Contents of issue 3/2012
Aleksandra Duliniec - The Cost of Capital in Theory and Practice, summary
Tomasz Kuszewski, Agata Sielska - Polish Agriculture Sector Performance by Province Before and After the Country’s Accession to the European Union, summary
Marta Kightley - Economic Relations Between South and North Korea, summary
Ewa Gruszewska - The Transformation of Informal Institutions in Poland, summary
Barbara Zbroińska - Public Finance in the Context of Institutional Contract Theory, summary
Book Review: Andrzej Sławiński (ed.), Polityka pieniężna
(Monetary Policy), Wydawnictwo C.H. Beck, Warsaw 2011, 262 pp. - reviewed by Marek Lubiński
Book Review: Marian Gorynia, Barbara Jankowska (eds.), Wejście Polski do strefy euro a międzynarodowa konkurencyjność i internacjonalizacja polskich przedsiębiorstw
(Polish Eurozone Entry and the International Competitiveness and Internationalization of Polish Companies), Difin, Warsaw 2011, 277 pp. - reviewed by Janusz Świerkocki
Aleksandra Duliniec - The Cost of Capital in Theory and Practice
The article discusses the theoretical concept of the cost of capital as well as the practical aspects of using information about the cost of capital in managing companies. The author also reviews the results of a survey among Polish companies on the cost of capital in decision-making processes.
The cost of capital plays an important role in calculating the economic value of the company and its components as well as in measuring the net present value of investment projects. The cost of capital makes it possible to convert future expected cash flows from assets into the present value of these assets. Future cash flows are discounted using the cost of capital as a discount rate. The importance of the cost of capital in managing companies largely depends on to what extent companies use economic value based on discounted cash flows.
Comparing the actual rate of return on invested capital with the weighted average cost of capital makes it possible to find out whether the company creates economic value added (EVA).
The results of the survey carried out among Polish companies indicate that the concept of the cost of capital is understood in different ways. Only about half the surveyed companies use data on the cost of capital in feasibility studies, valuation, in the choice of sources of financing and in the evaluation of their own performance (for example, in EVA calculation).Keywords
: cost of capital, rate of return, risk, investment, capital structure, company valuationJEL classification codes
: G31, G32Article
Tomasz Kuszewski, Agata Sielska - Polish Agriculture Sector Performance by Province Before and After the Country’s Accession to the European Union
The article aims to compare the performance of Poland’s agriculture sector in individual provinces before the country’s entry to the European Union in 2004 and five years after accession. The authors attempt to determine the effectiveness of changes in the agriculture sector in the analyzed period as a result of an inflow of funds from the European Union, which was a major factor influencing the sector. In the initial stage of the analysis, the authors determined the inflow of EU funds to Poland’s agricultural sector in each province from 2004 to 2008 depending on farmland area, the number of people living in the countryside, the number of those working in agriculture, and changes in the value of gross domestic product. Further analysis was conducted using object ranking methods. Three ranking methods were used with different composite performance indicators: a method based on value added produced in agriculture per employee; the Data Envelopment Analysis (DEA) method; and a method comparing the ranks of individual provinces for each diagnostic variable characterizing outputs and inputs in the agriculture sector.
Individual provinces are compared in terms of how their position changed as well as in terms of the similarity of performance ratings compiled with different methods and according to the inflow of funds from the European Union budget. The authors also examined changes in the position of individual provinces in relation to those at the top of each ranking list. The analysis shows that the distribution of EU funds for the agriculture sector by province is uneven. The inequality of distribution varies, depending on the adopted measure. Despite the uneven distribution of EU funds for the agriculture sector, the ranks of the provinces according to each of the three performance measures are stable. The results obtained by the authors reveal no discernible positive effect of the regionally differentiated inflow of EU funds in the 2004-2008 period on changes in the position of the provinces in terms of various performance indicators.Keywords
: EU funds for agriculture, agriculture sector performance, object ranking methods, regional studies, Data Envelopment AnalysisJEL classification codes
: C61, Q11Article
Marta Kightley - Economic Relations Between South and North Korea
The paper addresses the topic of inter-Korean economic cooperation. The author describes the development of economic relations between the Republic of Korea and the Democratic People’s Republic of Korea from their establishment to the present day. The focus of the paper is on determining both countries’ underlying reasons for varying their level of engagement in joint business projects. The author argues that South Korea and North Korea established economic cooperation in order to achieve contradictory goals. North Korea decided to engage in economic cooperation with South Korea after the breakup of the Soviet Union. North Korean leaders were hard pressed to secure a new source of income in order to stay in power. South Korea welcomed North Korea’s willingness to cooperate in the hope that gradual changes in the regime would lead to greater openness and democratization.
