to employment, while participation in public works program has no effect on the duration of the unemployment or even prolongs unemployment in some specifications. The application of logit analysis with the Heckman two-stage selectivity correction to the data supports conclusions obtained from duration data analysis. The proposed way to increase effect of public works may be in increasing the quantity and the quality of possible jobs which can be attended through public works program. In addition, the minimum time for participation in public works should be extended. Also, impact of training may be increased if the enrolment of unemployed individuals of near pension age will decrease.

Hanna Murina: “Efficiency and Concentration in the Ukrainian Brewing Industry”

The present paper tests hypothesis that motivation to concentration in the Ukrainian brewing industry observed during the transition period was rooted in the potential gains from economies of scale and that the growing producers were more costs effective than the other industry participants. Non-parametric non-stochastic method of scale efficiency estimation is employed as the main tool while regression analysis is also used as a complementary device in the estimation. Based on the obtained results the stated above hypothesis was rejected. The results were shown being robust to changes in samples of breweries, specifications of inputs and outputs, and methods of estimation

Oleh Myroshnichenko: “Determinants of Capital Structure of Ukrainian Corporations”

The research aims at determining the key factors of Ukrainian corporations’ capital structure building as well as testing of classic capital structure theories. Testing has shown that short- and long-term financing decisions have different determining factors. Specifically, profitability and tangibility ratios are negatively correlated with fraction of external financing in short run. On the other hand, long-term leverage is a positive function of corporation’s size. Short run financing horizon is dominated by pecking order theory, in which cash flows and depreciation are a major source of financing. Long run financing exhibits tendency to trade-off theory, in which corporations are trying to maintain target leverage ratio.

Oksana Nadyak: “Labor Force Dynamics in Ukraine: Explaining with Micro Data”

Vladimir Nesterenko: “Efficiency of a Group and Reallocation of Resources”

In real life, as well as in theory, the goals of different units within an enterprise may be inconsistent with the eventual goal of an enterprise as a whole. In this work, we hypothesize that efficient operation of constituent units does not necessarily imply efficiency on the enterprise level. We show that, under certain assumptions on technology, it is possible to identify theoretically, and estimate empirically, the extent to which the performance of an enterprise as a group of units can be enhanced, even if all units are individually efficient. The existence of such potential improvement is attributed to non-optimal allocation of resources across the units, from the point of view of an enterprise. We merge the theoretical findings of Li and Ng (1995) and Fare and Zelenyuk (2003), and come up with the appropriate group-wise efficiency measures, which allow for the possibility of resources reallocation. By means of hypothetical example, we demonstrate that pure output and revenue gains from reallocation of resources within the group of units may be, indeed, substantial. In our example they amount to about 31% of extra revenue.

Oleg Nivyevskiy: “Productivity and Efficiency Change in Ukraine’s Sunflower Industry: 1998-2002”

The paper measures productivity and technical efficiency of Ukraine’s Sunflower Industry over the period 1998-2002. The efficiency scores are measured on the level of particular sunflower producers (to identify the sources of inefficiency), than aggregated to region level, and consequently to the industry level. Two different methodologies (Data Envelopment Analysis and Stochastic Frontier Analysis) are used for the purpose of robustness of conclusions. In the DEA framework analysis one makes use of methodology for obtaining aggregate efficiencies scores of distinct groups with weights derived from economic principles. The statistical inference for the aggregate scores and difference between them over groups is done using statistical bootstrap approach, following Simar and Zelenyuk (2003).

Katerina Onishchenko: “The Influence of WTO Accession on the Iron and Steel Industry. The Case of Ukraine. Partial Equilibrium Analysis”

The Ukrainian steel sector is highly involved in international trade and WTO membership is a necessary step for the further development of Ukrainian trade policy. This means, however, significant tariff regime changes and the abolition of export subsidies, which according to trade theory have a significant adverse influence on the welfare of competing producers. The thesis explores trade policy measures for the steel sector that may be appropriate in the lead up to WTO accession. The paper adopts the partial equilibrium analysis for evaluation of the effect of eliminating of production subsidies under “small” and “large” country scenarios. A free trade regime or the introduction of an export tax are provided as better alternatives to production subsidies. The empirical part provides the required import and domestic demand and domestic supply elasticities. On the basis of the estimated price elasticities a quantative evaluation is conducted on the welfare effects on steel producers, consumers, the government and the country as a whole. The econometric results support the “large” country case. The study demonstrates that subsidies are not desirable for national welfare, free trade or a small export tariff are sound alternatives.

