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Recent Articles

Adnan Aiyub Naufal BACHRI

The Reinforcement of Village Institutions and Role Integration of Stakeholders in Developing a Rural Creative Economy in Lhokseumawe City

This research was conducted to identify the condition of village institutions, to design the reinforcement model of village institutions in Lhokseumawe city and to obtain a synergy role model of stakeholders in developing a creative economy in the rural area of Lhokseumawe city. The data used in this research was primary data and secondary data. The research methods were qualitative and quantitative. The results indicated that the conditions of village institutions in Lhokseumawe city were generally still weak, namely that village officials were still less educated and lack understanding of the new rules issued by the central government. The reinforcement model of village institutions in Lhokseumawe should be based on the reinforcement of village officials through training and empowering, programs which should be conducted by the government for society’s welfare through empowering the creative economy. The successful implementation of the creative economy should be supported by the synergy role of the Stakeholders. Lhokseumawe city is has a lot of potential for developing a creative economy because there are many resources with potential, such as natural and human resources that can be developed.

JEL Classification: E20, O10, O53, R11

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Mehdi Siamak MONADJEMI

Oil Price Rise and the Great Recession of 2008

The financial crises of 2007-2008, caused wide-spread falling output and unemployment, in the affected countries and also globally. The severity of the recession was such that it was called the “Great Recession”. As a result of an increase in demand from China and India, at the same time, oil prices rose significantly. The empirical results from this study show that oil price changes negatively affected global growth rate in the 1970s but not in the 1990s and 2000s. These results suggest that the Great Recession in 2008 that initiated by the financial crises, was independent of a significant rise in oil prices.

JEL Classification: E32, E44, F41, G01

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Jorge MONGAY

Market Economies Potentialities and Cultural Clusters. A Global and Longitudinal Study

This paper explores longitudinally and globally the relationships between cultural clusters and the determinants that drive market potentiality. The research shows differences in variances in all 7 determinants using a longitudinal one way Anova method and an Estimated Size Effect. Conclusions show three revealing issues: 1.There is significance in all Market Potentiality Index determinants with the exception of “Market Intensity and Market Receptivity”. 2. The clusters do not show significant differences according to the MPI determinants with the regular exception of Latin American cluster. 3. The results obtained after the estimated effect size analysis show that Commercial Infrastructure and Country Risk are the most important factors which influence on the variability of the clusters.

JEL Classification: E22, L22, L10

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Alin OPREANA

Updates on the Public Debt Crisis in the EU Economies

This article aims to approach highly important and current aspects regarding the public debt crisis in the European Union’s economies. The current economic situation determined by the effects of the crisis is causing the governments of the countries worldwide to streamline their processes in terms of collecting revenue from the state budget and then redistributing them on the principle of performance and economic efficiency. Under these conditions, this article is based on a set of previous research and studies conducted at the EU level. In these analyses and studies, the following aspects were examined: (1) European Union’s competitiveness in terms of country risk and fiscal discipline, and (2) Fiscal policy under current challenges and constrains at EU level. Based on these empirical analyses, a series of complex relationships are highlighted within the European community, more precisely in the context of markets with turbulences and search frictions that currently exist in the European Union.

JEL Classification: E21, E22

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Cristina Elena POPA

The Challenges of the Schengen Area

After focusing on the Euro crisis, European leaders are now struggling with the biggest migrant crisis since Second World War. Up to now, over 1.1 million migrants have requested protection in Europe, and their number is growing every day. The functioning of the Schengen area is in danger due to control deficiencies at external borders. As it’s facing this challenge, the EU is constantly seeking solutions designed to restore the proper functioning of the system and prevent its collapse.

JEL Classification: F22

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Diana MIHAIU

Analysis of Sustainable Performance in Romania’s Local Public Administrations: An External Stakeholders Perspective

Building a sustainable performance system at the level of the local public administrations must have as starting point the local public administration’s (LPA) mission and must go down to the level of the individual. This system must follow the external performance that it delivers to the citizens, the outcomes generated, but also the internal performance which suggests how to achieve the external performance. We propose in this regard the simultaneous use of the Balanced Scorecard tool for managing the internal performance and the Public Service Value Model for measuring the external performance measurement which derives from the organization's mission. In the second part of the work we analyzed comparatively the external performance created by the county capitals of Romania in the year 2013 using the Public Service Value Model (PSVM). Based on this analysis, the county capitals of Romania can be divided in the following categories: high performance organizations (value driven), budget conscious organizations, low performance organizations (sleeping giants) and quality conscious organizations. This classification is useful both for the external and internal stakeholders because it shows the efficiency of public money spending and the areas in which the LPA is performing well, and also the ones that need to be improved.

