2013


Economists agree about presence of knowledge externalities in agglomeration process, that arise due to specialization and diversity, competition and firm size, as well as from the local economy structure. The purpose of the study is to identify which particular measure promotes or inhibits industrial growth within Ukrainian cities. The industry-city level analysis is conducted on the sample of total 179 Ukrainian cities during 2001-2009. The main focus is on two large groups of industries: manufacturing and services. Our results are mostly significant and similar to previous findings by Glaeser et al. (1991). We found that diversity and local competition also foster growth in Ukraine. While diversity brings equal benefits for all sectors, manufacturing industries gain significantly more from competition. Industrial growth negatively affected by specialization and firm size.


During the recent decades, changes in the age structure of population provoked tensions between generations of young and old people concerning work places. This paper analyzes whether higher participation rate of old people in the economy worsens the situation with youth unemployment in transition countries. The data for research is taken from the Key Indicators of the Labor Market (7th edition) and World Development Indicators and contains 27 countries for years 1991-2011. The results show that participation of old in the economy influences negatively both unemployment and employment while raising the inactivity rate of youth in transition countries. These findings are robust to various specifications and inclusion of additional controls.


In 2004 informal transfers of remittances to the Republic of Moldova made up approximately 47% of the total inflow. The existing evidence suggests that this phenomenon is still strong. The objective of this paper consists of analyzing the determinants of different transfer channels. In particular, we test weather owners of a bank account are more likely to transfer (receive) money via banking channel. Another hypothesis is weather illegal migrants are more likely to send money via unofficial channels. This paper is based on a household survey data for Moldova collected in 2008. Data set is representative for the households at the national level and includes randomly selected 3915 households with approximately 25% of them receiving remittances. We also address the endogeneity problem associated with bank account and the choice of channel which was neglected in the previous studies. It was found that after endogeneity is controlled for, the presence of bank accounts does not affect the choice of remittances transfer channel. However, illegal migrants are more likely to use unofficial transfers. It was also found that migrants who have a residence permit and come from richer household are more likely to use official channels. In addition, the choice of unofficial transfers in comparison to MTO is driven by migrant’s cost, convenience, security, habit and confidentiality.


The current study attempts to investigate the mechanism of how import tariffs are transmitted to domestic prices on the household level and estimate the consumption effect of the Ukrainian trade liberalization process over the last nine years. Moreover, we endeavor to predict the consumption effect in case of the Customs Union accession of Ukraine and the subsequent import tariffs increase. The empirical results show statistically significant evidence of the imperfect pass-through of import tariffs. Furthermore, we reveal 4% positive consumption effect of the preceding trade liberalization initiatives and predict 7% negative effect in case of the Customs Union accession. In terms of the household differentiation, the study finds urban and high-expenditure households to benefit from the trade liberalization over the rural and low-expenditure ones.


Andrew Rose has studied the effect on international trade of multilateral trade agreements: the World Trade Organization (WTO), its predecessor the Generalized Agreements on Tariffs and Trade (GATT), and the Generalized System of Preferences (GSP). He finds no evidence that countries joining or belonging to the GATT/WTO have very different trade patterns than outsides. Although he does extensive search by testing model on different sets of countries and using different estimation techniques the question about change in trading patterns after the WTO accession for individual countries still remains. This paper uses Rose models and recent data to verify applicability of Ross result for the impact of WTO accession on export.

Ruslan Gibaiev: Are Ukrainian Consumers Rarional: the Case of the Mobile Services Market

The assumption of consumers’ rationality in their decision making plays an important role in the economic theory. At the same time many works (Tversky and Kahneman, 1981, Huber et al., 1982) show that under some conditions customers are likely to deviate from rational behavior. 
This research tests whether Ukrainian subscribers behave rationally regarding their choice of mobile services. Among many possible signs of irrationality this thesis examines how adding a worse alternative to the choice set affects the demand for the superior product. Two experiments – one real-life and one in a classroom environment – were performed in order to test the hypothesis of irrationality in consumers’ behavior. 
Contrary to the literature on this topic (Currim, Weinberg, and Wittink, 1981) the initial assumption about irrational behavior among Ukrainian subscribers was not confirmed by this thesis. Neither one of the implemented experiments provides evidence in favor of the examined type of irrationality in consumers’ behavior.   


