Contents of issue 1/2014
Dominik A. Skopiec - Prospects for the Internationalization of the Chinese Currency, summary
Alicja Bisewska - China’s Banking System Risks Related to Government Intervention, summary
Joanna Lizińska, Leszek Czapiewski - Performance of Polish IPO Firms: Size and Profitability Effect, summary
Ewa Mińska‐Struzik - Reflections on the Validity of Traditional Trade Theory, summary
Janusz Sawicki - Adjustments in the Balance of Payments in EMU Countries: Conclusions for Poland, summary
Arkadiusz Świadek - How Enterprise Size Impacts Innovation in Polish Industry, summary
Antoni Chrzonstowski - The Laffer Effect in OECD Countries: Pension System Impact, summary
Book Review: Paul Krugman, Zakończcie ten kryzys
(End This Depression Now!), Helion, Gliwice 2013, 240 pp. - reviewed by Marek Lubiński
Book Review: Katarzyna Śledziewska, Regionalizm handlowy w XXI wieku. Przesłanki teoretyczne i analiza empiryczna
(21st‐Century Trade Regionalism: Theory and Empirical Analysis), Wydawnictwa Uniwersytetu Warszawskiego, Warsaw 2012, 258 pp. - reviewed by Andrzej Cieślik
Dominik A. Skopiec - Prospects for the Internationalization of the Chinese Currency
The article examines the prospects for the international use of the Chinese yuan, a currency otherwise known as the renminbi. The author looks at whether or not the yuan stands a chance of becoming an international currency and identifies the key barriers to the process.
Skopiec highlights the criteria of national currency internationalization and evaluates their fulfillment in the case of China. The study also discusses the costs and benefits of currency internationalization and their role in determining China’s strategy to turn the yuan into an international currency.
The methods applied by the author include a literature study and an analysis of China’s macroeconomic variables as well as statistical data on the international use of the yuan.
The author argues that the yuan cannot be classified as an international currency at the moment because its use is limited in terms of the different functions of international money. Moreover, China does not meet several crucial currency internationalization criteria, Skopiec notes, in particular those related to the free flow of capital, the scope of currency convertibility, the type of exchange rate system, and the level of financial market development. The author concludes that the yuan is currently viewed as a potential international currency and one that is poised to become a key currency in the long run provided China carries out a string of reforms. These include the adoption of a new growth model (based on an increased share of consumption and services in GDP), financial system development (through interest rate liberalization and abandonment of restrictions that excessively curb the freedom of financial market operations) and the introduction of a more flexible exchange rate regime.Keywords
: international currency, exchange rate, foreign exchange reserves, financial marketJEL classification codes
: F02, F31, F41, G15, G18Article
Alicja Bisewska - China’s Banking System Risks Related to Government Intervention
The article analyzes possible threats to the stability of China’s banking sector. The research method used by the author includes a review of literature and empirical studies. The analysis shows that government intervention in the banking industry poses a series of risks to the country’s financial stability and blocks further development of the Chinese banking sector.
China’s banking industry is dominated by five big state owned banks and there is no competition on the market, the author notes. Retail interest rates are capped very low in terms of inflation and cheap capital is channeled mainly to big state owned companies. This helps sustain economic growth at a high level. However, this kind of policy poses risks to the banking sector and the Chinese economy as a whole, Bisewska says.
The author argues that ineffective allocation of funds leads to overinvestment in some sectors and to asset bubbles. As Chinese consumers and small and medium sized enterprises have limited access to credit, Bisewska notes, the shadow banking system is growing rapidly - not only in the form of illegal private lenders, but also as the off‐balance sheet activities of commercial banks. Another major threat to the system is a cyclical lending spree stemming from the need to generate fast economic growth through investment. Local governments are expected to finance many infrastructure projects, yet their revenue is insufficient, the author says. They are forced to borrow money from commercial banks, but in most cases are unable to pay their debts. As a result, there is a growing problem of non‐performing loans.
The author concludes that interest rate liberalization, coupled with reduced government control over the banking sector and the introduction of a competitive environment, would have a positive impact on the Chinese financial system and the economy as a whole.Keywords
: Chinese banking sector, financial crisis, credit bubble, asset bubble, shadow banking, financial repressionJEL classification codes
: G21, G28, G32, G01Article
Joanna Lizińska, Leszek Czapiewski - Performance of Polish IPO Firms: Size and Profitability Effect
The study investigates the price behavior after initial public offerings (IPOs) listed on the Warsaw Stock Exchange from 2004 to 2009. It focuses on possible explanations for the IPO phenomenon within the context of Poland and provides evidence on the relation between both the company size and profitability and the aftermarket price performance.
