2001


Alekseychick Sergey:  “Stimulating Internet Development in Ukraine”

This thesis deals with support of Internet services in Ukraine. The rapid growth of the Internet along with the development of new multimedia applications opens up opportunities for growth and allows for faster convergence of Ukrainian economy. Usage of Internet in Ukraine still remains limited. As the theoretical part suggests, the main obstacle to faster Internet growth in Ukraine is undervaluation by consumers of benefits explained by existence of network related externalities. Private as well as corporate Internet users do not normally take into account the indirect benefits coming from their connection to other network members. The aim of the present work is to estimate whether Ukrainian Internet market needs government interventions and to suggest the effective ways for possible interventions. The theoretical part of the paper first investigates the decision behavior of Internet users and web-content providers. Second, it develops a baseline Internet subsidization model. The empirical work then estimates using econometric analysis the current behavioral characteristics of Ukrainian users of the Internet. Then needed measures are estimated using forecasts of expected policy costs. Finally the desirability of government’s intervention is evaluated and is suggested whether it is preferable to subsidize the senders of broadcasting messages or consumers and technology providers under different sets of initial conditions. The results show, that in current Ukrainian settings, it is more welfare improving to subsidize consumers rather than content providers.

Boichanka Artsem: “The Maximum Seignorage and High Inflation: Case of Belarus, Russia and Ukraine”

The goal of the paper is to analyze the effect of inflation on seignorage revenue in three countries: Belarus, Russia, and Ukraine, in the period 1992 - 2000. The paper estimates the relationship between high inflation and maximum seignorage. In particular, the aim of the analysis is to estimate whether the rate of money growth in the high inflation period in these countries exceeded the revenue-maximizing value. The research is based on two models for determination of maximum level of seignorage: static and dynamic. The former is elaborated on the basis of Cagan’s (1956) seminal paper; the latter was developed by McCallum(1989) and applied by Aschauer (1997) to Ukraine in the period of 1993-1996. The analysis reveals that, in the period of high inflation, the rate of money growth was higher than the revenue maximizing one in Belarus and Ukraine. This fact is viewed as one of the reasons of the hyperinflation in Ukraine in 1994. After the introduction of stabilization policy, money growth rates became lower than the revenue-maximizing ones. The analysis also shows that in Russia the rate of money growth never exceeded the revenue - maximizing level. I also find a positive relation between seignorage and budget deficit in Belarus and Ukraine.

Chernyak Andrii:  “The Effect of Political Parties on the Distribution of Government Subsidies in Ukraine”

In my thesis I study the relationship between the distribution of power inside the Ukrainian Parliament, elections results and the allocation of government spending across administrative regions. The hypothesis is that the distribution of power and results of elections to the Parliament affect the allocation of government resources. Panel data estimation is employed in order to test the hypothesis. The result of the regression analysis suggests that only three parties affected grants distribution. The Communist Party appeared to have inverse effect, i.e. it tended to shrink allotment of funds to its dominated regions. The other two parties positively affected the distribution of subsidies to their dominated regions. These parties are the second and third largest in the Parliament and they consist on 80% of the deputies elected according to majority rule.

Chernyshova Iryna:  “Access Pricing: Case of Ukrainian Electricity Distribution”

In vertically integrated industries such as electricity or telecommunications the efficiency of unbundling depends on regulation implemented down- or upstream. One of the examples when restriction of competition may be socially desirable is Ukrainian electricity supply. Using the model of Armstrong, Doyle and Vickers I found out that access charges to the grids of some local distribution companies in 1999 were lower than the efficient ones. This led to high dead-weight loss of social welfare. Moreover, for some of them low access charges allowed the entry of cost-inefficient firms leading to decrease in productive efficiency. The new mechanism of access pricing should be implemented in Ukraine. Here a price cap could be the most suitable, since it leads to Ramsey pricing and therefore to the least market distortions from the first best. However, there is a need for more extensive discussion.