JEL Classification: H72

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Lucian BELASCU Aleksandar SHIVAROV

On the Location Attractiveness of Emerging Countries for Foreign Direct Investments

Our paper investigates the FDI attracting potential of emerging markets by in terms of their location attributes. We use Statistical cluster analysis to study the dynamic evolution of emerging markets’ clusters, based on country attributes that are relevant for the MNEs location decision. We find that countries tend to be grouped at a geographical level or depending on the various resources they possess, except for China that clusters independently. Also, there are numerous countries’ transitions from one cluster to another over the years, which indicate a natural process of changing location attributes and market development for many emerging economies.

JEL Classification: F21, F23

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Arthelo PALMA

Truth Behind Economic Performance, Natural Resources and Attracting Foreign Direct Investment

Using a preliminary investigation and analysis on the latest data on GDP (Gross Domestic Product) performance, GOI (Global Opportunity Index), Vulnerability Score, Readiness Score, and the number of resources of economic importance, exploratory or preliminary SEM (structural equation modelling) was prompted on the recent available data of the 131 countries (n=131). The model was robust, addressing concerns about multivariate assumptions and other measures on the goodness of fit. It was found that the number of natural resources of economic importance plays a large role in the GDP performance. Thus, the preliminary symptom of Dutch disease continues to manifest for as long as each country aims for development, with their resources as ultimate enticing factors for foreign direct investment (FDI). In addition, economic growth is so far observed to be associated with the vulnerability of the country to climate change. Finally, economic growth was found to be linked to the negative impacts argued by the dependency theory. Implication on governance was discussed.

JEL Classification: O10, O20

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Forgha Godfrey NJIMANTED Daniel AKUME Emmanuel Mbella MUKETE

The Impact of Key Monetary Variables on the Economic Growth of the CEMAC Zone

This study seeks to empirically explore the impact of key monetary policy variables on the economic growth in the CEMAC zone from the period of 1981 to 2015. Carried out using the Ex post facto research design based on the principal components selection approach, the study interacts money supply, interest rate, economic growth, and inflation rate, among themselves and their lagged values using the Vector Auto-regressive (VAR) analytical technique. The Classical quantity theory of money, the Cambridge Cash Balanced, the liquidity preference theory and the Monetarists as theoretical frameworks were explored to appreciate the time trends of the selected variables on the economic growth of the CEMAC zone. Based on the (VAR) methodology, the study reveals that key monetary policy variables influence economic growth of the CEMAC zone in different ways with inflation rate as the impact factor. On the basis of the above findings and the evidence from other studies, lending and inflation rate generated substantial destabilizing impacts on the economic growth, suggesting that the monetary authorities should play a critical role in creating an enabling environment for growth. The determination of the optimal lending rate should reflect the overall internal rate of returns in the productive sectors with due attention to market fundamentals. In line with this, the Central Bank of CEMAC should be given complete instrumental autonomy to operate depending on a set of in-built targets by the individual countries of the zone. Effective monetary targeting and accommodating monetary policies should be designed and implemented as the need arises with little or no political motives.

JEL Classification: B22, C52, E12, E40, E50

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Sebastian-Ilie DRAGOE

Inequality Fragility Hypothesis

The last four decades have been marked by growing inequality. The inequality of income and wealth is one of the most important macroeconomic issues of our time. Inequality contributed to Global Savings Glut and Global Financial Crisis through riskiness channel and a greater propensity to borrow for poor people. This paper presents evidence that besides structural factors, monetary policy, high leverage and the development of new money substitutes are critical in explaining the inequality trend in advanced countries. Increasing economic inequality acts as financial instability enhancer and if left untreated it poses a significant threat to economic sustainability.

JEL Classification: B22, D31, E50

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Krzysztof DRACHAL

Is the Development of WIG Index Determined by Certain Macroeconomic and Financial Factors?

The aim of this paper is to present an analysis whether certain financial ratios can have a significant impact on the development of a stock exchange index. In particular the benchmark stock exchange index is considered, as well as, the selected ratios are considered as the average ones for the whole economy. Quarterly data between 2005 and 2015 were analyzed for the Warsaw Stock Exchange (Poland).

JEL Classification: C22, G14, G17

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C-René DOMINIQUE

Analyzing Market Economies from the Perspective of Information Production, Policy, and Self-Organized Equilibrium

A modern market economy is an exceedingly complex, infinite-dimensional, stochastic dynamical system. The failure of mainstream economists to characterize its dynamics may well be due to its intractability. This paper argues that the characterization of its dynamics becomes almost trivial when it is analyzed from the perspective of infor-mation production. Whether its Jacobian matrix is specifiable or not, a Lyapunov spectrum can be constructed from which the potential Kolmogorov-Sinai or Shannon entropy can be assessed. However, a self-organized equilibrium must first obtain, and for that a suitable policy must be operational.

