WORLD ECONOMY

and
INTERNATIONAL ECONOMIC
RELATIONS

International Scientific Collection

Scientific editors:

Dr., Prof. Y. Kozak (Ukraine),

Dr., Prof. T. Shengelia (Georgia),
Dr., Prof. A. Gribincea (Moldova).

Kyiv-Tbilisi – Chisinau

CUL-2018
WORLD ECONOMY AND INTERNATIONAL ECONOMIC
RELATIONS. -International Scientific Collection /Scientific editors:
Y. Kozak , T. Shengelia , A. Gribincea .- Kyiv – CUL, 2018, 150 p.

ISBN 978-611-01-1079-2

Recommended by the Scientific Council of IRIM

Recommended by the Scientific Council of TSU

The collection contains articles summarizing the results of scientific research

of teachers in higher education institutions of Ukraine, Poland, Georgia and
Moldova. The articles are devoted to the actual problems of the development of the
world economy. Special emphasis is placed on countries with economies in
transition.
For academics and experts in the field of international economic relations.

The editors are not responsible for the accuracy of the information.
All materials are published in the author's edition.

© Y. Kozak, T. Shengelia , A Gribincea , 2018

© CUL , 2018
CONTENTS

INSTEAD OF INTRODUCTION
The world's economic science on the interaction of the economic and social
(Yuriy Kozak, Alexey Sulim)………………………………..................................5

GEORGIA………………………………………………………………………..17

- Temur Shengelia Theoretical-methodological relation between social

capital and trust and influence on increase of motivation in a company…..17
- Zurab Kirkitadze Discussion of passed measures for attraction of FDI and
affirmation of their consistency…………………………………………….24
- Shota Veshapidze Ilia Chavchavadze’s concepet of nation’s common
welfare focused on European values……………………………………….29
- Khatuna Berishvili Formalized-crosscultural analysis of the mental features
of social groups and their use in the international business………………..37
- Lali Khikhadze The mission of world trading organization in the conditions
of globalization and its influence on the economically transitional
countries……………………………………………………………………46

MOLDOVA………………………………………………………………………51

- Alexandru Gribincea, Silvia Lazari, Georgeta Gherghina Estimated

synergy banking services market…………………………………………..51
- Maxim Sandu, Alexandr Gribincea Global problems of manking and
economic safety…………………………………………………………….59
- Igor Enicov The implementation of the integrated management of the risk
in the commercial bank…………………………………………………….66
- Alexandru Gribincea, Salih Kaya, Bestenigâr Kara Turkey and Romania.
A promising partnership……………………………………………………75
- Alexandru Gribincea, Sergiu Garstea Development strategy under world
economy recovery………………………………………………………….88

POLAND-UKRAINE……………………………………………………………97

- Yuriy Kozak, Slawomir Smyczek, Olga Sukach Models of protection

consumers on financial servises market -European perspective…………...97
- Maksym Matskul A Multivariate Factor Analysis: application for
evaluating the competitiveness of enterprises…………………………….112
- Tabeusz Sporek, Yuriy Kozak, Oleg Zakharchenko Regional innovative
systems: methodological problems of analysis…………………………...120

3
- Olexander Kovalenko, Мikola Zaets Reorientation foreign economic
activity of Ukraine to European direction………………………………...126
- Yuriy Kozak, Natalia Mamontenko Regional cluster policy in Europe:
multidimensional approach……………………………………………….134
- Halyna Ponomarova, Olga Sukach Analysis of features of migration
policy in the context of globalization of the world economy……………..137
- Inna Ukhanova State support the creation and operation of technology
park: analysis of experience and modern trends………………………….143

4
 INSTEAD OF INTRODUCTION

The world's economic science on the interaction of the economic and

social
Yuriy Kozak,
Prof. Dr.,
Aleksey Sulym,
PhD., Ass. prof.,
Odessa National Economic University

