May 2012


Zagreb International Review of Economics and Business
Volume XV, Number 1 (May 2012)


ABSTRACTS 

Foreign Financial Aid, Government Policies and Economic Growth: Does the Policy Setting in Developing Countries Matter?
Yusuf Tashrifov

Abstract: Does foreign aid contribute to economic growth? If so, is the impact of aid conditional on good policies? This is a controversial issue. While the World Bank (1998) contends that the aid is effective only if recipient governments have good policies, others refute this view and argue that aid enhances economic growth regardless of the type of policies. This paper proposes new measures of policy that are more directly controlled by recipient governments and examines whether any signifi cant relationship exists between foreign aid, government policies and economic growth. It is revealed that foreign aid has a positive impact on real growth per capita and this effect is not contingent upon the type of economic policies adopted by the recipient countries.

Key words: World Bank, Foreign Aid, Government Policies, Economic Growth and Generalised Method of Moments
JEL Classification: C1, C8, O10, O11, O19, O47

 

Forecasting Fiscal Revenues in a Transition Country: The Case of Croatia
Valerija Botrić
Maruška Vizek

Abstract: In this paper we asses the ability of alternative time series models to produce accurate fiscal revenue forecasts in a transition country and compare them to official forecast. We take on a disaggregated approach and estimate separate models for seven revenue sources. Alternative time series models – trend model, random walk, ARIMA, regression and error correction models – are specified using quarterly data. One - and two - year ahead forecasts are calculated and compared against actual values and official forecasts. Results suggest that despite impediments, econometric methods produce forecasts that are in general more accurate than official forecasts prepared using expert judgment.

Key words: forecasting, fiscal revenues, time series, transition
JEL Classification: C22, E62, H2, P35

 

Deposit Rate and Lending Rate in Jordan, Which leads Which? A Cointegration Analysis
Osama D. Sweidan

Abstract: This study intends to investigate empirically the long-run relationship between deposit and lending rates in Jordan by utilizing quarterly data over the period (1994-2010). Empirically, we search to identify the dominant interest rate; either deposit rate or lending rate. To achieve the current study goals, we employ the error correction model technique and the asymmetric short-run dynamic model. The empirical evidence of the Jordanian economy illustrates deposit and lending rates have a long-run relationship. Deposit rate leads lending rate. As a result, the short-run lending rate adjustment for the deviation from the long-run equilibrium by about 22 percent in the current period. In the long-run, lending rate adjusts by 90 percent for a change in deposit rate.

Key words: Monetary policy, Retail interest rate, Symmetric adjustment, Interest rate pass-through, Error correction model
JEL Classification: E43

 

A Comprehensive Approach to Regulation of Natural Monopolies – Setting a Fair Rate of Return
Ivo Družić
Ivona Štritof
Tomislav Gelo

Abstract: One of the main questions, when designing the principles of the rate of return regulatory method, is “what is a fair rate of return”. This question is important since a fair rate of return is essential for sustaining a fi nancial stability of regulated companies and securing prudential new network investments. This paper tackles a problem of setting a fair rate of return in case of Croatia for four monopoly network activities, transmission and distribution in electricity and gas sector. A method used for setting a rate of return as defi ned in the regulatory sub-laws is a weighted average cost of capital (WACC). The goal of this paper is twofold: i) to validate the methodology prescribed by the regulator having in mind that the national economic, fi nancial and regulatory environment has not yet reached its maturity, thus hindering consistent estimation of particular WACC parameters and ii) to analyze the results obtained for WACC. The fi ndings of research indicate that signifi cant improvements should be made concerning the overall regulatory policy and defi ned methodological approach.

Key words: monopoly, regulation, WACC
JEL Classification: G18

 

Impact of Trade Liberalization on Trade Balance in Pakistan: Cointegration and Error Correction Mechanism
Bushra Yasmin

Abstract: This study traces out the way trade liberalization process affects the trade balance keeping into view the stationary nature of data used. The cointegration techniques and the error correction mechanism allow us to establish both, the short-run and the long-run relationship among different measures of trade liberalization and trade balance. The fi ndings suggest a significant positive long-run relationship between trade liberalization and real exchange rate with trade balance while a significant negative relationship with GDP for the time period 1970-2008 in Pakistan. Such results stress on to improve the trade balance through a pertinent change in trade composition by diversifying our export contents and enhanced competitiveness.

Key words: Trade liberalization, trade balance, cointegration, Pakistan
JEL Classification: C22, F41, O53

 

An Empirical Analysis of Nonlinear Dynamics Relationship between the United States and Taiwan Stock Markets
Yen-Hsien Lee

Abstract: This paper investigates the co-integration and causal relationships by threshold model and non-linear adjustments relationship by STAR model between the U.S. and Taiwan stock market. The findings indicate that there exists an asymmetric threshold co-integration relationship between the U.S. and Taiwan stock markets. Moreover, this paper further fi nds that this is significant evidence of non-linearity in the TAIEX return, and the nonlinear dynamic adjustments of the S&P 500 and TAIEX prices follow the logistic transition function. The contribution of this study demonstrates that the LSTECM-GARCH is well suited to describing the short-run and long-run dynamic relationship between the U.S. and Taiwan stock markets.

Key words: Asymmetric Threshold Co-integration, STECM-GARCH, Non-linear Adjustments Relationship
JEL Classification: C1, G5