The main objective of the current study is to examine the direction of relationship between foreign direct investments (FDI) and international financial reporting within the framework of countries’ economic level of development. Based on our findings for 135 countries during 2003-2011, we agree with the previous studies in the fact that developing countries benefit the most from the adoption of global standards in terms of attracting additional capital from abroad. We also found that a large inflow of FDI in its turn also increases the probability of adopting IFRS in developing countries, even after controlling for endogeneity. However, the probability of IFRS adoption rises with FDI only till the latter reaches 0.5 to 1.6 billion USD per year. Beyond that level FDI does not affect the probability of IFRS implementation by developing countries.

Russia

This paper investigates the existence of the so-called quantity-quality tradeoff for children’s educational outcomes for the case of Russia. Using parental time investments, regular school attendance and school grades as a dependent variable we find different results for Russia compared to those obtained in the majority of other studies: ceteris paribus each additional sibling decreases the time spent by parents with their children by about 23 minutes per week, does not affect the probability of attending a general school, decreases the probability of getting high grades and increases the probability of getting low grades. To address possible endogeneity of sibship size we use samesex dummy as an instrument: it is equal to one if the first two children in a family are of the same gender and zero otherwise. However, the instrument appears to be weak but we find that boy preferences instruments (two dummy variables for boys being the first and the second child in a family respectively and an interaction term for boys being the first two children in a family) do not show qualitatively different results. Therefore, the quantity-quality tradeoff seems present for children’s educational outcomes in Russia.


This study investigates relationship between the capital structure and firm performance. The main hypothesis is that financial leverage positively affects firm activity through disciplining managers, tax shield and signaling effects. Using the sample of 16.5 thousand Ukrainian firms over 2001-2010 we found that relationship between the leverage and firm performance is actually negative. Conclusions seem to be robust to various performance measures and subsamples, as well as to alternative estimation methods. This result is not consistent with the free-cash-flow or trade-off theories of capital structure. However, the validity of the pecking-order theory is supported.


Recent studies found different effects (both positive and negative) of natural disasters on economic growth after combining for other determinants. These results and increasing number of natural catastrophes are drawing our attention to the field of Economics of Natural Disasters. The present paper focuses on the Research and Development Expenditures as the pathway through which natural disasters affect economic growth. The main hypothesis is that natural disasters provide opportunities to adopt new technologies and lead to increasing research expenditures which in turn leads to fast economic growth due to boom in construction and modern infrastructure and technology. The results of cross-country panel data regressions indicate that natural disasters have positive and significant effect on country’s R&D expenditures and GDP growth. A country whose capital stock is reduced by natural disasters has an incentive to replace it with the capital which has newer technology.


The paper investigates the connection between support toward free markets and confidence in government. The second objective is to construct the single indicator of pro-capitalistic views. Previous studies analyzed attitudes to separate elements of the capitalistic system and showed mixed results. The economic motivation lies in constant fall in support toward free markets in Ukraine over 1991-2011. I use the Aggregated Value Survey with data for more than 400 000 people interviewed. The latent variable “Attitude Toward Free Markets” is built by using the factor analysis of attitudes toward income inequality, private ownership and competition. The regression analysis shows that people, who are not confident in their government, have strong preferences toward free markets. A separate analysis of three elements of the capitalistic system shows that confidence in the government has a negative impact on attitude toward private ownership, however, does not influence attitudes toward income inequalities and competition. The mentioned pattern holds only for developed countries, while coefficients on variables of interest are strongly positive for the data on developing countries.


In this study the weak form of efficient market hypothesis is examined by finding abnormal returns for momentum trading strategies on the Ukrainian stock market. We use simple momentum, Sharpe ratio and Rachev ratio to determine momentum for a short term prospective. For this purpose data from 2009 to 2013 for the Ukrainian stock market is used. 
In contrast to studies devoted to developed markets most part of the strategies give significant abnormal return. The pass of portfolio returns is modeled by ARMA-GARCH process. Forecast is done using Monte-Carlo simulations. Based on the STARR ratio we have chosen the best trading strategy simulation and found that it over performs the market for 0,6% a day on average. Therefore, the efficient market hypothesis is rejected for Ukrainian Stock market.