Chornyy Andriy:  “Electronic Banking in Ukraine: The Factors in Decision–Making”

The paper overviews the development investigates the factors that influence the decision of Ukrainian banks to start providing electronic banking by testing the main hypotheses that the decision making over entering electronic banking depends on banks' deposits normalized by assets using logistic regression model. It then examines the results of the modeling draws conclusions and identifies possible policy implications. Application of the model of decision-making confirms the hypotheses that Ukrainian banks' decision on electronic banking is positively statistically significantly influenced by its size and private deposit base.

Demyanyk Yuliya:  “Advertising as a Strategic Action. Case of Brewing Industry in Ukraine”

Advertising promotes sales of beer and increases producer's share of market. However, no firm is able to capture the whole market, as any increase in advertising by a seller is usually offset by that of its rivals, leading to an allaround increase of advertising. Such an increase in aggregate level of advertising brings about two effects: an expansion of the market itself and a slight increase in individual shares of the market. Theoretically, an increase in market share, ceteris paribus, gives a producer some additional market power with an option to influence price of a product. Nevertheless, this study shows that advertising does not lead to increased shares of market in an amount sufficient to influence prices of beer, so competitiveness is preserved.

Gorodnichenko Yuriy:  “Effects of Intergovernmental Aid on Fiscal Behavior of Local Governments: The Case of Ukraine”

This thesis examines intergovernmental fiscal relations in Ukraine. The phenomenon of “flypaper effect” is in the focus of the analysis. A classical partial-equilibrium model of the flypaper effect (Niskanen) is applied in the environment of transition economy of Ukraine. Much attention is paid to the integration of institutional factors into the analysis. On the basis of pooled data estimates, it is shown that at the micro level (oblast) the flypaper effect is not observed in Ukraine hence not contributing to the growth of public sector. Asymmetric response is found in the revenue function at the micro level. The macro level analysis of the flypaper effect supports the microeconomic evidence. However, the flypaper effect can be detected in short run. The discussed reasons for the absence of the flypaper effect are: maturity of 'the Leviathan', constrained taxing power of local governments, and the 'gap-filling' feature of grants in Ukraine. In policy implications, the study suggests that the projected distribution system of intergovernmental aid should not lead to an excessive growth of public sector.

Grygorenko Galyna: “Do Privatized Enterprises Perform Better Than State–Owned Ones in Ukraine?”

This paper investigates the impact of privatization on enterprises' financial and operating activity by conducting a comparative analysis between privatized and state-owned enterprises. Empirical research is based on a sample of 379 Ukrainian enterprises for the period of 1997 - 1999. Results of estimation indicate that privatization positively influences labor productivity and profitability of enterprises. However, its results are not immediate, they become evident over time. In order to tackle the problem of potential endogeneity, instrumental variables estimation technique is used. Instruments used are financial indicators of firms' activity, which, according to Ukrainian legislation, are the basis on which state authorities make decisions about the expediency of privatization.

Grygorenko Yegor: “Industry Performance under Transitional Institutions: The Case of Ukrainian Ferrous Metal Industry”

The importance of the ferrous metal industry to the Ukrainian economy as a whole may hardly be overstated: the sector produces almost 20% of the nation's gross domestic product, employs more than 500 thousand workers, and accounts for nearly half of all hard currency revenues in the economy. At the same time, the industry is far from being on its equilibrium growth path. The opening part of the following paper is devoted to a fairly concise description of the present state of the Ukrainian ferrous metal industry and a demonstration of several disparities between the current situation and a potential market-ruled efficient equilibrium. Finally, an attempt is made to summarize the findings of the analytical research described above and to develop some policy suggestions.