Andriy Osadchyy: “The Impact of the Data Aggregation over Firms on the Accuracy of Efficiency Measurement”

This paper evaluates the impact of the data aggregation over firms on the accuracy of efficiency measurement. On the base of previous studies was shown theoretical conditions under which data aggregation does not lead to bias. However, in the Monte Carlo simulations the presence of bias is detected. It was shown that the source of the bias is computational issues inherent to DEA technique. Also the question of the impact of the data aggregation on the group ranking was considered. In the same series of Monte Carlo simulations the following result was established: data aggregation changes ranking of the group of firms with respect to their efficiency scores.

Olexandr Parashiy: “Costs and Benefits of Being Affiliated with Ukrainian Financial-Industrial Groups: Case of Sugar Industry”

The present work is aimed to analyse the influence of Ukrainian financial-industrial groups (FIGs) on the change in performance of the enterprises under their control. In the paper, three main questions were studied: what are the determinants for to acquire plants, whether there exists investment advantages for the FIG-affiliated companies, and whether FIG-affiliation can increase performance of the enterprises. The regression analysis, based the data for sugar industry of Ukraine, showed that FIGs are tend to acquire plants which are more successful and are located more close to the cities, and they help the affiliated plants to deal with problem of limit of funds, so that the affiliated plants are investing more. However, FIG-affiliated enterprises did not show larger increase in performance than the others. This suggests either the improper use of investment funds for the plants controlled by FIGs, or tax avoidance behaviour of FIG-affiliated units, or their money laundering. The main conclusion of study is that Ukrainian FIGs seem not to increase added value of the affiliated plants, while can prevent them from bankruptcy and cash constraints.

Andriy Popovych: “Estimation of the Policy Measures Impact on the Book Market of Ukraine”

This thesis estimates the impact of the value added tax on the book market of Ukraine. It also addresses the issue of the degree of competitiveness in this market and investigates the consequences of the policy measures for the Ukrainian language literature. Using the standard model of demand and the book market data the econometric estimation defines the losses of production and social welfare. It was also found that Ukrainian book market is perfectly competitive.

Gyulnara Sagidova: “Price Transmission in Grain Market: Case of Ukraine”

The present study addresses the issue of the integration of the Ukrainian grain market with the world grain market. The author investigates the mechanism of asymmetric price transmission using Ukrainian and world wheat prices. The analysis of price transmission from the world to the Ukrainian grain market is useful for making inferences about the competitive environment and efficiency of the grain market in Ukraine. Furthermore, this analysis is important for authorities considering Ukraine’s accession to the WTO and its integration into the European markets. Using a threshold autoregressive model (TAR) the author finds symmetric adjustments to disequilibrium with small but significant thresholds. The empirical findings give evidence of existence of long-run equilibrium relationship between Ukrainian and world wheat prices, but point to sluggish short-run adjustment. The market takes almost a year to adjust to a world price shock. Government action in support of improvements to the transportation, communications and storage infrastructure may be warranted.

Mykhaylo Salnykov: “Estimation of Environmental (in)Efficiencies and Shadow Prices of Undesirable Outputs: Cross-Country Approach”

Various measures of technical efficiency, such as output distance function, input distance function and directional distance function can be used as sustainability indicators in the case when some outputs produced are undesirable, such as pollution. Shadow prices of environmental pollution asses short run perspectives of increase in pollution when desirable output is increased and may serve as a reference value for environmental taxes and prices for international emission trade. We make an attempt to estimate environmental efficiencies of countries (based on the output distance function with general directional vector) as well as shadow prices for selected pollutants (CO2, SO2 and NOx). Two alternative estimation approaches are employed: parametric (Translog specification) and nonparametric (DEA). Statistical characteristics of the obtained estimates are assessed using the bootstrap technique.