JEL Classification: B41, C52, C61

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Esra BALLI Gulcin Guresci PEHLIVAN

Testing the Existence of Ricardian or Non-Ricardian Regimes for CIS Countries

It is important to determine the dominant fiscal regime in a country group for policy prevision. This paper examines whether the Ricardian fiscal regime or non-Ricardian fiscal regime is dominant in the Common Wealth of Independent States (CIS). We attempted to show that CIS’ behavior after the debt stock increase. Using panel data method, this paper finds that Ricardian regime dominates in Kyrgyz Republic, Russian Federation, Tajikistan, Uzbekistan, Moldova and Turkmenistan’s fiscal policies.

JEL Classification: C23, E62

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Sergey MALAKHOV

Law of One Price and Optimal Consumption-Leisure Choice Under Price Dispersion

If the demand under price dispersion is formed by consumers with zero search costs and consumers with positive search costs, the law of one price holds at the equilibrium price level, where the lowest willingness to pay between consumers with zero search costs meets the willingness to accept or to sell of consumers with positive search costs. Consumers with positive search costs maximize their utility with respect to their optimal decisions when marginal losses in labor income during the search are equal to marginal savings on purchase. Optimal decisions move their willingness to accept to the equilibrium price level. Suboptimal decisions of consumers with positive search costs result in willingness to accept below the lowest willingness to pay of consumers with zero search costs and arbitrage takes place. Arbitrage drops down the equilibrium price to the level where willingness to accept of consumers with positive search costs meets the new lowest willingness to pay of consumers with zero search costs and where purchasing decisions of consumers with positive search costs become optimal.

JEL Classification: D11, D83

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Antoni Józef JEŻOWSKI

Polish Teachers’ Salaries in 1990-2015

The earnings of the largest professional group financed with public resources, which participates in the realization and financing of the most common and the most expensive public service is the cause of industrial disputes on one hand, and pay aspirations on the other. At the same time the analysis of this phenomenon from the perspective of the public budget as the payer and the scientist-researcher as an analyst often leads to surprising conclusions concerning both the allocation of public means in time and social justice.

JEL Classification: J31, I22

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William R. DI PIETRO

Human Trafficking and National Morality

The paper proposes that national morality is an important variable for explaining national anti-trafficking policy. It uses cross country regression analysis to see whether or not empirically national morality is a determinant of anti-trafficking policy. The findings of the paper are consistent with the notion that improved levels of national morality lead to better national anti-trafficking policy. National morality is found to be statistically relevant for national anti-trafficking policy when controlling for the extent of democracy, the share of the private sector in the economy, and the degree of globalization.

JEL Classification: Z00, Z1

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Gioacchino DE CANDIA

Accessibility to Nodes of Interest: Demographic Weighting the Logistic Model

This research fits into the genre of spatial analysis, aimed at better understanding of population dynamics in relation to the presence and distribution of infrastructure and related services. Specifically, the analysis uses a model of the gravitational type, based on the assumption of the impedance (attractiveness) territorial, based on a curve of type logistics to determine the accessibility of the same, to which to add a system of weights. In this sense, the model was weighted according to the population, to determine the level of “population served” in terms of infrastructure and related services included in the model.

JEL Classification: O18

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Alin OPREANA

Analysis of Equilibrium at the Euro Area Level from a New Model Perspective

This paper aims to address issues related to equilibrium at the Euro Area. Research methodology implies a wide range of methods and techniques that are used to analyze macroeconomic phenomena and processes at the Euro Area. Following the empirical analyses, namely exploratory factor analysis and structural equation modeling procedure, we propose a model of equilibrium in the Euro zone, an area characterized by the existence of market with turbulence and search frictions. Using this econometric modeling technique, we test and estimate causal relationships that combines a series of empirical data and quantitative causal hypotheses.

JEL Classification: D58, R13

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Alin OPREANA

A New Perspective of Investment Modelling at the European Union Level

The study that represents the subject of this paper follows the analysis of the investment function and the influencing factors at the European Union level. The research has, as a starting point, the hypothesis that there is a negative relationship between the European Union investments and tax rates. For verifying this hypothesis, the structural equation modeling is used (SEM), and the same technique is applied in the second part of the research, which will track the development of the investments’ model at the European Union level. The results will highlight the relationships that are established between specific variables that characterize the volume of investments.

JEL Classification: E22

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Krzysztof DRACHAL

The Structural Stability of a One-Day Risk Premium in View of the Recent Financial Crisis

The aim of this research is to analyze a short-term risk premium in Poland between 2005 and 2015. In particular one-day periods are considered. It is studies whether the same GARCH type model can be applied for the whole period, or whether the estimated parameters differ significantly for selected sub-periods.