Gryshyna Olena: “The Incidence of Wage Arrears in Ukraine: Evidence from Enterprise and Household Level Data”

In Ukraine, employers adjusted to slowdown of economic activities and to the consequent fall in revenues not through labour force lay-offs, but through wages paid in barter form and through wage arrears. Applying Probit estimation techniques, I develop an empirical study of the determinants of wage arrears in Ukraine and compare them with those in the Russian Federation. My analysis draws upon nationally representative household-level data together with firm-level data to show that wage arrears are spread in both private and state sectors throughout the economy. It is shown that individual characteristics of workers (such as age and gender) are less contributive to the incidence of wage arrears than the characteristics of the enterprises. My analysis also suggests that for firms, among the most significant determinants of wage arrears are regional location, industrial affiliation and type of ownership. My results are comparable to the results estimated for the Russian Federation by Lehmann et al. (1999) and Earle and Sabirianova (2000). I also show that economic factors, such as changes in net profits, bartered sales, and unpaid leaves determine the incidence of wage arrears. For both, firms and individuals, I attempt to investigate factors that influence the length of wage arrears.

Harbuziuk Oksana:  “Customs Union with the EU: GTAP Analysis for Ukraine”

The thesis analyzes the possible consequences of Ukraine’s integration into the large European economic structure - European Union. GTAP multi-country simulation model of Purdue University Center for Global Trade Analysis is applied. The welfare measure evaluated is change in equivalent variation (EV). As all incomes in the model accrue to representative household, EV in full assesses welfare benefit for Ukraine from bilateral tariff elimination on trade with the EU. As the model includes Ukraine in Former Soviet Union region, EV is estimated for FSU and then disaggregated on industry level proportionally to trade shares. The results of simulations suggest that Ukraine's EV is sensitive to inclusion of agricultural sector into customs union. Due to highly protected nature of this sector in the EU, Ukraine is better off if agriculture is excluded from liberalization. In this scenario Ukraine gains $91.7 millions.

Hryshko Dmytro:  “Unrecorded Economy in Ukraine: Its Measurement, with Empirical Applications”

I view taxes as an attenuation of absolute property rights on income proceedings of economic agents. Unrecorded economic activities act as an effective check on the state captures of real resources in the form of taxes. It is argued that significant unrecorded sector activity would show up in extensive ratios of currency to money supply and electricity intensity. I link real captures of the state in the form of taxation (and tax burden), unrecorded economy and currency in circulation, and electricity demand (deemed to be good indicators of unrecorded economy). I indirectly test the existence of a positive effect of taxes on the unrecorded economy, and calculate the size of the unrecorded economy relative to the official GDP in Ukraine on the basis of electricity demand function and the assumption of similar technologies in recorded and unrecorded sectors. I apply pair-wise Granger causality tests to track the possible causation between the size of the unrecorded economy relative to the official GDP, share of non-state industrial output, inflation and budget deficit. Private economy expansion reduces, albeit insignificantly, the size of the unrecorded economy relative to the official GDP; inflation increases the size of the unrecorded economy relative to the official GDP; and the budget deficit is increased if the size of the unrecorded economy increases.

Kalyna Anastasiia:  “Integrating Europe: Prospects for Ukranian Trade Performance”

The paper examines the forthcoming integration processes in Europe and effects they will impose on European trade patterns and, in particular, Ukrainian trade performance. Estimates of applied gravity model of international trade lead to a conclusion that bilateral trade flows between Newly Independent States and Associated country will shrink after the accession of the latter into the European Union. Nevertheless, we extended our analysis further to see if actual Ukrainian trade patterns resemble those of average NIS. We showed that Ukraine seems to be much more integrated with the EU and Candidate Countries and much less with former Soviet republics, thus degree of trade diversion may not be as crucial as supposed. We then use the model's estimates as approximate measures of the change in geographical distribution of Ukrainian export flows after EU Enlargement and try to estimate which export goods will meet the highest and the lowest demand in the near future.