Anna Serdyuk: “The Impact of Foreign Bank Entrance on the Domestic Bank Performance in the Countries with Transition Economy: Case of Russia and Ukraine”

Using individual bank data for Russia and Ukraine in the 1998-2003 period, this paper evaluates the influence of foreign bank entry on the performance of domestic banks in these countries. The considered indicators of performance are net interest margin to total assets, non interest income to total assets, personnel expenses to total assets, and before tax profits to total assets. It is found that foreign bank entrance has positive (negative) and significant impact on net interest margins of domestic banks in Ukraine (Russia). Also, foreign bank entry does not stimulate development of new banking products and technologies in domestic banks. Personnel expenses are unaffected by foreign entry in Ukraine but they are negatively and significantly influenced by foreign entry in Russia. Estimation results further suggest that number of foreign players rather than their size influences the performance of domestic banks.

Tayisiya Shepetko: “Evolution of Ukrainian Banking Industry: Structure, Conduct, Performance”

Yevgeniya Shevtsova: “The Impact of Intellectual Property Rights Protection on International Trade: the Case of Transition Economies”

Katsiaryna Shum: “Financial Ratio Adjustment Process: Case of Ukraine”

Financial ratios are important economic indicators, which are influenced by market forces as well as in-firm factors. Financial ratio analysis is not well studied in transition counties. This thesis examines the behavior of financial ratios of the Ukrainian firms in the framework of the partial adjustment model. The results support the existence of financial ratio adjustment process and shows that the speed of adjustment varies across industries due to the different economic conditions.

Yuliya Sobko: “Technology Transfer in Transition”

In this research we investigate the instances of technology transfer through the production linkages between unaffiliated enterprises. This study is unique in the use of the direct measures of firm-level innovation. A new methodology is introduced in using the product, process and organizational innovation as proxy measures for the product, process and managerial know-how technology transfer. Using the ordered logit model, we find a strong relationship between the forward and backward production linkages and the level of technology transfer to domestic firms. The results for the general sample regression using the ‘BEEPS’ dataset with firms in 26 transition countries are consistent to the findings of the industry-specific regressions, and are subject to various robustness checks. We follow up with testing our empirical model on an additional dataset of Ukrainian enterprises and obtain evidence that supports the findings of the main dataset. This gives grounds to claim that production linkages are an important channel for the inter-firm technology transfer, and that transition governments should pay vast attention to their promotion for sustainable growth.

Yuriy Spivak: “Efficiency of Railways: Does Policy Matter?”

Railway industry reforms, recently undertaken in dozens of developed and developing countries attracted attention of many scholars. The current study attempts to assess the results of railway reforms in some European countries by determining their impact on the technical efficiency of railroads. This paper stresses the sensitivity of such analysis to choosing the methodological tools and country-specific controls. The empirical evidence supports the hypothesized positive impact of reforms on the performance of railways only when transition countries are benchmarked against each other. In the case of the whole Europe, per capita GDP and market share were found to be the main determinants of the efficiency of railways.

Illia Taran: “Financial Constraints and Investment: the Case of Ukraine”

The paper examines the issue of financial constraint in a large sample of Ukrainian joint-stock companies in the framework of flexible accelerator investment model. Despite underdeveloped local capital market, Ukrainian firms are found to be unconstrained on average. However, the degree of constraint differs across ownership categories, with private owned and corporate owned firms being financially constrained, while state owned firms are not only unconstraint, but also do not exploit all available investment opportunities, which might be due to soft budget constraint. The very unusual finding of the paper is negative relationship between profits and investment in foreign owned firms, which however can be explained by extensive investment into recently privatized loss-making firms. Size of the firm appeared to have an ambiguous effect on investment, which allows to conclude that ownership is a more important factor.

Yulia Tereshchenko: “Exchange Rate Regimes and Growth Performance in Transition”

The paper investigates the ex post impact of exchange rate regime choices on the growth process and performance in the sample of 22 transition countries, employing both a new de facto classification of regimes based on the actual behaviour of the dual exchange rate market in the economy and a de jure official classification scheme. Our main finding is that exchange rate regimes exert a positive influence on economic growth process. Furthermore, fixed exchange rate arrangements appear to be superior over intermediate and flexible ones by delivering higher growth and lower volatility. In terms of economic growth process, the credibility effect from the adoption of fixed exchange rate regime seems to work for transition economies. We found evidence that not only the current regime per se is relevant for economic growth, but also the spillover effects from the previous regime collapse last for sufficiently long time. Our work highlights the overall importance of exchange rate policy with the focus on the exchange rate regime choice consequences when opting for economic policy.