JEL Classification: C22, G12, G17

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Ibrahima Amadou DIALLO

Exchange Rate Volatility and Investment: A Panel Data Cointegration Approach

This paper examines the link between real exchange rate volatility and domestic investment by using panel data cointegration techniques. We study the empirical connection between real effective exchange rate volatility and investment for 51 developing countries (23 low-income and 28 middle-income countries). The theoretical relationship between investment and real exchange rate volatility predicts that the effects of exchange rate uncertainty on profits are ambiguous. The empirical results illustrate that real effective exchange rate volatility has a strong negative impact on investment. This outcome is robust in low income and middle income countries, and by using an alternative measurement of exchange rate volatility.

JEL Classification: O11, O16, O19, O57

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Rossanto Dwi HANDOYO Mansor JUSOH Mohd. Azlan SHAH ZAIDI

Impact of Monetary Policy and Fiscal Policy on Indonesian Stock Market

This paper attempts to investigate the effect of fiscal and monetary policy on Indonesian Stock price as well as main sectors stock price such as agricultural, mining, manufacture, and financial sector indexes. We consider the world oil price as a foreign variable that will influence domestic economy as in regular small open economy model. In this paper, we employ the Monte Carlo algorithm to Near-SVAR models (If some of the VAR equations have regressors not included in the others). We find that there is a positive stock price response to monetary policy shock both aggregated and sectoral stock price. In term of interaction between fiscal policy shock and stock market, we find that all sectors respond negative relationship. From this empirical finding, fiscal policy crowd out private sector activity in market, thus, its effect will be impotent in economy. We also provide the evidence that not only both policies are able to influence the stock price individually, but also the interaction between monetary and fiscal policy is important in explaining stock market performance.

JEL Classification: C32, E63, G12

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Frank LORNE Sneh SHAH

Price Reversal Pattern of ARV Drugs: A Transaction-Cost Approach Digression

A price reversal pattern of ARV drugs was noted across lower and middle income countries in that the lower-income countries have higher prices relative to higher-income countries based on a 2008-2009 Summary Report by World Health Organization. The transaction costs affecting AVR drug pricing can be broadly classified into two kinds: One between the final users and the opinion/knowledge experts, and the other between the opinion/knowledge experts and the manufacturers. Economist’s version of price discrimination needs to be modified by including transaction costs. Transaction costs also point to institution creditability factors that will affect NGO procurement.

JEL Classification: D3, D4

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Alin OPREANA Simona VINEREAN

Analysis of the Economic Research Context after the Outbreak of the Economic Crisis of 2007-2009

In this paper it, we have conducted a factor analysis which implied determining the international research directions that have characterized the period following the outbreak of the crisis in 2007 and 2008-2011. In this research, we used secondary data that were extracted from 342 articles, which were based on 665 individual researches. Following this research, we have identified three main research in the macroeconomic areas which explained 56% of all the analyzed research. Also, the results showed the trends in macroeconomic research after the start of the crisis in 2007.

JEL Classification: E0, E1, E2, E3, E4, E5

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Sergey MALAKHOV

Propensity to Search: Common, Leisure, and Labor Models of Consumer Behavior

The analysis of the propensity to search specifies the “common” or the ordinary model of consumer behavior based on the synthesis of the neoclassical approach with satisficing concept, and “leisure” and “labor” models of behavior that represent different combinations of conspicuous consumption, leisure, and labor. While the “common model” of behavior demonstrates a moderate propensity to search, “leisure” and “labor” models of consumer behavior exhibit vigorous propensities to search that results in purchase of unnecessary items and therefore in overconsumption. This trend is also presented in home production where vigorous propensity to search takes the form of the vigorous propensity to produce at home. The analysis of trends in allocation of time provides grounds for the assumption that men have more accentuated propensity to search and to produce at home than women that results in overconsumption of unnecessary items.

JEL Classification: D11, D83

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Ion-Iulian MARINESCU Alexandra HOROBET

Rules and Discretion in Monetary Policy: Is the Response of the Stock Market Rational?

We investigate the effects of the monetary policy conduct on the domestic capital market for a sample of developed countries where the capital market plays a significant role in the economy. We break down the policy rate innovations in rules-based and discretionary components in order to determine the degree of prudentiality in the monetary policy conduct and we study their accounts with respect to capital market rationality. The rules-based component is determined using an interpolated vanilla Taylor-rule policy rate at the event date and the discretionary component is obtained by subtracting the rules-based rate from the target monetary policy rate innovation. Using an event study approach, we analyze the impact of monetary policy components on the returns of the stock market and we determine that the conduct of the monetary policy can cause irrational responses of the capital market. More than that, we show, for the analyzed countries, that if the general level of discretion in the monetary policy is high the response of the stock market becomes increasingly erratic, indicating that forward guidance may help reduce uncertainty on capital markets.