Nataliia Legka: The Hemline and Economy

This paper investigates whether hemlines fluctuate with the economy, that is whether in bad times dresses are getting longer while when the economy is strong miniskirts prevail and the hemline decrease. This study uses monthly data from a German fashion magazine and finds that the economic situation today leads the length of skirts in three years. Therefore, the fashion for floor length skirts in 2011 can be explained by the world crisis of 2008.


This study proposes an approach to evaluating and comparing trader strategies on exchange market that uses Central Limit Order Book mechanism of clearing orders. The methodology is based on Monte Carlo simulations of the market with the injected trader, who is implementing some strategy of exchange. Simulation results summarize historical information available from the market and extend trader’s information set. All the numerical analysis is based on the data collected for WebMoney Exchanger exchange market. It was shown that nonhomogeneous Poisson process adequately models order flows. In addition to that, significant dependence between order sizes, rates and current market state have been observed in the data. As a result, using the revealed facts, simulation model of the WebMoney Exchanger market was built for one exchange pair (WMR↔WMZ). This simulation as an example was traced throughout the work. Comparing outcome distributions among different strategies, analyst can prefer one strategy over another. Such a possibility can be useful for developing and testing strategies for algorithmic trading, which is becoming more and more popular way to work with the markets nowadays.


The thesis deals with election cycles in stock returns of 52 developing and developed countries and provides the analysis of influence of information transparency on stock returns and volatility of returns during election periods. The data covers the period from January 1994 to January 2012. The volatility of stock returns is estimated by EGARCH model in order to capture time-varying volatility and the asymmetry effects of “bad news” and “good news” as a result of political shocks caused by election cycles. 
The results show that election cycle starts 9 months prior to elections and finishes 6 months after the elections. The analysis reveals that information transparency influences stock returns during election cycle, but changes in volatility of returns due to corresponding changes in information transparency has significant impact only 6 months before the elections.


The main aim of this research is to analyze the relationship between introducing index futures and volatility of the underlying stock market. The study mostly considers two questions. Firstly, whether there is a change in volatility of the index after index futures have been introduced. Secondly, in case of the presence of the “futures effect”, whether it is effect different for the first six trading month. In this study, data for five Eastern European countries (Romania, Russia, Ukraine, Czech Republic and Poland) were used. After controlling for market factors, we find that introduction of index futures increase the volatility of the spot market in Russia, Poland and decrease the volatility in Ukraine. In Romania and Czech Republic, the effect of index future was insignificant.


In this thesis the linkages between stock and bond markets in Russia are examined by testing the hypothesis of time-varying correlation between stock and bond returns. Data for this study comes from the Moscow Exchange and covers daily and biweekly returns on stocks and government bonds during the period of 2003-2013. Dynamic conditional correlation version of the multivariate GARCH model, allowing for asymmetric responses of volatility to positive and negative shocks, is applied to quantify the conditional stock-bond correlations. 
Findings indicate significant time variability in correlation between stock and bond returns on the Russian market. The conditional correlations, estimated for daily returns, are mostly positive, but exhibit noisy behavior over time. The correlation between biweekly returns reveal decreasing trend in the co-movements between stocks and bonds during 2003-2007. In 2008, this trend reversed indicating strengthening in significance of positive stock-bond correlation during the crises period. This way, the hypothesis of flight-to-quality existence on the Russian market is rejected.


The Information Technology sector is becoming more and more important in the Ukrainian economy. Ukraine has the advantage of cheap labor and a strong school of quantitative sciences and has become a leading outsourcing destination. In this paper we look at key determinants of wages of the IT sector employees, which were growing at a very fast pace over the recent decade. Using a unique dataset we determine if education, work experience or a combination of both results in a higher wage. An instrumental variable regression is used in addition to a standard OLS regression. We find that work experience is a very significant determinant of future wage, with an average increase of 39.5% for the first year of experience and 16.1% and 12.7% increase for the second and third year of work experience respectively. While education by itself happens to be insignificant for IT sector workers, working in the IT sector and studying at the same time results in even higher benefits, compared to the case when a person only works. We conclude that there is some complementarity between the educational system and work experience and suggest that education should be beneficial to the future wage, if you start working early.