Kolesnichenko Anna:  “Measurement of the Fiscal Imbalance in a Transition Economy: The Case of Ukraine”

The thesis addresses the issue of measuring fiscal imbalance in transition economies with application to Ukraine. Highly debated in developed countries, fiscal imbalance indicators are of special interest in transition economies, where some peculiar developments put under question the validity of conventional indicators. The paper discusses different approaches to fiscal imbalance measurement. Based on review of fiscal policies in Ukraine, the author suggests use of an indicator based on changes in the net worth of government. The results show that fiscal imbalance in Ukraine was much larger over years 1995-2000 than the conventional indicators suggest. Some implications for wealth redistribution and growth are discussed.

Kostyshyna Olena: “Estimation of Employment Effects of Wage Discrimination: The Case of Ukraine”

Discrimination is present in the life of all contemporary societies, however, the extent of discrimination is dependent on the overall economic development of the country. The theory of Becker provides the conceptual basis for the model of estimation of employment effects of gender wage discrimination. The model is based on the assumption of imperfectly elastic supply of labor, therefore, the wage discrimination leads to the decreased employment. Using the data of Kiev International Institute of Sociology, it was estimated that discriminatory wage differential constitutes 2.24% of the mean offer males wage. The discriminatory differential in probability to be employed for women equals 0.02% and results in 2.4 thousand fewer women employed.

Kryshko Maxym:  “Bank Lending Channel and Monetary Transmission Mechanism in Ukraine”

The paper studies in detail specific channel of the monetary transmission mechanism in Ukraine - bank lending channel. First, the research addresses the theoretical framework of the bank lending channel, its role and place within the system of other monetary transmission channels, examines necessary conditions for its existence, and presents a simplified, but still explanatory theoretical macro-model. Second, attention is paid to the institutional features of Ukrainian economy that make the bank lending channel (apart from traditional interest rate channel) the most plausible candidate to explain the influence of the National Bank's monetary policy on Ukrainian real sector. Third, the paper conducts extensive econometric analysis of whether bank lending channel in fact operates in Ukraine. Here the emphasis has been put on testing the first chain of the channel that connects National Bank of Ukraine with the system of commercial banks. Two types of tests are applied to study this link. A macro test uses aggregated banking system data, while a micro test tries to identify bank lending channel effects through heterogeneity of individual banks. The results suggest that there is some macro evidence supporting the operation of bank lending channel in Ukraine, while the micro evidence seems to be somehow inconclusive as to the specific direction of the studied effect according to the size of the banks.

Kutsak Roman:  “International Experience of Price Regulation in Electricity Market and Its Relevance for Ukraine”

There is a much deal of arguing among economists how the electricity market has to be regulated. After the collapse of Soviet Union (SU) Ukraine inherited the old system of electricity market structure, which has already partially restructured. This research investigates the efficiency of regional distribution companies comparing their declared costs in the winters 1999-2000 and 2000-2001 using regression analysis. The author argues that under current regulatory system there are no incentives for the distribution companies to reduce their costs through the introduction of cost-saving technologies. Privatisation of the six distribution companies has not led to significant changes in the efficiency of these companies. An international experience suggests that the implementation of price-cap regulation creates necessary and, at least in Spain, sufficient conditions for improving the performance of energy sector. The Author proposes the introduction of the new type of regulation especially for those changing the type of property rights.

Leshchenko Nataliya:  “Returns to Education Case of Ukraine”

Investment in human capital can be important determinant of permanent economic growth (Romer, 1996). Private investments in education theoretically provide an individual with the higher lifetime income level, social status and personal freedom (Filer, Hamermesh, and Rees, 1996). This paper focuses on the factors that influence private returns to investment in higher education in the case of Ukraine, and hypothesizes that education brings significantly positive private returns in the year 1996. For the above purpose, we use household monitoring survey conducted by World Bank and Kiev International Institute of Sociology in 1996. The results obtained with the help of extended Mincerian earnings function for specific levels of education with Heckman correction procedure suggests that in Ukraine higher education pays negative private returns comparatively to incomplete higher education that occurs to be the most profitable.