JEL Classification: G14, G18, E52, E43, D61

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Khatai ALIYEV Elchin SULEYMANOV

Macroeconomic Analysis and Graphical Interpretation of Azerbaijan Economy in 1991-2012

The aim of this research is to analyze macroeconomic performance and discuss transition indicators in Azerbaijan economy for 1991-2012. After regaining independence in 1991, Azerbaijan implemented economic transition process toward market economy. In the first years of independence, serious economic recession was observed. However, after 1995, the restructuring of the economy started. In this sense, signing the “Contract of the Century” was a turning point toward oil based high speed economic growth or oil boom period. Thus, by opening “Baku-Tbilisi-Ceyhan” pipeline in 2005, Azerbaijan’s macroeconomic indicators experienced considerable growth for the following years. On the other hand, Azerbaijan officially declared the end of economic transition process in its economy in 2009. In this paper, the authors discuss the political-economic and economic process in the whole period as well as analyze the macroeconomic performance with and without oil & gas contribution. In addition, the authors question what would happen if economic transition period ended in Azerbaijan’s economy. It is concluded that oil & gas production has a serious impact over macroeconomic indicators and transition indicators, and for Azerbaijan it implies only a partly end of economic transition, though not completely.

JEL Classification: O11

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David REVILLA Adelaido GARCÍA-ÁNDRES Isaac SÁNCHEZ-JUÁREZ

Identification of Key Productive Sectors in the Mexican Economy

This article focuses on identifying what are the key sectors with high potential for drag induced investment in the Mexican economy, also characterizes the sectors according to their hierarchy, impact and degree of articulation. To achieve this the input-output matrix national 2003 was used (disaggregated into 20 sectors and 79 sub-sectors), provided by the official government agency responsible for generating statistical information, which applied the traditional method of calculation of multipliers which takes into account both relations hierarchical such as circular between the productive sectors of Rasmussen (1956). The originality of the work lies in the application of the social networks theory to determine (García, Morillas and Ramos 2005, 2008): a) total effects, b) immediate effects, and c) mediative effects of sectors and thus have a full diagnosis of key sectors of the economy under study. In general, the findings indicate that for the promotion of growth and productive development, efforts should focus on manufacturing industries, which means to apply an active industrial policy.

JEL Classification: O10, O11, O21, R11

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Ramzi FARHANI Ghrissi MHAMDI Abdelkader AGUIR Mounir SMIDA

Effect of Financial Liberalization on the Probability of Occurrence of Banking Crises

This study examines the relationship between financial liberalization and the advent probability of banking crises because of institutional quality. We used a logit panel data for a sample of fifty developing countries during the period (1990-2014). The results show that there is a positive relationship between financial liberalization and banking crises and the strengthening of institutional quality overcomes the problem of banking crises.

JEL Classification: G01, G11, G15

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Onur TUTULMAZ Burcu DOĞAN

Investment under Financial Liberalization: Post 1980 Turkey Case

In the history of the modern state of Turkey many policies have been developed and applied in order to transform ineffective economy to a dynamic and steady one. The liberal policies have been effectively applied except for war periods. The main activity of liberal policies in Turkey’s economy was conducted on January 24, 1980 with some important structural adjustment decisions. These decisions aimed to integrate the economy with the global system by applying global economic order that widely adopted all over the world. The decisions aimed also to activate a financial liberalization in the country. Financial liberalization generally includes the principles related to the removing the pressure on the interest rate, currency control and investment mobility. More liberalization steps came in 1989 aiming to increase the investment and growth. Foreign Direct Investment (FDI) was seen important for that purposes. However, short term capital flows, having been more effective in real investments than FDI, have led to several negative effects in this period. In the study some of the drawbacks of that process of financial liberalization have been discussed. The relation between FDI and Gross Domestic Product in the financial liberalization process has been tested with econometric implementation. Econometric estimation has been applied for this purpose to test this relationship for post 1980 era for Turkey as a developing country.

JEL Classification: E22, N24, F65

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Krzysztof DRACHAL

Cointegration of Property Prices in Poland

This paper presents the analysis of cointegration between offer prices and transactional prices on both primary and secondary local real estate markets. 17 Polish biggest cities are considered and the period between 2006 and 2013. Generally, it is found that primary and secondary markets are not cointegrated.