Management of liquid funds is considered to be an important factor of company’s growth. In this paper the effect of the company’s liquidity on profitability is tested by using fixed effects regression to the panel dataset consisting of Ukrainian enterprises financial information in 2001-2010. The database covers state, closed and open joint stock companies and limited liabilities companies that operate in agriculture, production, construction, retail and finance industries. The methodology implies a regression of independent liquidity measures on Return on Assets. 
The expected hypothesis of quadratic relationship between static and dynamic liquidity indicators is supported. Current Ratio and Quick Ratio have significant positive diminishing effect on profitability. It is profitable for the companies to increase liquid assets up to the turnover point, after which a further increase will have negative impact on profitability.


The primary goal of this research work is to construct a reliable measure of educational corruption comparable across a sample of transition countries. Keeping this ambitious goal in mind, we assume that admission process in higher educational establishments is the most suitable moment for corrupt incentives to reveal. If such illicit actions are undertaken, then the reported percentage of newly enrolled university students should reflect the level of corruption in education.
In this paper we aim to construct the Education Corruption Index (ECI) for 13 transition countries as the difference between the actual percentage of newly enrolled students among recent graduates and the corresponding hypothetical percentage if the entrance requirements were based only on test results as in the reference (“uncorrupt”) country. The distribution of mathematics test scores during TIMSS 2007 assessment provides a solid basis for this exercise. Assuming that only the ablest students with the highest test scores can be admitted to tertiary education and that TIMMS mathematics scores provide good proxy for the measure of ability, we find that Romania, Ukraine and Czech Republic are among the three most corrupt countries in the tertiary education sector. At the same time Bosnia and Herzegovina, Georgia and Turkey are among the least corrupt in the tertiary education sector.


This study is dedicated to investigation of efficiency of an emerging index option market, which is made by testing the put-call parity (PCP) validity during the period from 2010 till 2012. The standard methodology is modified and extended with the help of ex-post arbitrage profits’ evaluation, tests for transaction costs’ asymmetry, and sensitivity analysis with respect to transaction costs.
On average, reversal arbitrage strategies are proved to be much more beneficial and frequent than conversion ones, indicating that the put options are overpriced in comparison with the identical calls. However, taking into account the amount of real transaction costs, there is a possibility that the index option market will produce almost no arbitrage opportunities, supporting the hypothesis of market efficiency and the validity of the PCP. These results are consistent with the findings of other studies on efficiency of various European index option markets.
In conclusion, it can be stated that the hypothesis of the option market efficiency cannot be rejected in spite of the presence of mispricing signals.


This thesis investigates the effect of resource misallocation on Ukrainian manufacturing productivity using the dataset of 56574 unique establishments over the period of 2002-2010. In order to perform this analysis, I apply Hsieh and Klenow (2009) framework, which consists of the monopolistic competition model with heterogeneous goods. Individual plants are subject to output and capital distortions, which influence revenue productivity; thus, the variance of TFPR in this framework is the main measure of resource misallocation. The principal aim of this paper is to estimate the potential gains for manufacturing TFP in case of distortions elimination and TFPR equalization within industries. 
Empirical results shows that there is a significant resource misallocation in Ukrainian manufacture as dispersion of the revenue productivity is almost twice higher than in the benchmark economy. In case of full liberalization, when all the distortions are eliminated, potential gains are expected to be equal to 97.1-135.2%. However, if we apply for Ukraine the benchmark distribution of resources, which is believed to be close to the optimal one, gains shrink to 34.1-60.0%, which satisfies the initial hypothesis. Empirical results also provide us with conclusion that most of Ukrainian enterprises underperform their optimal size by more than twice. Decomposition of the basic results shows that total distortion is mainly driven by revenue productivity variance, which is determined, on the one hand, by output distortions, and on the other hand, by between-group components. The most reallocations of resources, which influence the whole distribution, occur among the most and the least productive enterprises.


This thesis investigates the impact of new product introduction rate on the firm financial performance in the notebook industry. Specifically, we divide the changes made in the products, compared to their predecessors, into structural and incremental ones and estimate the impact of each on three indicators: Net Profit margin, Return on Assets and Market Capitalization. We use the data of top 10 notebook manufacturers for 11-year period (2002-2012). The methodology of the research is based on the standard producer theory. 
Using the panel data regression models, we show that Net Profit margin and Market Capitalization of the company are positively affected by major innovations and negatively affected by minor ones. The effect on Return on Assets ratio is found to be not statistically significant. 
The results of the research can be used by management of the company for making decisions about introducing new product on the market.