Annotation. From the standpoint of the systemic theoretical approach, authors analyze
the key features of the historically necessary process of transformation of the economy into a
highly autonomous sub-system of social life. In the concrete historical context, the
autonomization of the economy is considered as a process of the emergence of capitalism. This
process was reflected in the content of economic science that is characterizes by value neutrality
and detachment from social and cultural influences, the conceptual core of which is the model of
"economic man" and his rational-pragmatic action. Authors show that the autonomization of the
economy in modern Western societies acquires a self-sufficient and expansive character.
Economic imperatives come into conflict with humanistic social values and ideals, threatening
the existence of the society itself. As a result, the task arises of achieving mutual compatibility of
the economic and social, of overcoming the dysfunctional divergence of criteria and levels of
social self-organization. The prospects of harmonization of economic and social interaction are
considered both on practical and theoretical levels: through the "socializing" the economy,
realizing the model of the social state, as well as in the form of the return of cultural-value
categories into the content of economic science.
Keywords: autonomization of the economy, capitalist economy, economic science,
society.

Introduction. The issues of interaction between the economy and society

have always been at the center of attention of economic science, as well as
sociological theory. The subject of these interdisciplinary theoretical discussions is
multifaceted. It includes, in particular, questions of the optimal degree of
autonomy of the economy as a sub-system of society, the degree of its influence on
other spheres of the social life and of the reverse impact of the society on the
economic system, as well as the problem of ways to achieve the harmony between
the economy and society. To address these issues, various theoretical models are
used that allow reflecting the essence of this interaction [1, 11-12, 17].
In this article, an attempt is made, by using the theoretical constructs of
economic science and sociology, to consider the key points of the process of
transforming the economy into a highly autonomous sub-systems of social life, as
well as problems arising from this. The analysis will be carried out in two aspects:
abstract-theoretical and concrete-historical. First of all, we will consider the
systemic approach of N.Luhmann, which allows us to present the autonomization
of economy within a holistic social system as a product of the universal process of
social differentiation of the original syncretic whole. Based on this approach, it is
possible to determine the moment of a qualitative transition of the economic
5
system to a state of autonomy and establish the criteria for such self-differentiation.
From system analysis also follows the need to achieve the compatibility of various
social sub-systems as a condition for society’s survival.
After that, in the concrete historical aspect, we will consider how such a
process took place within the framework of European civilization. If in the era of
Antiquity and the Middle Ages we see an intertwining of the criteria of economic
benefit and the norms of social solidarity, then with the emergence of capitalism in
the Modern Times, the economy becomes autonomized with respect to society. It
will be shown, how this process was reflected in the basic principles of economic
science. In the third part of the article, we turn to the problem of compatibility
between a highly autonomous and expansive economy and a society. Will be
discussed the emergence of contradictions between the economy and the social
whole that are fraught with complex conflicts and dangers posing threat to
existence of society. While considering these processes, we will turn to the
conception of self-organization. In terms of this conception, the contradictions
between the economic and social can be represented as a dysfunctional divergence
between the different levels of social selection, the basis of which is the integral
process of the self-reproduction of human life.
Finally, we will focus on trends that indicate the progress towards attainment
of compatibility between the economic and the social. They are manifested both in
the social and economic practice of the West, and in the evolution of theoretical
views in economic science. In particular, we will stress on the conception of a
social state, as well as on the evolution of the theoretical modeling of the problem
of the interaction of the economic and social in economic and social science, as
well as on the phenomenon of "returning» of sociocultural categories into
economic science.
Interpretation of autonomization of the economy from the standpoint of
system-theoretical approach. Distinctive functional features of the economy are
analyzed both by economic science, focused on intraeconomic relations, and by
sociology. Sociological science strives to clarify a number of the following points.
How and under what influence did the economy separate within the framework of
a single initial social whole? What is the difference between a primitive economic
system and developed economic systems? How did the autonomization of the
economy affect its functioning? To what extent is the economy characterized by
criteria of rationality?
One of the theoretical models of interaction between economy and social
life, a methodological tool for analyzing these issues is the system approach of the
social theorist N.Luhmann [2]. It allows one to explore the historical development
of various social systems, including the economy, by presenting their evolution as
a spontaneous process of progressive functional differentiation and complication
[3, 6].
The basic concept of the system approach is the idea of the functional
differentiation of a single social system into separate subsystems, such as
economics, politics, law, science, art, family, religion, education. Each of them