JEL Classification: R30

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Abel OUKO Cheruiyot W. KIPKOECH Emily KIRIMI

Effects of Measurement Errors on Population Estimates from Samples Generated from a Stratified Population through Systematic Sampling Technique

In various surveys, presence of measurement errors has led to misleading results in estimation of various population parameters. This study indicates the effects of measurement errors on estimates of population total and population variance when samples are drawn using systematic sampling technique from a stratified population. A finite population was generated through simulation. The population was then stratified into four strata followed by generation of ten samples in each of them using systematic sampling technique. In each stratum a sample was picked at random. The findings of this work indicated that systematic errors affected the accuracy of the estimates by overestimating both the population total and the population variance. Random errors only added variability to the data but their effect on the estimates of the population total and population variance was not that profound.

JEL Classification: P42, R23

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Sergey MALAKHOV

Willingness to Overpay for Insurance and for Consumer Credit: Search and Risk Behavior Under Price Dispersion

When income growth under price dispersion reduces the time of search and raises prices of purchases, the increase in purchase price can be presented as the increase in the willingness to pay for insurance or the willingness to pay for consumer credit. The optimal consumer decision represents the trade-off between the propensity to search for beneficial insurance or consumer credit, and marginal savings on insurance policy or consumer credit. Under price dispersion the indirect utility function takes the form of cubic parabola, where the risk aversion behavior ends at the saddle point of the comprehensive insurance or the complete consumer credit. The comparative static analysis of the saddle point of the utility function discovers the ambiguity of the departure from risk-neutrality. This ambiguity can produce the ordinary risk seeking behavior as well as mathematical catastrophes of Veblen-effect’s imprudence and over prudence of family altruism. The comeback to risk aversion is also ambiguous and it results either in increasing or in decreasing relative risk aversion. The paper argues that the decreasing relative risk aversion comes to the optimum quantity of money.

JEL Classification: D11, D81

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C-René DOMINIQUE Luis Eduardo RIVERA-SOLIS

On Market Economies: How Controllable Constructs Become Complex

Since Lėon Walras neoclassical economists hold an inalterable belief in a unique and stable equilibrium for the economic system which however remains to this day unobservable. Yet that belief is the corner stone of other theories such as the ‘Effi-cient Market Hypothesis’ as well as the philosophy of neo-liberalism, whose out-comes are also shown to be flawed by recent events. A modern market economy is obviously an input/output nonlinear controllable construct. However, this paper examines four such models of increasing complexity, including the affine nonlinear feedback H∞-control, to show that the ‘data requirement’ precludes all attempts at the empirical verification of the existence of a stable equilibrium. If equilibria of complex nonlinear deterministic systems are most likely unstable, multiple or deterministically chaotic depending on their parameter values and uncertainties, then society should impose limits on the state space and focus on endurable patterns thrown-off by such systems.

JEL Classification: C61, C62, C68, C68, D57, D58

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Mei-Yu LEE

The Effect of Nonzero Autocorrelation Coefficients on the Distributions of Durbin-Watson Test Estimator: Three Autoregressive Models

This paper investigates the effect of the nonzero autocorrelation coefficients on the sampling distributions of the Durbin-Watson test estimator in three time-series models that have different variance-covariance matrix assumption, separately. We show that the expected values and variances of the Durbin-Watson test estimator are slightly different, but the skewed and kurtosis coefficients are considerably different among three models. The shapes of four coefficients are similar between the Durbin-Watson model and our benchmark model, but are not the same with the autoregressive model cut by one-lagged period. Second, the large sample case shows that the three models have the same expected values, however, the autoregressive model cut by one-lagged period explores different shapes of variance, skewed and kurtosis coefficients from the other two models. This implies that the large samples lead to the same expected values, 2(1 – ρ0), whatever the variance-covariance matrix of the errors is assumed. Finally, comparing with the two sample cases, the shape of each coefficient is almost the same, moreover, the autocorrelation coefficients are negatively related with expected values, are inverted-U related with variances, are cubic related with skewed coefficients, and are U related with kurtosis coefficients.

JEL Classification: C32, C15, C52

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Sergey MALAKHOV

Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?

One of the applications of the prospect theory is the behavioral phenomenon of the negative elasticity of the individual labor supply. This paper argues that the negative elasticity of labor supply can be understood better with the help of the interpretation of the Slutsky equation with regard to the common consumption-leisure choice. The interpretation of the Slutsky equation corresponds to the empirical evidence that leisure is a net complement for an important part of consumption.

JEL Classification: D11

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Alexander HARIN

Partially Unforeseen Events. Corrections and Correcting Formulae for Forecasts

A hypothesis of uncertain future was created and first applied in the field of utility and prospect theories. An extension of application of the hypothesis to the field of forecasting is considered in the article. The concept of inevitability of unforeseen events is a part of the hypothesis of uncertain future, namely of its first consequence. Partially unforeseen events and their role in forecasting are analyzed. Possible applications of the hypothesis in the field of forecasting are considered. Generally, preliminary preparations of forecast corrections are shown to be able, under specified conditions, to quicken the revisions of forecasts after partially unforeseen events have occurred. Particularly, correcting formulae for forecasts are proposed, including additive-multiplicative formulae. The hypothesis of uncertain future, its consequences and their possible applications are briefly reviewed.