The study aims to answer three questions. First, whether we could observe the short-term underpricing and the long term underperformance of Polish IPOs, including the financial crisis period. Second, if the IPO anomalies did exist, whether they were distinct for the size and profitability subsamples. Finally, the change of the profitability was investigated for size subsamples from before to after going public.A lower level of the underpricing and three-year underperformance was reported in comparison to the previous WSE studies. The pre‐issue company size influences the IPO underpricing with the higher level of returns for smaller companies. Concerning the long-term performance, the opposite relation between size and buy‐and‐hold abnormal returns was found. It was also found that the higher the pre‐issue profitability, the higher the underpricing. Large companies experience a better profitability improvement in the pre‐IPO period with the profitability ratios getting worse not so rapidly after the flotation.Keywords
: initial public offering, event studiesJEL classification codes
: G10, G11, G14, G30Article
Ewa Mińska‐Struzik - Reflections on the Validity of Traditional Trade Theory
The article aims to either confirm or invalidate a claim by some researchers that world trade is again governed by the “classically interpreted” comparative advantage, which diminishes the importance of new theoretical approaches while restoring the validity of the traditional trade theory. The author uses a deductive approach to conduct an in‐depth critical literature review, drawing on results presented in reviewed journals and reports by international organizations.
The starting point for the reasoning is a diagnosis of contemporary trends in world trade, with an increasing role of developing economies and hi‐tech manufactured products. Stylized facts derived from an analysis of WTO and UNCTAD statistics as well as the results of different empirical studies are confronted with the guidelines of the traditional trade theory. The author finds that neither intensified exports by developing countries nor changes in the structure of trade, let alone productivity growth in these economies, are in line with the postulates of the traditional trade theory. Further development is needed of theoretical models aimed at explaining trends in today’s global trade as well as efforts to improve the quality of statistics, the author says.Keywords
: international trade, comparative advantage, export specialization, fragmentation of production, trade in tasksJEL classification codes
: F01, F10, F11, F12, F14, F23Article
Janusz Sawicki - Adjustments in the Balance of Payments in EMU Countries: Conclusions for Poland
The article examines threats to Poland’s financial stability resulting from structural adjustments in the country’s balance of payments. The analysis is conducted in the context of balance‐of‐payment trends in key European Monetary Union countries. The author highlights the causes behind external imbalances in EMU countries and points to the outcomes of reforms designed to restore credibility and growth. He also looks at the risks to maintaining an upward trend in net exports.
The article shows the impact of ongoing changes in EMU policy on Poland’s external balance. The author argues that the observed increase in net exports, particularly in peripheral EMU countries as well as in Poland, is chiefly due to growing savings in both the public and private sectors.
A reduction in spending in the wake of public finance consolidation, combined with improved balance sheets at financial institutions and falling unit labor costs, helped improve competitiveness in most southern EMU countries, Sawicki says. In Poland, the low share of capital expenditure in total factor productivity (TFP), coupled with a current-account structure different from those in peripheral EMU countries, poses the risk of destabilization in foreign finances in the medium term, according to the author, unless the upward trend in net exports is maintained. The importance of net exports as a factor influencing Poland’s external balance will grow once transfers from the EU budget decrease substantially, Sawicki says. He adds that a sudden stop in financial inflows could endanger the stability of the country’s financial system.Keywords
: balance of payments, current account, structural adjustment, debt, competitivenessJEL classification codes
: F32, F34, F42Article
Arkadiusz Świadek - How Enterprise Size Impacts Innovation in Polish Industry
The article looks at how the size of enterprises influences innovation in Polish industry. The author attempts to determine whether or not enterprise size has an impact on different forms of innovation and whether this calls for a revision in the government’s innovation policy. The article also aims to establish whether or not Polish industrial enterprises innovate in a different way than their counterparts in highly developed countries.
In transition economies, enterprise size influences economic processes, including innovation in industry, the author says.
The methodological part of the study makes use of a probit modeling approach based on probability theory.
The results of the study show that the key to enhanced innovation is to encourage medium-sized and large enterprises to innovate, the author says. Micro and small businesses, on the other hand, exhibit a low level of risk acceptance, Świadek adds. Still, over time, innovation in small businesses tends to evolve toward the pattern observed in medium-sized and large enterprises, according to the author.
The article identifies areas in which the author believes innovation should be particularly supported by the government.Keywords
: innovation, system, industry, enterprise sizeJEL classification codes
: E61, R48, L16, O38Article
Antoni Chrzonstowski - The Laffer Effect in OECD Countries: Pension System Impact
The article is concerned with the so‐called Laffer effect - an effect involving the relationship between possible rates of taxation and the resulting levels of government revenue - in countries that are members of the Organization for Economic Cooperation and Development (OECD). The author sets out to designate a maximum of the Laffer curve - a visual representation of the Laffer effect - in the economies of individual OECD countries with institutional pension schemes. To this end, Chrzonstowski uses a mathematical model he developed earlier. The model theoretically predicts the possibility of an effect associated with the Laffer curve in an economy with an institutional pension scheme.
The research involved a three-stage analysis with the use of available statistical data on OECD countries and a World Bank database. In the first and second stages of the study, only 16 of 34 OECD economies examined by the author met the criteria of the model for 2001-2010. However, calculations based on the available statistics confirmed the model’s predictions, Chrzonstowski says.
The author concludes that the Laffer curve can rise to a maximum for any OECD economy. The maximum can range from 0 to 1, depending on the ratio of pensioners to the working population and on the output elasticity of capital in an economy.Keywords
: pension system, pay‐as‐you‐go (PAYG) system, funded pension system, Laffer effect/curve, OECD countriesJEL classification codes
: C52, E65, H55, J19, O17Article