Lishchenyuk Lyudmyla:  “The Signaling Role of Financial Markets in Transitional Economies: The Case of Ukraine”

This paper provides an empirical study of the usefulness of financial asset prices in signalling future economic activity in Ukraine. Four econometric analyses, suggested by Cristoffersen and Slok (2000), are applied to check whether changes in short-term interest rates, stock prices, and exchange rate contain information about future movements in industrial production, wages, and unemployment. Granger causality tests show that returns to money and stock markets signal future growth in industrial production; foreign exchange return, as well as money market return, is statistically significant indicator of future real wage dynamics. Financial asset prices provide no signals about registered unemployment rate. As the data is contaminated by outliers, the robust causality estimation method is applied, which shows a significant predictive ability of foreign exchange return regarding industrial production. A composite financial leading indicator index is constructed using the optimal weighting of the three asset returns.

Mankovska Nadiya: “The Relationship Between Foreign Direct Investment and Trade Flows in a Transition Economy: The Case of Ukraine”

This paper examines relationships between foreign direct investment (FDI) flows into Ukraine, and imports and exports to and from the country. Theoretically, FDI and international trade can be substitutes or complements. Empirically, the paper shows that FDI from the European Union (EU) into primary industries is mostly export-oriented and thus complements trade, whereas that into secondary, manufacturing industries tends to substitute for trade. The paper argues that primary-industry FDI from the EU is motivated by Ukraine's comparatively abundant and cheap natural resources, whereas secondary-industry FDI is motivated on the cost side by Ukraine's low wage labor and on the revenue side by its large and relatively untapped domestic market. Secondary-industry FDI thus has the potential for import-substitution, although tests of this hypothesis at aggregate levels were inconclusive. By contrast, FDI from countries of the former Council for Mutual Economic Assistance (CMEA) complements trade in secondary products. The paper argues that FDI from the CMEA is motivated by the potential for economies of scale, including those that might arise from resuming production links obtained during the Soviet times. This inference is supported by evidence of relationships between FDI from the CMEA and intra-industry trade between the CMEA and Ukraine.

Martyshevskyy Denys: “A Cost–Benefit Analysis of Two Alternative Approaches to Internet Banking in Ukraine”

Ukrainian banking institutions are now looking at technologies of remote account access and gradually adopt them. This study reviews Internet banking in the context of Ukraine and applies Cost-Benefit Analysis technique to choose between two alternatives for Internet banking development: individual and consortium variants. We test whether a consortium approach has advantages and could be more attractive to major groups of agents.

Mashlyakivskyy Maksym:  “Determining the Optimal Excise Rate: Example of Ukrainian Tobacco Industry”

In this paper, I developed a model of efficient excise taxation in the Ukrainian tobacco industry. Efficiency was considered from the government's viewpoint where the government is aiming at maximizing tax proceeds. However, the government is also interested in reducing consumption of the harmful good (i.e. cigarettes). In Ukraine, the achievement of these objectives is hampered by the easy availability of illegal cigarettes. The majority of smuggled cigarettes originates in Russia, due to existence of rather transparent borders between the countries. Therefore, the markets of the two countries are interconnected. The econometric part of my research is based on three regressions. First, a demand function for cigarettes was estimated. The elasticity of demand with respect to the excise rate was found to be -0.37. Second, a Laffer curve was estimated for the tobacco industry. The curve shows a relationship between the excise rate and excise revenues, and has a normal shape predicted by the economic theory. My estimates show that current excise rates in Ukraine are well below the revenue-maximizing level. Third, a price equation for the industry was estimated which allowed determining the mark-up in the industry. The last estimate showed that the government could increase the excise rate without driving producers out of the market since the average mark-up is significant.

Mogylnyy Oleg: “Establishing Effective Deposit Insurance System in Ukraine”

This paper investigates issues related to explicit deposit guarantees. It shows how deposit insurance prevents withdrawals of deposits and which pitfalls arise therewith. An experience of other countries is taken into account to isolate those parameters which make a deposit insurance system effective. Using monthly data on basic balance sheet items of Ukrainian banks, an empirical analysis was conducted in order to determine how major bank fundamentals affect depositors' exposure to risk. Obtained results are used to make policy implications for the Ukrainian deposit insurance system.