JEL Classification: C53, D81

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Andrejs JAUNZEMS

Pretension Strategy in the Surviving Game

Presently, we cannot find the scientific analysis that clearly explains the deepest roots of global economical and moral crisis. Because of that many famous politicians, economists, sociologists denote the understanding of current situation as the most valuable attainment. Under traditional influence of the doctrine of spontaneous harmony of egoistic individual behavior many economists believe that competition and private property rights through the markets’ price mechanism leads in the long run to the Pareto efficiency equilibrium. At the same time the social and economic reality categorically asks to ascertain the market failure and to revision the classical statements of microeconomics. The perfect competition market has lost its attributes due to dialectics of interactions of agents. The investigation of the interactions strategies of the individuals are based on the game theory, what also helps to understand the role of asymmetric information as a specific market failure factor. In the present paper the Martin Shubik classical surviving game is analyzed and some statements of Herbert Gintis concerning this game are critically appraised. The solution of Martin Shubik game in the original geometrical form is offered. The problem of Martin Shubik “does the fittest necessary survive?” is transformed according the case of asymmetric information in problem “does the pretender survive?”, for which the answer “if the agent is not the weakest, but he pretends to be the weakest, than this agent survives with high probability” is offered. The results of the present paper appear to be innovative, not discussed in literature available to the author of the present paper.

JEL Classification: C70, C73

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Elchin SULEYMANOV Sabuhi YUSIFOV

Problems Encountered during the Transition to Market Economy in Azerbaijan and Solution Attempts

After re-gaining its independence on 18 October 1991, the Republic of Azerbaijan started the transformation to the market-based economy and the integration into the world economy. The country s oil and natural gas reserves have been considered the main source for financing a range of government programs for reforms. On the one hand, these reserves had to be used effectively; on the other hand, there was a huge demand for foreign investment for extraction. To this end, Azerbaijan has signed Contract of the Century in 1994. Although Azerbaijan has wide oil and natural gas reserves, it has faced a number of difficulties in its transition path. This study analyzes these problems and reforms for solving them. One of the types of the problems related to the economic structure of the former Soviet Union: disruption of the economic ties between the republics resulted in a decline of production, high levels of unemployment and prices and consequently led to an economic recession in all of the republics. Another set of problems related to the lack of sufficient institutional bases to transform to the market economy. Moreover, internal conflicts between the political parties and groups for having authority as well as political chaos in the republic can be considered other serious problems during the transition period. Furthermore, Karabakh war and occupation of 20 percent of the Azerbaijani territory by the Armenian military forces had made the situation extremely complicated. Despite all of these extremes, Azerbaijan transformed to the market-based economy decidedly and even became one of the fast growing countries of the world. Even in 2013, with the GDP growth rate of 5.6 percent, Azerbaijan was a leader among growing economies. In parallel with this significant economic development, there is still a need for some socio-economic and institutional reforms in order to get a well-functioning market-based economy in Azerbaijan.

JEL Classification: P21

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Abdullahi Olabode ABDULKADRI

Achieving the Renewable Energy Target for Jamaica

The high cost of energy in Jamaica, one of the highest in the Caribbean region, is usually cited as a hindrance to industrial development and efficiency, especially in the manufacturing sector. High energy cost is also considered to be a national energy security issue and the government is taking steps to ensure adequate supply of energy at affordable prices. In the current National Development Plan, the government has set a target for renewable energy sources to supply 20% of the country's energy need by the year 2030. Using a linear programing model of energy planning, we examine how realistically this target could be achieved. Our findings indicate that the 20% renewable energy target is technically achievable with the optimal plan showing a mixture of wind power, hydropower and bagasse power but no solar power. However, when the timeline for investment in new generating capacities that will ensure the attainment of the target is considered, it becomes highly improbable that the target will be met. This study fills the gap that exists in evidence-based analysis of energy policy in Jamaica.

JEL Classification: C60, O21

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Abdullah Ibrahim NAZAL

Evaluate Local Private Companies Developing Strategy to Solve Crises

This study concentrated on local private companies’ evaluation to solve crises. It explains the factors that have an effect on these companies success by developing strategies, establishing general budget supporting up their conditions, fair dealing with tax and clear corporate responsibility duties. The companies that get government support may reach their aims of solving the crises or may develop trickeries to get unfair profits besides government support which increases depression. The researcher suggests the use of three tables which will be presented in this study, as models to evaluate the fair general budget policies, the ability of local private companies to get support, and also to evaluate the sharing between companies and government. These tables are important and need to be monitored and can provide direction for companies to a condition which is to cover citizens need locally, at appropriate prices, at a suitable time and place. On another hand, a figure displayed in this research can be used to watch a company’s reaction in crises.

