Institutions, Networks and Entrepreneurship Development in Russia: An Exploration

In this paper we explore the ways in which institutions and networks influence entrepreneurial development in Russia. By utilizing new Global Entrepreneurship Monitor (GEM) data collected in 2001, we investigate the effects of the weak institutional environment in Russia in terms of three dimensions: on the rate of productive entrepreneurial activity measured in terms of start-ups and existing business owners; on the characteristics of business owners; and on business financing. In addition, the analysis explores the effectiveness of Russia’s informal networks for circumventing the weak institutional environment for business development. Our results indicate that Russia’s business owners share many of the same characteristics as business owners in advanced western countries, though education is not associated with entrepreneurial activity. However, the main differences are in the sources of financing and the fact that relatively few individuals engage in productive entrepreneurial activity. Our results support the notion of the limited effectiveness of Russia’s networks for supporting entrepreneurial activity in its weak institutional environment.Entrepreneurship, Institutions, Networks, Russia

Editors' Summary

macroeconomics, editorial

Multinational banks and development finance

Financial market recommendations for less industrialized economies, particularly in the wake of the recent financial crises, have included a push for more international financial competition. The entry of multinational banks (MNBs) into developing economies is supposed to create more market discipline for domestic banks, thus making them more efficient, and enhancing financial stability. Using data from the BIS and the IMF, we look at the determinants of MNB presence, at MNB activities, and their impact on credit supply and on financial stability. With respect to the determinants of MNB presence, we find that lower asset prices, a ready market and competition with other MNBs matter more than economic fundamentals of the host economy. In line with these results, MNBs focus their activities predominantly on serving MNCs, and on providing services that domestic banks cannot offer to domestic corporations, and high net worth individuals. Thus, we also find that domestic banks lower their total credit exposure by reducing their commercial loans in response to increased competition, particularly in serving MNCs, domestic corporations, or high net worth individuals, which may lead to real implications for less industrialized economies, particularly lower business investment. --

Variety Matters

Countercyclical markups are a key transmission mechanism in many endogenous business cycle models. Yet, recent findings suggest that aggregate markups in the US are procyclical. The current model adresses this issue. It extends Gali's (1994) composition of aggregate demand model by endogenous entry and exit of firms and by product variety effects. Endogenous business cycles emerge with procyclical markups that are within empirically plausible ranges.sunspot equilibria, indeterminacy, markups, variety effects, business cycles

The behavior of the nominal exchange rate at the beginning of disinflations

A standard rational expectations model would give strong predictions about the behavior of the nominal exchange rate at the beginning of a disinflation (a rise in interest rates): a substantial initial appreciation, followed by a steady depreciation. It largely conflicts actual observations, like the recent experience of Poland, Hungary, and Chile, where an initial appreciation was not followed by any systematic depreciation. The paper tries to explore whether rational expectations can be rescued by introducing noise and parameter learning. An optimistic learning case (worse than expected inflation data every period), or the combination of a pessimistic learning case (better than expected data every period) and a declining proportional risk content of the interest rate offers a potential explanation.uncovered interest parity, rational expectations, parameter learning, monetary contraction, small macromodel.

Variety Matters

Countercyclical markups are a key transmission mechanism in many endogenous business cycle models. Yet, recent findings suggest that aggregate markups in the US are procyclical. The current model addresses this issue. It extends Gall's (1994) composition of aggregate demand model by endogenous entry and exit of firms and by product variety effects. Endogenous business cycles emerge with procyclical markups that are within empirically plausible ranges.Sunspot equilibria, Indeterminacy, Markups, Variety effects, Business cycles.

The Effects of euro Adoption on the Slovak Economy

In this study we assess the effects of euro adoption from an economic perspective. The benefits and disadvantages of Slovak entry to the euro area were discussed already when the euro adoption strategy was adopted. This analysis utilizes the latest information, using the set euro adoption date and the chosen euro adoption scenario. We attempt to quantify the most important effects, so that the costs and benefits can be compared. The costs and risks related to the euro area entry will depend on economic conditions and policies. Therefore we analyze the economic policies, which should support euro adoption, the issues of optimal timing of euro area entry and the impacts of euro adoption on citizens, businesses and the state administration.

Free trade as a force of political stability? The case of mainland China and Hong Kong

Is free trade a force of political stability? This article argues that, while political stability could be a cause, it is not always a consequence of free trade. To test this argument, the article analyses the political causes and consequences of the external and internal trade liberalisation initiatives of Mainland China and Hong Kong through a selection of their current and proposed free trade agreements and free trade zones, namely, the Mainland and Hong Kong Closer Economic Partnership Arrangement, China-Japan-Korea Free Trade Agreement, Hong Kong Free Port, and China (Shanghai) Pilot Free Trade Zone. Together, these initiatives comprise a uniquely outlier case study on individual customs territories in a common state jurisdiction with contrary political economies. This article concludes that the effectiveness of free trade as a force of political stability is, by and large, more of a perception than a reality

Dynamic Effects on the Stability of International Environmental Agreements

In terms of the number of signatories, one observes both large and small international environmental agreements. The theoretical literature, based on game theory, discusses different concepts and mechanisms for the stability of coalitions and has reached the conclusion that, under farsightedness, both large and small stable coalitions can occur. In the context of a repeated game, this implies that large stable coalitions can also be sustained over time by a simple trigger mechanism, for large enough discount factors. However, if changes in time implement changes in state, this conclusion does not hold anymore: only small stable coalitions can be sustained.IEA’s, Coalitional stability, Dynamics