Nazarovets Natalka: “Fiscal Discipline and Budgetary Institutions in Ukraine”

This work is an attempt to apply experimental methodology of evaluating a public finance management system suggested by Von Hagen (1992) to Ukraine. The purpose of this work is to determine how institutions affect the fiscal discipline in the country. In order to measure this relationship we complete three steps. First, we determine institutional arrangements that are crucial for achieving fiscal discipline. Second, we assign index values to each of these arrangements. Third, we determine the correlation between the variables of budgetary institutions and fiscal discipline. Finally, we compare fiscal performance of public sector in Ukraine, former Soviet republics, and the advanced transition countries.

Ostanin Dmytro:  “Social Security System Reform: Risk Sharing Properties. The Case of Ukraine”

Provision of adequate and robust old age income streams for numerous generations without distortion in labor supply and saving is the main objective of a national pension system. What design of such pension system will be optimal for the utility maximizing individual? The main determinant of return in fully funded system pension is interest rate, while for pay-as-you-go system this is wage growth. Historically, interest rates were higher than wage growth rates, though, interest rates were more volatile as well. Whether diversification of overall risk of pension system is feasible by means of establishing mixed pension system or it is better to have pure fully funded pension system with high return and high risk is subject to debates. Mixed pension system will have advantages over fully funded system if wage and interest rate shocks are imperfectly correlated, thus compensating each other, and if presence of pay-as-you-go layer does not reduce benefits much. The model with stochastic interest rates that are correlated with wage growth applied for Ukrainian context attempts to analyze the optimal design of pension system. Results show that for the case of moderate correlation between interest rates and wage growth and negative population growth, as a baseline scenario for Ukraine, pure fully funded system is preferable. This result is robust under reasonable changes in degree of risk aversity and discount factor.

Popruga Oksana:  “Which Factors Cause Failure of Ukrainian Banks?”

Over the 10 years of transition, Ukraine’s financial system did not establish itself as a growing and advanced sector of the economy. Rather, it remained weak, narrow, and inefficient, with almost a quarter of banks undergoing the liquidation procedure and a handful of problematic banks. In this paper we discuss reasons for the banking sector fragility and identify factors that reduce or raise the probability of becoming bankrupt for a given bank. Based on financial ratios of 91 sound bank and 20 bankrupt banks calculated for the years 1995-1996, we utilize the probit cross-section model and identify that traditional indicators such as size, capital adequacy, and return on assets are not the principal determinants of the soundness of Ukrainian medium-sized bank. Rather, bank’s stability depends on the location and the number of years in business. Further, based on the analyzed policies of the National Bank of Ukraine, we conclude that, aside from macroeconomic conditions, raising the transparency of banks’ reporting procedures would enhance competition among banks, help attract resources into the banking system, and feed into the soundness of each particular bank.

Prochukhanova Olga:  “Examination of the Economy of Tobacco–Growing in Ukraine”

The main purpose of this thesis is an examination of tobacco-growing industry of Ukraine. The question under consideration is what impact would have the new law on stimulating the development of agriculture, which implements 10% content requirement of Ukrainian tobacco usage, on the industry. For achieving this goal possible changes in supply and demand of raw tobacco are considered and partial equilibrium analysis is made.

Rybalka Olena: “Foreign Direct Investment and Economic Development of Transition Countries. The Case of Ukraine”

The positive influence of foreign direct investment on economic development of host country is widely known. One of the aspects of FDI is the existence of spillovers to host country. Various studies show that spillovers from foreign to domestic firms can be positive (increase in efficiency of production and etc.), or negative (market-stealing effect), or they appear difficult to be verified. The type of spillovers depends on various characteristics of the host country. The most important factors are competitiveness of host country markets and technological capacity of domestic firms. Presence and nature of spillovers can be investigated by using firm and industry level data in econometric models, which relate productivity of the host country firms without FDI to foreign presence in an industry measured as FDI in an industry weighted by an industry production. Other possible way to study the issue is to relate growth rate of productivity to lagged measure of foreign presence, as spillovers may need time to be materialized. Using these approaches I examine presence of spillovers from FDI in Ukraine's economy. The results of research suggest that spillovers from FDI positively affect labor productivity and growth rate of labor productivity of locally owned firms.

