Category Archives: Business and Economics

Taxes and the Business Cycle in the Baltic Countries during the Last Decade

Viktor Trasberg (University of Tartu)

This paper focuses on tax policy developments in the Baltic States during the last decade.  During that period, the countries joined European Union and passed through a dramatic boom-bust business cycle.
The first part of the paper will compare and overview the taxation trends in Baltic countries and will explain some structural changes in the governments’ tax revenues.
The second part of the paper will analyze the impact of EU accession on the Baltic countries’ taxation and will discuss taxation policies during the different phases of the economic cycle.

Financial Support and Student Labor Force Participation in Post-Soviet Latvia

Kenneth Smith (Millersville University),  Daunis Auers (University of Latvia), and Toms Rostoks (University of Latvia)

Several studies indicate student employment has a significant impact on student academic performance.  Thus it is important to understand motivations for student employment and labor force participation.  Several studies – primarily from the U.S. – indicate that the availability of financial aid and parental support play an important role in student employment.  Using data gathered from Latvian law and social science students at various Latvian institutions of higher education, we examine determinants of labor force participation.  Latvia is an interesting case study as higher education is quickly evolving in the post-Soviet era.  Unlike much of Europe, private higher education began to grow rapidly in transition and many “public” institutions charge relatively high tuition.  Further, financial aid is rapidly evolving in Latvia with a young student loan program emerging.  Results suggest that student financial support has a significant effect on labor market activity.  Our findings also indicate that the type of support is important in determining student labor market outcomes including whether a student is active in the labor market and whether or not the student is employed or unemployed.  As opposed to most studies of student labor, our data allow examination of unemployment as well as employment.  An interesting finding is that unemployment appears to have an effect on academic performance comparable to part-time work.

“Economically Advantageous” Public Works Tenders as Strategic Complements with Private Sector Investment Projects

Robert Elder (Beloit College)

Given the constraints that limit the implementation of discretionary monetary or fiscal policies to increase aggregate demand nowadays, policymakers must look for other options if they wish to induce expansion.  This paper explores EU procurement procedures as a possible venue for transforming a given amount of government purchases into a greater amount of aggregate demand.  Current EU rules call for public contracts to be awarded to the lowest price bid or to “the most economically advantageous tender.”  If the range of “economically advantageous” proposals were broadened to include contractors who identify private sector investment projects that are strategic complements with the public works projects upon which they bid, then such firms would undertake additional investment expenditures as a best response to winning a government contract, which itself involves government spending.  Adhering strictly to the definition of strategic complementarity, firms would have to make the case that such new investment expenditures would equal zero if the firm’s bid for the government contract is rejected; this would assure that the additional investment undertaken in the event of an accepted bid is not gratuitous.  In sum, by encouraging the search for strategic complementarities, procurement policy could endogenize investment expenditures as a positive function of government purchases, and aggregate demand could be made larger while governments simultaneously maintain a given level of fiscal discipline.

Estonia´s Economic Development and the Role of External Anchors

Rünno Lumiste (University of Technology, Estonia);  Robert Pefferly (Estonian Business School), and Alari Purju (University of Technology, Estonia)

Estonia is a former socialist economy which introduced comprehensive structural and institutional reforms. The country´s transition to market economy has been enhanced by integration with the European Union (EU), which was very important in institutional evolution. The research in this paper concerns the role of external anchors upon economic development. The external anchors in this context are the mandates that reflect the values, objectives and aims of socioeconomic alliance. The EU membership is considered as one important anchor and the fulfillment of a wide set of indicators for this membership framed Estonia´s economy and political system. Estonia is still a middle-income country and for future development and reduction of the income gap vis-à-vis high-income countries, further structural changes are necessary. Information and communication technologies (ICT) and new services associated with this sector could be one source of growth. This introduces a wider question: could values related to ICT and information based innovation create external anchors? Does creating a positive image and providing support for ICT applications yield measurable development in the sector and help further the role of ITC in society? The development of Skype and its applications is one candidate for this role. New ICT tools have influenced the preferences of the younger generation regarding societal behavior and working habits and tools. The development patterns of these changes, EU integration in the past and possible ICT penetration into society in the future are discussed using methods of evolutionary economics which combines historical ingredients with the impact of external anchors as catalysts.