6
specializes in a certain activity, is endowed only with its inherent competences,
contributing in the end to the reproduction of the social whole. Separation of the
system from the environment, preservation of its boundaries, i.e. its self-
reproduction is ensured through internal communication of its elements. This
internal discourse is performed through a specific symbolically generalized
communication medium, which is based on a binary code. The criterion that
separates each such system from the rest of society is its "destination limits" - its
own internal meaning, according to which the system selects the problems, actions
to solve them, develops norms, distributes functional roles and specifies them.
The limits of the economy's destination, according to N. Luhmann, is to
meet the material needs of the participants in the economy through the distribution
of rare goods and services in such a way that this leads to a stable satisfaction of
future needs [4, 63-64,132]. The operations of the system of economy are
payments, and the communicative medium is money. The economic system
becomes separated from other spheres of society with the emergence and
development of money and through them [4, 230]. Historically evolution of the
economy towards complexity and autonomy is accompanied by an increase in the
measure of its rationality, functionality and professionalism.
The system approach theoretically explains the historical process of
structural and functional separation of the economy from the rest of the social
environment and the achievement by the economy of relative autonomy. This
separation appears as a transition from a mixed social system, undifferentiated in
its functional roles, to a highly differentiated and specialized form, in which the
economy acts as its autonomous subsystem. Along with the economy, also occurs
the autonomization of other important subsystems of the society. Each of them
makes its specific contribution to the reproduction of the social whole. Thus, all the
autonomous subsystems turn out to be functionally dependent. The collapse of one
of them or the enormous expansion of one of them, pose a threat to the existence of
society. Hence, a problem emerges: how to achieve a mutual compatibility
between autonomous social systems, and in our case - of compatibility between the
economy and other spheres of society?
How did this process of separation of the economy from the social life as a
whole historically occur? In the primitive society, as well as in the era of
Antiquity and the Middle Ages, dominate unity, non-differentiation, intertwining
of the economic and the social [5]. In a primitive, "transparent" society, existed a
syncretism of an economic and a social. Here, economic and social tasks are not
yet separated neither in reality nor in the consciousness of the participants.
Economic activity is carried out in the framework of other forms of social activity,
and social tasks are realized in the course of economic activities. If, say, the
collective construction of a house is carried out, and most of the participants in this
action are relatives, then the owner engages workers based on family ties. The
payment for labor, in turn, strengthens these family ties. Moreover, there is no need
to calculate the amount of payment for work, since it is assumed that the current