The analysis uses a simple decision model based on game theory. It incorporates strategies of different levels of engagement of both countries and the consequences of their implementation. This model explains past changes in inter-Korean economic exchange and makes it possible to predict future trends.Keywords
: inter-Korean economic cooperation, South Korea, North Korea, Kaesong Industrial ComplexJEL classification codes
: F59, P33, P45Article
Ewa Gruszewska - The Transformation of Informal Institutions in Poland
The article examines the changes that have taken place in Poland’s informal institutions during the country’s political and economic transition from 1989 to 2009, as compared with other countries in Central and Eastern Europe. The author also sets out to determine to what extent the informal components of the institutional system laid the groundwork for formal institutions and whether changes in informal institutions were aimed in the right direction—whether they supplemented and reinforced the work of formal institutions. The comparative analysis of the informal components of the institutional system was based on a study of value systems, using research findings obtained by Ronald Inglehart and Christian Welzel as well as data from the World Values Survey.
The author concludes that: a) the changes introduced in Poland’s formal institutions during the country’s political and economic transition after the fall of communism have been incompatible with the development of the informal components of the institutional system; b) Poland’s informal institutions have undergone an evolution leading to a change in value systems in a direction consistent with the processes observed in highly developed countries; c) the most far-reaching changes involved an increase in self-expression values accompanied by a weakening of conservative values; d) there was also a slight increase in indicators reflecting rational values. The level of rationalism in Poland is lower than in other transition economies such as the Czech Republic, Slovakia and Hungary. At the same time, traditional values hold strong in Poland, which, according to the author, is one of the signs of maladjustment between the informal and formal components of the institutional system (and consequently an institutional imbalance).Keywords
: informal institutions, transition, institutional system, value systemsJEL classification codes
: E02, O17, P36, Z13Article
Barbara Zbroińska - Public Finance in the Context of Institutional Contract Theory
The article focuses on public finance as a mechanism for raising funds for public budgets, a mechanism made up of tax and lending contracts. The author applies an institutional analysis method in which the basic analysis unit is the transaction. The method classifies institutions and organizations and identifies the parties to transactions and transaction attributes. The parties to a tax contract are the State Treasury, local government authorities and taxpayers, and the contract involves the levying, setting and collection of taxes. Public agreements and market transactions with entities in the real economy and banks are made as part of a tax contract. The parties to a Treasury loan contract, on the other hand, are the State Treasury (on account of its demand for loan funds), buyers of Treasury debt securities and municipal bonds, and banks as either lenders or buyers of securities. Market transactions and public contracts are made between the government and entities in the real economy and banks. Such transactions concern the servicing of trade in Treasury securities. The author defines the institutional attributes of individual transactions, such as the nature of assets, and the frequency and uncertainty of a transaction. In the case of tax contracts, transactions with the highest level of institutional attributes include an agreement on the drafting and implementation of tax laws, the terms and conditions of eligibility for tax breaks, and tax collection. In the case of Treasury loan contracts, on the other hand, transactions with the highest level of institutional attributes include agreements on the sale of Treasury securities in all forms and agreements on Treasury guarantees and rating services. A comparison of the contracts shows that, in a Treasury loan contract, there are more transactions, contractual parties, transactions with a high level of institutional attributes, but also more opportunities for negotiation. Both types of contracts involve a fundamental transformation: competition steadily evolves into bilateral cooperation and a bilateral monopoly as the level of asset specificity grows when the contract is carried out.Keywords
: state finance, institutions, contractsJEL classification codes
: E63, D23, D86Article