JEL Classification: H32

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Mehdi Siamak MONADJEMI John LODEWIJKS

Post Inflation Targeting Monetary Policy: A Study of Britain, Japan and the United

There is now considerable disquiet about the appropriate monetary strategy that central banks should follow in the aftermath of the global financial crisis. Several influential commentators have called for the abandonment of inflation targeting. Empirical research examining three major economies demonstrates that inflation targeting was effective prior to the crisis and a more flexible form of targeting may still be appropriate after the crisis.

JEL Classification: E52, E58, E65

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Wei-Bin ZHANG

Human Capital, Wealth, and Renewable Resources

This paper studies dynamic interdependence among physical capital, resource and human capital. We integrate the Solow one-sector growth, Uzawa-Lucas two-sector and some neoclassical growth models with renewable resource models. The economic system consists of the households, production sector, resource sector and education sector. We take account of three ways of improving human capital: Arrow’s learning by producing (Arrow, 1962), Uzawa’s learning by education (Uzawa, 1965), and Zhang’s learning by consuming (Zhang, 2007). The model describes a dynamic interdependence among wealth accumulation, human capital accumulation, resource change, and division of labor under perfect competition. We simulate the model to demonstrate existence of equilibrium points and motion of the dynamic system. We also examine effects of changes in the productivity of the resource sector, the utilization efficiency of human capital, the propensity to receive education, and the propensity to save upon dynamic paths of the system.

JEL Classification: O41, I25, Q2

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Nelu Eugen POPESCU

Entrepreneurship – Some General Knowledge

The aim of this article is to provide some general information about entrepreneurship and some insights on the early theories about it. A brief overview of the main entrepreneurship measurement programme will provide some facts about the evolution of the entrepreneurial activity in Romania in the last few years.

JEL Classification: L26

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Andreea TRIMBITAS

The International Monetary System in the Context of the Actual Financial Crisis. Change Proposals

The International Monetary System (I.M.S.) has a crucial role in economy, representing the frame for a sustainable development of the economic relationships between states, while contributing at the progress of the world’s economies. Nowadays, this system confronts large difficulties, as a consequence of the lack of financial disciplinary instruments, meant at regulation and coordination. The actual economic-financial crisis proved the limits of the present I.M.S., reason why it is now under “reconstruction”. In this direction, there is a series of reforms that can be implemented, so that the new architecture of the system is much more solid.

JEL Classification: E42

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Simona VINEREAN

Analysis of European Union Economy in Terms of GDP Components

The impact of the crises on national economies represented a subject of analysis and interest for a wide variety of research studies. Thus, starting from the GDP composition, the present research exhibits an analysis of the impact of European economies, at an EU level, of the events that followed the crisis of 2007 2008. Firstly, the research highlighted the existence of two groups of countries in 2012 in European Union, namely segments that were compiled in relation to the structure of the GDP’s components. In the second stage of the research, a factor analysis was performed on the resulted segments, that showed that the economies of cluster A are based more on personal consumption compared to the economies of cluster B, and in terms of government consumption, the situation is reversed. Thus, between the two groups of countries, a different approach regarding the role of fiscal policy in the economy can be noted, with a greater emphasis on savings in cluster B. Moreover, besides the two groups of countries resulted, Ireland and Luxembourg stood out because these two countries did not fit in either of the resulted segments and their economies are based, to a large extent, on the positive balance of the external balance.

JEL Classification: E21, E22

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Alin OPREANA

A New Approach of Investment for the Future Economic Policies

The investment takes the form of sums of money spent for the acquisition of capital goods, changes in business inventories, and the purchases of new residential housing that are not currently consumed, but will be used in the future for the growth of the wealth. The work covered by this study aims to identify the model that presents, in the best possible way, the method of investment's calculation and to determine the factors of influence. In the first part, the investment is analyzed as a linear function dependent on the interest rate; and the second part implies a new model for determining long-term investments.

JEL Classification: E22

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Simona VINEREAN

Editor’s Introduction of a New Economics Journal: Expert Journal of Economics

It is with great pleasure that I introduce the first issue of Expert Journal of Economics! This journal adopts an open source approach to publication and promotes research as a cooperative endeavor between authors, editors, referees, and readers. Expert Journal of Economics will publish papers covering a range of topics, the common theme being the role of economic policy in economic outcomes.

JEL Classification:

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