7
owner will come to the aid of each of the participants in the construction at the
appropriate time.
But, on the other hand, from the perspective of economic development,
between the economic and the social here exist a contradiction, mutual blocking [6,
208]. In the case of mutual assistance, the economic surplus is used to equal
distribution in the form of gifts, sacrifices to the gods, support for those in need.
All these are social rather than economic actions, they serve to strengthen social
ties, their stability. Such way of distributing the surplus closes the possibility of
capital formation, investment, of creating a base for expansion of the economy.
A qualitative change occurs only when the economic surplus starts to be
used stably by the producer to exchange it for other products on markets, and on an
increasing scale, accumulate, and people realize this. At that moment, the
"destination limits" of the economy appear, which begins to stand out from society
and transform itself into an independent sphere of it. Of course, it happens if at the
same time a certain level of productivity of labor is achieved.
This transformation, in particular, manifested itself in the division of social
functions and roles. If initially economic activity was concentrated in the family,
then gradually it moves beyond the family. From now on, the economy starts to
concentrate exclusively on the production of material goods. For the family remain
the functions of the birth and upbringing of children and care for the older
generation. In primitive, small and transparent societies, people automatically
transferred the evaluation of an individual’s behavior in one role on the assessment
of performance by him of another role. For example, if he did not come to help as
a neighbor, so he is unreliable and as a warrior too. In the developed, large and
differentiated societies, the person turns out to be the bearer of various roles that
are not connected with each other - if someone is a bad as a family man, this does
not affect his reputation as a good master. From now on, the individual's behavior
beyond the limits of economic activity is not associated with the way he performs
his economic role. In other words, the assessments of people's economic behavior
are already clearly separated from the moral criteria of assessment of their
behavior in other spheres of life.
And the economy itself in the course of differentiation gets rid of all
elements alien to its meaning, establishing and preserving its own special
competences, its criteria and selection values. The economy is focused on its own
themes and seeks, in the opinion of the supporters of the neoclassical school, to
"thematic purity". In particular, it tends to protect itself by law from undue
interference from other spheres of social life, from attempts to impose on it the
functions inherent in these spheres, but contradict the economic rationality,
hampering the fulfillment by the economy of its direct tasks.
For example, ethical principles are considered inappropriate in business
practice; to achieve its success, economy tends to get rid of everything that
contradicts the rational maximization of benefits and goes against efficiency. The
economy takes care that moral, ethical or aesthetic values do not influence the
adoption of rational economic decisions. So, economy does not allow interference

8
within its sphere by any manifestations of private life and friendly relations. In the
business world, there is a desire for a clear separation of the personal and
economic. When such a separation becomes a rule, this, from the point of view of a
system approach in sociology, testifies to the actual autonomy of the economy in
relation to the social whole [7, 90].
The emergence of capitalist economy and features of economic science.
Historically, the transformation of the economy into an autonomous social
subsystem occurred in Europe in the early Modern Times and meant the
emergence of capitalism. The capitalism is defined as an economic system
characterized by private or corporate ownership of capital goods, by investments
that are determined by private decision, and by prices, production, and the
distribution of goods that are determined mainly by competition in a free market
[8].
Prior to this, for a long time and in different civilizations, such separation
did not take place. The economic and social were intertwined with each other,
although the process of separation of the economy into the autonomous sphere has
already begun, but the cultural and moral principles, on the one hand, and the
economic ones, on the other, were yet closely linked. Such situation was reflected
in the relevant economic views [9, 315-332].
In the European intellectual tradition, for a long the economy has not been
considered as autonomous in relation to morality, to the principles of social justice.
Ethical and economic considerations formed here a kind of unity. Aristotle
considered the "oikonomia" as the art of the managing of the house for the sake of
good of the whole family. The city-state (polis) that combined the households was
considered not only as an economic association, but also as a moral whole,
designed to ensure the self-realization of citizens. Aristotle's attitude towards
market relations was critical. He draws attention to the fact that the relationship of
exchange (mediated by money) should not become an end in itself, but be only a
means. The goal is to ensure the welfare of the house, the good of the family, and
not the development of exchange. Therefore, he contrasts the "oikonomia" as the
management of the house for the good of the family, on the one hand, and the
"chrematistics", i.e. the art of multiplying money - on the other. If the economy is
aimed at satisfying the stable natural needs, then the "chrematistics" is aimed at the
accumulation of wealth, it multiplies the desires of people, makes them insatiable,
as a result of which they desire more and more, forgetting about the measure.
Monetary wealth does not have the natural limits of growth. "Chrematistics"
changes in places the ends and means, and generates an infinite multiplication of
needs. Therefore, according to Aristotle, this mode of economic activity is
unnatural; it violates the harmony of the life of city-state [10, 1256a-1258a].Thus,
Aristotle, was one of the first who perspicaciously realized the emerging and
already manifested contradiction of the economic and social.
In the era of the European Middle Ages, the principles of management were
closely connected with the religious and ethical sphere. Economic interests should
not have distracted a person from the main thing - to care for the salvation of the

