A Mechanism Design for the Firm Performance Analysis of Transition Economies

May 31, 2023  |  Vol.9, No.5  |  PP. 173-183  | PDF

AUTHORS:

Hyung Rok Yim, School of Business, Hanyang University, South Korea

KEYWORDS:

Communism, Performance, Transition, Innovation, Transition

Abstract

Ever since the Soviet Union collapsed in 1991, transition countries have adopted the market economy system. However, some of these countries are currently more tied in reciprocal economic relationships with European Union members, the pro-EU group, while[ others continue to maintain pre-existing ties, the pro-Russia group. The purpose of this paper is set to tackle how firms perform differently across two groups both theoretically and empirically. In particular, a game model is first developed to evaluate if an ex-communist country networking effect persists. Second, if it has resulted in deterioration of the firm performance of the pro-Russia group compared to that of the pro-EU group, and third if a networking effect is able to enhance the firm performance of the pro-Russia group. The predictions of the model are tested empirically with two regression models controlling for the size effect of the firms within the transitional economies. Because long-lasting political ties with Russia in CEE countries can generate endogeneity, a 2SLS estimation using a secondary data is attempted for testing some propositions. The dataset is collected from the Business Environment and Enterprise Performance Survey jointly constructed by the World Bank and the European Bank for Reconstruction and Development. The empirical results have two important findings based on the secondary data. First, in terms of innovative capability and input-output efficiency, firms in the pro-EU group outperform those in the pro-Russia group. Second, the networking effect can compensate for firm performance in the pro-Russia group even though firm efficiency is lower than the pro-EU group. The findings of the paper suggest two kinds of business strategies. First, between transitional economies and pro-Russian countries, the former is a better place for making investments as the former can request to pay higher embedded costs. Second, the networking effect of pro-Russian countries cannot be discounted. Indirect exports based on a mutual long-term relationship across pro-Russian countries while pivoting on Russia are a non-negligible factor.

Menu

APJCRI

    The purpose of this journal is to share and exchange the results of recent research by Asia-Pacific national researchers, and the purpose of the project is to publish the results of convergence research with the humanities and social sciences, including advanced research in specific fields.

References:

