Issue 5 - Volume 70/2022
Estimating Fiscal Reaction Functions for Developing and Developed Countries: A Dynamic Panel Threshold Analysis
Page 393, Issue 5 - Volume 70/2022
Using a dynamic threshold regression method to estimate fiscal reaction functions, this paper examines the response of the primary surplus, government expenditure, and government revenue to the public debt for a large sample of countries over the period 2000 – 2018. Our empirical results lend a strong evidence for the dynamic threshold specification. Governments implement a sustainable fiscal policy until reaching the threshold level, but beyond this level the primary balance does not react to changes in public debt in developing countries. On the other hand, for developed countries, primary balance gives a negative (positive) response to an increase in the public debt when the debt is lower (higher) than the threshold level. Moreover, it seems that the primary balance is countercyclical. Besides the primary surplus, investigating the response of government expenditure and revenue provides valuable insights on the fiscal policy. Finally, dividing our sample as pre- and post-crisis periods we uncover some important changes in the fiscal policy after the last global financial crisis.
Macroeconomic, Structural, and Bank-specific Determinants of Non-performing Loans in Central and Eastern Europe
Page 411, Issue 5 - Volume 70/2022
The study of credit risk has gained significant importance in the aftermath of the global financial crisis of 2007 – 2008. Estimating the determinants of non-performing loans (NPLs), as an important indicator of credit risk in the banking sector, is essential for financial stability policies. The main goal of this research is to examine the determinants of NPLs in Central and Eastern European countries (CEE). This paper analyzes macroeconomic, structural, and bank-specific determinants of NPLs for 17 CEE countries for the period 2006 – 2017 by utilizing panel data and the fixed effects model. Although the literature on NPLs is quite extensive, this is the first empirical research with such a large number of countries from the CEE region using country-level data. The baseline analysis suggests that the unemployment rate, inflation rate, credit growth, crisis, bank concentration, and regulatory quality have a significant impact on NPLs. Unexpectedly, the law enforcement of creditor rights, proxied by various indicators, is not a statistically significant determinant of NPLs. The result of the study contributes to the literature on banking regulation and supervision, especially in the context of the CEE region.
Capital Structure and Firm Performance: The Case of Central and Eastern European Economies
Page 430, Issue 5 - Volume 70/2022
The current study examines the relationship between capital structure and firm performance for a sample of non-financial firms from eight Central and Eastern European countries in the period 2008 – 2017. Based on the agency costs hypothesis, we investigate whether debt ratio as a proxy for capital structure has a positive relationship with firm performance for the countries included in the sample. The results indicate a negative relationship between these variables and, thus, they did not support the agency costs hypothesis. In addition, we test the reverse causality from performance to capital structure based on two opposite hypotheses, that is, the efficiency-risk and the franchise-value hypo-thesis. The results support the franchise-value hypothesis, indicating a negative relationship between debt ratio and firm performance.
The Determinants of Competitive Advantage for Europe’s Regions: Digital Economy at the Start of the Fourth Industrial Revolution
Page 450, Issue 5 - Volume 70/2022
The goal of this paper is first to evaluate the development of the digital economy of Europe and its macroregions over the past decade, then to map how strongly selected factors have influenced these changes. Research based on the revealed comparative advantage (RCA) approach between 2009 and 2018 was primarily conducted at the level of Europe’s main macroregions. Analysis of three most significant global economic leaders shows that China is overtaking Europe’s position in the digital economy. Europe’s regional aspects are an important negative cause of this development, with these regions exhibiting four different models of how RCA changes. After breaking down RCA development, shift-share analysis revealed that global influences, working as exogenous factors for increasing competitiveness, contribute the most to digital economy competitiveness. In second place, the economies’ competitiveness is influenced endogenously by their institutional framework, which shapes the factor concerning regional characteristics that affect all sectors.