Firms have possibility to pay later for bills, in this way taking credit from the suppliers. There are quite a few studies for different countries and periods that look at the reasons for using trade credits. In this thesis, I investigate the determinants of usage of trade credits in Ukraine. In particular, I examine the following question: does cost of inventories determines prevalence of trade credit in Ukraine? 
The thesis is structured as follows. First section is introduction. In the next section it is described existing theories and previous studies on trade credit. Next is discussed data and methodology applied. Section presenting empirical results is followed by concluding remarks. 
The model identify responses of accounts payables and receivables as well as net trade credit to changes in cost of inventories, bank’s credits, and credit worthiness parameters, using unbalanced panel data for Ukraine firms during 2000-2010 years. The results show negative influence of finished goods inventories on extended trade credits and on net trade credits and positive influence on received trade credits. This means that Ukrainian firms also used trade credits as an instrument for inventories management, in spite of risk not paying back. Also, firms with higher access to financial resources are not intermediate between banks and their customers, which indicate lower price of trade credits than for bank’s ones.


Comparison of aggregate Health Care Expenditures (HCE) using cross-section data for 118 countries was performed in the thesis. As in the previous findings, GDP proves to be a key determinant of variation in the amount of resources countries devote to health. Additionally, this study reveals a significant cost, which the share of insufficiently active population imposes on Health Care. Following the data recently provided by World Health Organization (WHO), we regard physical activity as multi-dimensional variable that captures transportation, job-related physical activity, housework, recreation, sports and leisure-time physical activity. Research shows that, Physical Inactivity explains part of the variation in HCE that was initially attributed to aggregate income.


Special economic zones (SEZ) were established in Ukraine in 1998-2000 period. We investigated the influence of oligarchs on the government’s decision for selection of rayons for SEZ program. The research is done on rayon level with probit regression using Mundlak-Chamberlain approach. The evidence for the positive effect of oligarchs’ presence in rayons before SEZs establishment on the selection of treated rayons is found. No evidence is found for the reverse causality checked whether businessmen were attracted to rayons after SEZs were established.


The aim of this thesis is checking two hypothesis concerning corporate tax competition. The first one is positive relationship between corporate tax competition and marginal product of capital. The second one is capital misallocation that results from tax competition influence. For this purpose I used panel data for 21 OECD countries in the period 1989 – 2010. It was proven that expected relationship between tax competition and marginal product of capital is present for five non-European countries; moreover, it was shown that this connection results in more inefficient capital allocation.


This thesis examines time to clear the customs as a factor of influence on the decision to import. Implicit cost of the transportation is a much greater barrier for imported products than direct monetary costs of crossing the border - a variety of duties, thus requiring detailed study and subsequent implementation of solutions. 
We used the data on import for companies from all available rounds of the BEEPS. To fill the missing data interpolation and imputation techniques were used. To study the effect of time clearing the customs on the percentage of imported inputs, OLS regressions were used on all the samples – initial benchmark, interpolated and imputed. 
The results show that a 10-day delay in customs clearing of imported goods, on average, reduces their imports by 1.6% (4.1% for Ukraine). Government subsidies, being a tool to protect domestic producers, also reduce imports. At the same time 100% foreign ownership of the company is associated with a 15% increase in imports.


This paper adds to the Ukrainian capital structure literature by analyzing the effect of the GFC on the determinants of leverage for Ukrainian companies during 2008-2009 years and comparing it to the periods of 2001-2007 and 2006-2007 years. The data used for this research are provided by National Statistics committee of Ukraine and available from KSE data center. It includes firm-level financial statements (Statement of Financial Position and Income Statement) for 2001-2010 years with up to ten thousands companies for each year. The analysis is provided by dividing the capital structure into three types of leverage: total, long- and short-term, and examining their determinants during each period. It was found that the effect of determinants mainly supports the pecking order theory and that the change in the relationship between different types of leverages and their determinants really occurred between two analyzed periods. On the one hand, this change is found for relationships between leverage ratios and Size, Profitability, Tangibility, Liquidity and Growth if comparing the longer pre-crisis period to the crisis period. On the other hand, only relationship between Profitability and leverage appears to change if taking the 2006-2007 as the basis period. As a result, all of the other relationships might be thought as not being able to change in such a short time period, or as not being influenced by the GFC.