Keyword: Runno

Investment in Latvia: Impact Analysis

Janis Zvigulis (Riga International School of Economics and Business Administration)

Investment analysis has been done on the macro and micro level in a handful of studies on many countries and regions. The most commonly used approaches are quantitative analysis of impact of investment on the national growth on aggregated level, as well as impact of investment on a disaggregated level – on specific characterizing indicators of the national economy. The studies tend to present somewhat controversial evidence of impact of investment on the national economy.  Likewise, most investment research in Latvia has been done on the macro level. The macro level analysis cannot solely explain the impact of investment on the national economy. Micro level analysis can be used for checking the macro level explanations utilizing a bottom-up approach. Hence, the aim of the paper is to analyze the macro and micro level approaches in investment analysis, conduct analysis of investment impact in Latvia, and derive conclusions about investment impact on the national economy of Latvia as well as put forward a methodological approach for investment analysis in Latvia.

Views of the Market: A Cross-Cultural Comparison

Randy Richards (St. Ambrose University)

In a 1997 article, Ian Maitland sets forth a distinction between market pessimists and market optimists.  Pessimists hold that the free market destroys the virtues essential to the functioning of both the market itself as well as the civil society. Optimists believe that the free market generates its own self-sustaining set of virtues by rewarding behavior that is good for individuals and the civil society. We constructed an eighteen item Likert-scale instrument to measure market optimism and pessimism with two questions each for a set of four behaviors: trustworthiness, sympathy, fairness and self-control (following Maitland’s suggestion).  Our research validates the instrument and shows that it neatly distinguishes between respondents’ optimistic and pessimistic beliefs.  Using the instrument, we surveyed MBA students in Lithuania and compared their responses to surveys we conducted in the U.S., Croatia and South Africa.  We explore the likely reasons for these differences and suggest some future research.

What’s in a Name? Country Branding in Estonia, Latvia, and Lithuania

Brent McKenzie  (University of Guelph)

The role of country branding is frequently the result of external perceptions, but ideally is most effectively shaped by the countries themselves.  Slogans such as; “Welcome to Estonia”; “Latvia: Best Enjoyed Slowly”; and “Lithuania is a Brave Country” represent attempts at such branding by the Baltic States of Estonia, Latvia, and Lithuania.  Thus, the focus of this research is to provide an overview of each country’s successes and challenges in terms of solidifying a country brand identity.

One of the greatest difficulties faced by each of these three countries, in terms of establishing and marketing their country brand, is that they continue to suffer from an abundance of name terminology and descriptors as to who they are.  Clouding the brand image of these countries are geographic labels such as “Eastern Europe”, “Central and Eastern Europe” or “Northern Europe”.  In order to advance the understanding of tourism branding efforts in this region, this research draws upon both the academic and industry literature in the area of destination branding, as well as the findings from primary research undertaken in each country.  Interviews conducted by the author with various stakeholder representatives in tourism boards, tourism providers, and tourists themselves, provides the interesting, but often contrasting perspectives on the Estonian, Latvian, and Lithuanian country brand.  It is expected that the findings of this research will contribute to a better understanding of the impact that country branding initiatives have had in terms of developing successful marketing programs for each of the individual countries as well as the three as a regional destination brand.

Baltic Responses to the Financial Crisis: An Assessment of the Internal Devaluation Strategies of Estonia and Latvia

ROUNDTABLE

Chair: Kenneth Smith (Millersville University)

Panelists:

Dr. Raul Eamets (Tartu University)

Morten Hansen (Stockholm School of Economics in Riga, Latvia)

Alf Vanags (Baltic International Centre for Economic Policy Studies, Riga, Latvia)

In the early parts of the first decade of this millennium Estonia, Latvia and Lithuania were the fastest growing economies of the European Union and were dubbed the ‘Baltic Tigers’. With the world financial crisis growth turned to massive recession and while there were many calls for the Baltic countries to devalue their currencies to regain competitiveness, neither chose this strategy and instead opted for a path hitherto largely untrodden, namely an ‘internal devaluation’ whereby wages and prices are to fall to regain competitiveness while maintaining the nominal exchange rate.

The Baltic countries are now – seemingly – out of recession and it is thus worthwhile to evaluate the internal devaluation experience and discuss whether or not an external devaluation – and/or another path of economic policy – would have been more attractive and this is what this panel intends to accomplish.

In addition, the panel will look ahead and try to assess the future outlook and not least the impact of the current euro crisis on the Baltic countries.

Raul Eamets will present the Estonian experience, Morten Hansen the Latvian case and Alf Vanags will act as discussant on both cases.