9
soul. Material wealth was allowed only as a necessary means of ensuring the lives
of people and helping for those in need, and this limited the size of its property.
The desire to have more above these limits was considered as greed - one of the
deadly sins. And property had to be acquired only by legal means. Work was seen
as a heavy necessity, a way of obtaining means for life, taming of a flesh and
giving alms, but not as a way to enrichment, accumulation. There were no
incentives whatever to work more than necessary to meet certain traditional needs
inherent in each social group ("economic traditionalism" according to M. Weber).
It was impossible to expand production and the accumulation of wealth. Of course,
the burden of labor fell on the lower strata of the social pyramid. They had to
ensure not only their own existence, but also the dignified existence of the feudal
nobility and clergy. And reflections on the principles of economic activity in this
era are always connected with moral considerations. The thinkers are constantly
talking about the fairness of prices, profits, the justification of the existence of
private property, the stability of prices, regardless of supply and demand [11, 77-
78]. The medieval European market is an example of an economic system
organized on the basis of intensive social ties and relations, in particular, norms of
reciprocity and trust. The selfish interests and the desire for profit are here on the
last place [12].
With the formation of European capitalism, the system of economy becomes
rationally organized and is characterized by irrepressible business activity. A new
understanding of labor emerges. The labor now turns into a business, the main goal
of which is the continuous expansion of the business, making a profit. Economic
activity from now on begins to be governed by the principle of economic
rationality - obtaining the maximum income at the lowest expenses in monetary
terms. In the course of the rationalization and secularization of public life, the
religious "ethics of brotherhood" is gradually losing significance. By creating
amazing economic growth, rationalization of economy leads to a degradation of
the principles of solidarity, a break with the traditional ways of regulating social
relations, which are hindering the development of business activity.
According to M. Weber, this was promoted by the ethics of Protestantism.
"Inner-worldly asceticism", formed by Protestantism, gave rise to a type of
personality, which was oriented toward conscientious work and systematic self-
control, toward the incessant expansion of business and accumulation of capital
while limiting personal consumption. Over time, this internal rationality
(mentality) received an "external" embodiment in the form of appropriate political
and economic institutions [13].
It is important to note that as a theoretical reflection of the process of
formation of capitalist market economy, as well as one of the most important
determinant of this process was the economic science itself. Since the XVIII
century, it has become an independent discipline. Separating itself from moral
philosophy, economic doctrine now seeks also to separate objective economic laws
from subjective cultural and moral norms, i.e. to become ethically and culturally
neutral teaching.