Shvydko Tetyana:  “Does Access to Credit Limit the Growth of Small and Medium-Sized Enterprises in Ukraine?”

This paper investigates the state of SME sector in Ukraine. We analyze factors that determine SMEs economic performance during transition. Among the basic determinants of economic performance of the firm are ownership structure, level of product market competition, and access to external funding. This research concentrates on the question of the impact of the availability and amount of external finance in the form of short-term bank loans on net sales to assets performance of SMEs, in comparison to large enterprises, while controlling for other determinants such as ownership type and concentration. Applying the instrumental variables estimation technique we show the positive relationship between amount of short-term bank loans and net sales to assets performance for small and medium-sized enterprises and the absence of such relationship for large enterprises. Possible explanations of the received results as well as some policy implications for improvement of lending to SMEs in Ukraine are proposed.

Shyshkina Anastasiya:  “The Returns to Education in Ukraine”

In this paper the main attention is given to theoretical and empirical analysis of wage determinants and private rates of return to education in Ukraine. We test the null hypothesis of zero private returns to education in Ukraine versus the alternative hypothesis of positive returns using the Mincer's extended earnings function. We find that the private returns to virtually all educational levels are positive in Ukraine, though rising with the level of education, the latter finding contradicting the world evidence. We propose a possible explanation for this anomaly and suggest the issue as the area for further research.

Stavrunova Olena:  “Determinants of Job Creation and Job Destruction in Ukraine”

In the present research we analyze gross job flows in Ukraine over the years 1997-2000 using firm-level data for nearly 250 Ukrainian enterprises. We find that job destruction dominates job creation for all the years, covered by the analysis, and that job creation tends to decrease over time, while job destruction is permanently high and does not have decreasing tendency. We find that job creation and job destruction in Ukraine are heterogeneous: simultaneous job creation and job destruction are found within narrowly defined regional, industrial, ownership type and firm size sectors. We find, that job creation and job destruction are largely determined by ownership type and firm size: higher job creation rates are observed for de novo private and small firms. We did not find substantial difference between employment behavior of state-owned and privatized firms. We analyze determinants of the firm-level employment growth using panel data fixed effects estimation technique. We test for age, size, industrial sector and ownership effects on the firm level employment growth and find that all these effects are present in our data. Results suggest, that there exists negative effect from firm age and size on the firm-level employment growth, and that belonging to heavy industry negatively influences firm growth, while belonging to light industry is associated with higher firm growth. We also found that de novo private ownership positively influences firm-level employment growth, while privatized and state ownership have no significant effect. However, after we defined narrower ownership categories for privatized enterprises according to dominant owner, we find negative effect from being outsider-owned on the firm-level employment growth.

Talavera Oleksander:  “The Effect of Foreign Direct Investments on Firm Performance in Ukraine”

All countries are eager to attract as much foreign investments as possible. At the same time FDI may have not only positive, but also negative effects on the economy. Positive effects are associated with technology transfer, efficient allocation of resources, and training of domestic workers. At the same time entrance of foreign firms could lead to decrease of labor productivity at domestic firms, which is a negative effect. The main purpose of the paper is to estimate direct and indirect effects of FDI. First, the research tests for direct influence of foreign direct investments on firm's performance, which is estimated as labor productivity and export. FDI notably increases both labor productivity and export volumes. Second, we look for spillover or indirect effects. There is statistical evidence that level of FDI in certain region-industry increases non -FDI firms performance indicators measured by labor productivity and volumes of export.