Natalia Tovstopyat: “Credit Risk and Liquidity Risk: Are They Priced into Overnight Credits of Commercial Banks in Ukraine?”

Proper risk management is one of the main pillars of financial health of the banks. But traditional techniques for credit risk assessment, widely used by commercial banks and other interested agents, have their limitations. One of such drawbacks is that they analyze credit risk of particular bank, based on information of previous periods, and not at the moment of the transaction. In light of the need for more operative indicators of bad risks, the results of this thesis would be very significant for commercial banking industry. In particular, the thesis investigates the significance of the relationship between credit and liquidity risks and interest rates on overnight credits of commercial banks in Ukraine. Panel data was used to determine the effect of credit risk on the bid price of overnight credits on inter-bank market. The results of the estimation show that overnight interest rates, set by banks in Ukraine, are indeed incorporating information both on credit and liquidity risks. This is an important finding for further development of risk management techniques, which could be used for providing new important source of information both for risk managers of commercial banks and for the Supervisors of the banking industry.

Maksym Trehub: “The Patterns of Tax Evasion in Russia: the Evidence from Russian Longitudinal Monitoring Survey of Households”

This study develops a methodology that uses microeconomic data from RLMS of households to explore tax evasion patterns in Russia and their changes due to the possible impact of PIT reform launched in the beginning of 2001. The relationships between the measure of tax evasion and characteristics of the household representative such as age, gender, size of the household, total household income reported by the household representative and its structure are investigated and compared to the earlier theoretical and empirical studies. The validity of the wide spread claim that there is a negative relationship between tax rates and tax incompliance is also a research question for this study.

Natalia Tychuk: “The Impact of the Flat Income Tax on the Labor Supply: the Case of Ukraine”

This paper evaluates the impact of the flat income tax implementation on the labor supply of Ukraine. Tax changes are treated by the workers as wage increase, thus, they adjust their work hours responses to a new tax schedule. We aim at finding evidence in support of the hypothesis that the implemented tax reform will slightly influence labor force participants, though might affect the entrance of the non-participants. The part-timers are found to be more sensitive to the tax changes than full-timers. The wage elasticities are obtained through the Heckit and Quantiles estimation approaches.

Renata Yatskulyak: “Poverty, Inequality and Economic Growth: Evidence from Transition”

The transition economies of Former Soviet Union (FSU) and Eastern Europe (EE) experienced a dramatic increase in poverty in the 1990s. In this research we investigate the causes of rapid poverty increase using computed ourselves by POVCAL poverty headcount index based on $PPP’93 4 per person per day poverty line as a measure of poverty. We have found that a significant decline in economic performance and an increase in income inequality are the main factors that contributed into the poverty increase in 1990s in transition economies. Still, the levels of economic freedom and foreign direct investment have a significant negative influence on poverty. In the end of 1980s poverty in both FSU and EE countries was lower that that in the other countries, while during transition period FSU countries demonstrated higher poverty and EE still lower poverty as compared with other countries. In the middle of 1990s (during transition) an increase in inequality contributed more into poverty change in the FSU while economic performance had more influence on poverty in EE.

Ivan Yuryk: “Institutional Change and Economic Development: What Comes First? The Case of Transition Countries”

This thesis investigates the importance of developing market-enhancing institutions for economic performance of post-communist countries. Although the concept of institutions is vague and difficult to measure, I use a recent data set to identify the key elements of the “institutional matrix” in transition economies. The problems of subjectivity and endogeneity of obtained institutional measures are addressed. Cross-sectional time-series analysis of the 26 post-communist countries is used to disentangle the high correlation between institutional quality and income per capita into a two-way possible influence. The results of the study support a positive direct impact of good institutional quality on income per capita. However, a negative feedback impact of income per capita on institutional quality is found for transition economies during 1996-2002 years. The latter finding has a theoretical justification in terms of state capture and institutional lock-in that take place in some post-communist countries during considered period. This suggests that economic development will not automatically result in the improvement of proper institutions.

Oleh Yuzefovych: “Optimal Trade Policy under Transition: the Case of Ukrainian Iron Ore Industry”

The objective of the paper is to estimate the deadweight losses from the government industrial policy of regulating price for iron ore raw materials. The analysis is done with the help of partial equilibrium analysis for a “Large” country Case which Ukraine is on the world (Eastern European) market. The “Large“ country case allows Ukraine to have some power on the market to change the world price.