10
 Although A. Smith himself was a moral philosopher and his economic
teaching was a political economy, he stood at the beginning of the tendency to
learn the "clean" economic mechanisms, free from values. His teaching was based
on the model of an "economic man", a rational egoist, striving for personal gain.
As the basic principle that ensures the coordination of the behavior of such self-
serving individuals within the framework of the social economy, Smith put
forward the action of the "invisible hand" of Providence. It is carried out through
free competition of autonomous economic actors. Through competition, the market
economy had to be the best form of solution of social problems, forming a
harmony of personal and social wills. According to Smith, pursuing their own
interests, the individual, more effectively serves the interests of society than in the
case of his conscious desire to do this. Public supra-individual self-regulation of
relations is carried out without morality, compulsorily, with necessity [14].
One of the important reasons for the "expulsion" of cultural and ethical
values from economic theory can be considered the orientation of the emerging
economic science on the dominant mechanistic paradigm of natural science of that
time [15].Economic doctrine evolved according to the scientific ideal of the time.
That ideal implied the knowledge of purely objective mechanisms that could be
described quantitatively, mathematically, and the aspiration to get rid of all the
subjective, that cannot be the subject of quantitative calculation. In particular, a
great influence on the conceptualization of economic life had the formulation of
the principle of least action in classical mechanics. In the classical economic
theory, the principle of maximizing utility was also considered as the driving force
of the behavior of the economic actor - "Homo economicus". According to this
principle, a rationally acting person in any situation naturally chooses the way to
attain the maximum benefit under minimum of costs. It began to be interpreted as
an analog of the mechanical principle of least action, but already in the socio-
economic field [15].
Thus, the economic doctrine in its classical version was based on the ideals
of objectivity, physicalism, rationalism and universality, recognizing the possibility
of separating of economic goods from non-economic ones. The desired result of
economic activity was to consider the increase and rational distribution of scarce
material resources, amenable to monetary calculation. In other words, the sphere of
economy was separated from the socio-cultural context, cultural and ethical norms
that represent the integrity of the reproduction of human life.
It should be noted that such an autonomization of the economy in Western
civilization, which led to the achievement of high efficiency of carrying out its
main task - the growth of wealth and the standard of living - at the same time
engenders serious social problems. The self-directed economic growth, one-sided
orientation toward monetary benefit, led to a conflict with nature, gave birth to
tendencies for social disintegration, destruction of all values that do not correspond
to the utility and rationally calculated efficiency. Everything began to receive a
monetary evaluation. The principle of individualism, being fundamental in the
economy and in classical economic science, which is a condition for competition in

11
the market, comes into irreconcilable conflict with the principle of solidarity and
mutual assistance, the primordial values of Christian civilization. Economic growth
contradicts the principles of the social state. Market relations of purchase and sale
from the sphere of material production penetrate into all spheres of life,
commercialize them, and deform the processes of socialization, turning a person
into an obedient consumer [9, 315-332].
The problem and the perspectives of harmonization of interaction
between the economy and society. The economic science and sociology face an
urgent task: to investigate the problem of ensuring a rational ratio of the economy
and society, ways to achieve their compatibility, harmonization of economic and
non-economic spheres. Sociological studies of the processes of "mutual
adjustment" of autonomous subsystems should be aimed at overcoming the
"communicative self-sufficiency" of the economy, without destroying its autonomy
and, therefore, efficiency. If such coherence is not achieved, then the threat to the
existence of society, of the entire social structure will increase with the time. After
all, cultural and, above all, moral values represent, as already noted, a social whole,
a common human goods. The economy, regulated by the market, with its "pure"
economic rationality, is aimed at the realization of local and partial, "intermediate"
benefits. In terms of the conception of self-organization, overcoming the
threatening divergence between these different levels of social selection becomes
an urgent task of modern society [16].
Overcoming of these contradictions is possible by achieving greater
harmonization of relations between society and the economy, through a new
transformation of values. This is about a “socialization" or rather "re-socialization"
of the economy. In the sphere of social practice, a significant experience of
combining market mechanisms with the norms of ethics and social solidarity is
accumulated in the form of creation in a number of countries of socially oriented
market economies. The ideological basis of such a combination is the social-
democratic traditions and the Christian social doctrine [17]. In this regard, various
types of capitalism are considered. Along with Anglo-Saxon type of capitalism,
exist so called "Rhine capitalism" and similar to it 'Nordic capitalism" with
pronounced social orientation [18; 19].
In the theoretical sphere, some researchers stress the need of «neo-
Aristotelian synthesis" of economic science and social values, culture [15]. One
can also speak about the tendency to "returning" of cultural norms and values into
economic science [20]. For a long time, economic science sought to create a "pure"
theory, by studying the universal structures of rational choice and neglecting the
socio-cultural context of behavior of economic actors.
Everything connected with the cultural context was ousted beyond the
boundaries of economic science, declared as irrelevant for it, exogenous and
irrational. Economic science remained on the positions of methodological
individualism, because sociocultural structures, values and norms are of a holistic
nature, expressing group stereotypes created in the course of collective processes
[20].