Tsaplin Valeriy:  “An Evaluation of the Efficiency of Energy Regulation in Ukraine”

There is an extensive literature on using economic analysis for exploration of the efficiency of regulation for developed and developing countries. This work develops approaches to evaluation of Energy Regulator’s performance under specific conditions of Ukrainian economy in transition. The Ukrainian Energy Regulatory System was tested for compliance with economically based principles of good regulation and compared with efficient regulatory system (U.K.). The second part of the work was devoted to event study for evaluation of industry responses on regulatory and market events with using electricity losses as measure of performance of electricity distribution companies.

Varetska Olga:  “Is the Transition to the 12–Year School Education in Ukraine Economically Justified?”

The objective of this thesis is to estimate whether the transition of Ukraine from 11-year to 12-year school education is economically justified. Using an approach based on the theory of human capital and DerzhKomStat (State Committee of Statistics) data, the benefit (net present value of additional personal life-time earnings) and costs (foregone earnings and government budget expenditures) of this transition were calculated. The obtained internal rate of return appeared to be less than the actual real interest rate in Ukraine (and its forecast for the relevant time period). Thus, on purely economic grounds, transition to 12-year general school education does not seem to be justified. It is possible that it may be justified on other reasons (political, social, etc) which are not addressed in this paper. The reasons for the obtained negative result are: low increase in earnings as a result of an additional schooling year and discount rate being high in Ukraine. The result is robust to the possible future changes in real GDP, in the rate of enrolment to high-school, and in taxation rate. The result changes from negative to positive if the real interest rate in Ukraine falls below 2.57%, or if the differences in wages of more and less educated labor force increase considerably. Analysis of the present situation in education in Ukraine suggests that creation of incentives for completing more years of general school and investments in preschool education at kindergartens and/or college preparatory courses could be more beneficial.

Zapechelnyuk Andriy:  “The Role of Reputation in Pricing”

We consider a bargaining game where firms produce goods and sell them to buyers. Quality of goods is unknown to buyers at the stage of purchasing. Firms make price offers, and buyers either accept or reject them. We analyze the effect of firms' reputation on buyers' willingness to pay and, as a consequence, on prices. In the first part of our thesis, the traditional game-theoretic approach is used. Here it is assumed that all information except quality of goods is common knowledge. In particular, agents know valuation of goods, costs of production and each others' preferences. In the second part, we use the evolutionary approach. Here some kind of information is assumed to be private, and agents try to reveal it by observing the market situation, which we describe as a game history, i.e. the history of trades occurred in recent times. We find equilibrium prices that appear the most frequently in long run, so called stochastically stable prices.

Zholud Oleksandr: “Volatility of Velocity in Transitional Economies: Case of Ukraine”

Money demand is a very important indicator of country performance. Almost all economists’ works concerning money demand or inflation assume that velocity of money is stable in a long run and has only tiny seasonal or cyclical variation that is quite small in comparison with the level of velocity. However, in reality velocity varies greatly, especially in countries whose economies suffer from structural shifts due to change of economical system, as for example, Ukraine. The velocity of money in circulation (M0 monetary aggregate) in 1989 was equal to 2.3 and after hyperinflation, velocity peaked in 1993 when it reached 41 (May, 1993; M0 velocity), i.e. it had almost twenty fold increase. Thus, estimates of, for example, inflation on the basis of change in money aggregates can be biased because of omitted variables. My paper aims to detect whether there is a long time trend in velocity changes in transitional economies or not; and asks whether it is possible to develop a definition of money or output, such that it would render velocity stable. I do it by analyzing the behavior of inflation, real money balances and interest rate in Ukraine. Econometric analysis was performed and results suggest that inflation is an important determinant of velocity and that there is a linkage between financial and real economy. Results also imply that changes in institutions can as well be an important factor that determines a performance of velocity. Broader definition, on the other hand, does not significantly improves both econometric results and stability of velocity.