[1] N. F. Campos, A. Coricelli, Growth in transition: what we know, what we don't, and what we should, Journal of economic literature, (2002), Vol.40, No.3, pp.793-836.
DOI: https://doi.org/10.1257/002205102760273797
[2] J. Babecky, T. Havranek, Structural reforms and growth in transition: A meta‐analysis, Economics of Transition, (2014), Vol.22, No.1, pp.13-42.
DOI: https://doi.org/10.1111/ecot.12029
[3] A. BenYishay, P. Grosjean, Initial endowments and economic reform in 27 post-socialist countries, Journal of Comparative Economics, (2014), Vol.42, No.4, pp.892-906.
DOI: https://doi.org/10.1016/j.jce.2014.04.008
[4] O. Onaran, Jobless growth in the Central and East European countries: a country-specific panel data analysis of the manufacturing industry, Eastern European Economics, (2008), Vol.46, No.4, pp.90-115.
DOI: https://doi.org/10.2753/EEE0012-8775460405
[5] R. Bandick, P. Karpaty, Employment effects of foreign acquisition, International Review of Economics & Finance, (2011), Vol.20, No.2, pp.211-224.
DOI: https://doi.org/10.1016/j.iref.2010.06.001
[6] A. Uzagalieva, E. Kočenda, A. Menezes, Technological innovation in new EU markets, Emerging Markets Finance and Trade, (2012), Vol.48, No.5, pp.48-65.
DOI: https://doi.org/10.2753/REE1540-496X480503
[7] C.White, I. Imre, Acceptance of democracy and public relations: Attitudes in a transitional country, Public Relations Review, (2013), Vol.39, No.4, pp.394-397.
DOI: https://doi.org/10.1016/j.pubrev.2013.07.011
[8] C. N. Brunnschweiler, E. H. Bulte, The resource curse revisited and revised: A tale of paradoxes and red herrings, Journal of environmental economics and management, (2008), Vol.55, No.3, pp.248-264.
DOI: https://doi.org/10.1016/j.jeem.2007.08.004
[9] J. Isham, M. Woolcock, L. Pritchett, G. Busby, The varieties of resource experience: natural resource export structures and the political economy of economic growth, The World Bank Economic Review, (2005), Vol.19, No.2, pp.141-174.
DOI: https://doi.org/10.1093/wber/lhi010
[10] C. A. Hartwell, The institutional basis of efficiency in resource-rich countries, Economic Systems, (2016), Vol.40, No.4, pp.519-538.
DOI: https://doi.org/10.1016/j.ecosys.2016.02.004
[11] A. Cheremukhin, M. Golosov, S. Guriev, A. Tsyvinski, The industrialization and economic development of Russia through the lens of a neoclassical growth model, The Review of Economic Studies, (2017), Vol.84, No.2, pp.613-649.
DOI: https://doi.org/10.1093/restud/rdw026
[12] M. J. Artis, J. Fidrmuc, J. Scharler, The transmission of business cycles Implications for EMU enlargement 1, Economics of Transition, (2008), Vol.16, No.3, pp.559-582.
DOI: https://doi.org/10.1111/j.1468-0351.2008.00325.x
[13] J. Fidrmuc, I. Korhonen, Meta-analysis of the business cycle correlation between the euro area and the CEECs, Journal of Comparative Economics, (2006), Vol.34, No.3, pp.518-537.
DOI: https://doi.org/10.1016/j.jce.2006.06.007
[14] J. Babecky, T. Havranek, Structural reforms and growth in transition: A meta‐analysis, Economics of Transition, (2014), Vol.22, No.1, pp.13-42.
DOI: https://doi.org/10.1111/ecot.12029
[15] P. Collier, A. Hoeffler, Aid, policy, and growth in post-conflict societies, European Economic Review, (2002), Vol.48, No.5, pp.1125-1145.
DOI: https://doi.org/10.1016/j.euroecorev.2003.11.005
[16] P. Collier, D. Dollar, Aid allocation and poverty reduction, European Economic Review, (2002), Vol.46, No.8, pp.1475-1500.
DOI: https://doi.org/10.1016/S0014-2921(01)00187-8
[17] W. M. Corden, J. P. Neary, Booming sector and de-industrialisation in a small open economy, The Economic Journal, (1982), Vol.92, No.368, pp.825-848.
DOI: https://doi.org/10.2307/2232670
[18] C. N. Brunnschweiler, E. H. Bulte, The resource curse revisited and revised: A tale of paradoxes and red herrings, Journal of environmental economics and management, (2008), Vol.55, No.3, pp.248-264.
DOI: https://doi.org/10.1016/j.jeem.2007.08.004
[19] J. Isham, M. Woolcock, L. Pritchett, G. Busby, The varieties of resource experience: natural resource export structures and the political economy of economic growth, The World Bank Economic Review, (2005), Vol.19, No.2, pp.141-174.
DOI: https://doi.org/10.1093/wber/lhi010
[20] N. F. Campos, A. Coricelli, Growth in transition: what we know, what we don't, and what we should, Journal of Economic Literature, (2002), Vol.40, No.3, pp.793-836.
Available from: https://www.jstor.org/stable/3217110
[21] H. R. Yim, Firm performances within transition countries: pro-EU group vs. pro-Russia group, Economic Computation and Economic Cybernetics Studies and Research, (2020), Vol.54, No.2, pp.165-179.

Citations:

APA:
Yim, H. R. (2023). A Mechanism Design for the Firm Performance Analysis of Transition Economies. Asia-pacific Journal of Convergent Research Interchange (APJCRI), ISSN: 2508-9080 (Print); 2671-5325 (Online), KCTRS, 9(5), 173-183. doi: 10.47116/apjcri.2023.05.15.

MLA:
Yim, Hyung Rok, et al. “A Mechanism Design for the Firm Performance Analysis of Transition Economies.” Asia-pacific Journal of Convergent Research Interchange, ISSN: 2508-9080 (Print); 2671-5325 (Online), KCTRS, vol. 9, no. 5, 2023, pp. 173-183. APJCRI, http://apjcriweb.org/content/vol9no5/15.html.

IEEE:
[1] H. R. Yim, “A Mechanism Design for the Firm Performance Analysis of Transition Economies.” Asia-pacific Journal of Convergent Research Interchange (APJCRI), ISSN: 2508-9080 (Print); 2671-5325 (Online), KCTRS, vol. 9, no. 5, pp. 173-183, May 2023.


Information

Guidelines

Article

Copyright © 2023 APJCRI. All Rights Reserved