12
 Of course, from the very beginning, such an understanding of economic
doctrine and the corresponding organization of the economy was not accepted by
all. Core doctrine was the subject of critique by both sociologists and
representatives of peripheral schools of economic thought. The liberal-universalist
economic conception was criticized by the representatives of the German historical
school of the XIX - early XX centuries (W. Rocher, K. Knies, B. Hildebrand,
G. von Schmoller, K. Bücher, L. Brentano, A. Wagner). Instead, they proposed the
studies of the specific nature of evolving national economies. Representatives of
the historical school, in contrast to the abstract "economic man", focused on a
specific historical, oriented on social values, person as a subject of economic
activity. They viewed the economy as a part of an integral social life, and stressed
the need, by explaining the economy, to take into account non-economic factors -
ethical, social. From their point of view, the economic science should be a moral
science [21].
K. Marx considered the economy only as a means, subordinated to the task
of the self-reproduction of man as a social being. He proposed a broad concept of
"social production", i.e. of social production by people of their lives. This process,
which includes the material production, the spiritual production, as well as the
production of forms of communication between people and people themselves in
their social relations, can be regarded as an expression of the social whole. Thus,
he notes that if we consider bourgeois society as a whole, then the final product of
social production will be society itself, i.e. man in his social relations. Material
production itself and its products are only the moments of this movement, during
which people reproduce and produce their life [22, 625-626]. Secondly, Marx
associated the existence of man as "an economic man" only with a certain
historical state, when he experiences a shortage of material goods and is enslaved
by a system of division of labor and exploitation. However, Marx considered this
state of society not eternal and natural, but transitory. The highest purpose of a
person is to become a integrated, harmoniously developed personality, which is
self-determined in its relations with the world. The prerequisite for achieving of
such state of human freedom from reproductive labor and the dictate of material
needs in the Marx model is the highest level of development of productive forces
in an indefinite future. The real realm of the freedom of man, which is an end in
itself, begins, according to Marx, beyond the actual material production, although
the latter is the material basis (means) for achieving this goal [23, 82].
In spite of this, in general, the neoclassical paradigm became prevailing in
the economic thought of the twentieth century. This teaching was centering on the
development of a "pure" theory based on the principle of methodological
individualism, freedom from values, focusing attention on the universal structures
of rational choice of individuals striving for marginal utility. Economic science
tried to isolate itself from sociocultural holistic determinants, i.e. from the
"intrusion" of the social whole.
However, since the end of the twentieth century, economists more and more
began to realize the narrowness of a purely rationalistic, universalistic approach to

13
assessing the efficiency of economy. It becomes clear that in economic behavior,
beside individualistic aspirations to rational maximization the benefits, great role
can play such realities as duty, responsibility, loyalty, honesty, mutual trust. The
ethical imperatives make it possible to reduce the interaction costs in the economy,
improve the coordination of activities of market participants, and reduce the
undesirable side effects of economic decisions. And experience showed that the
most productive economies were formed precisely in those societies where there
were strong moral foundations and a high degree of trust [24]. Understanding of
the cultural differences of peoples, the "cultural distance" between them is a
necessary condition for increasing the efficiency of international trade, allowing to
overcome cultural barriers to investment flows [3,21-22; 21,226-250]. It was also
found that adherence to the criteria of economic expediency leads to the
destruction of the human, social and cultural capital, accumulated during thousands
of years of historical development. In this connection, a broader understanding of
economic rationality is needed from the point of view of the economy's
correspondence to the higher values of life [25; 26].
As an attempt to combine the economic and social criteria of social
selection, one can regard, for example, the theory of effective collective choice of a
structure of political institutions that would satisfy not only market participants,
but all members of society [27]. The representatives of discursive ethics also
propose the synthesis of the system of economy with the human "life world" by
involving to the substantiation of social norms and to the working out of decisions
of all participants in the social process, and not just economic entities [28]. In the
same direction, is developing the above mentioned conception of a social market
economy, according to which the economy should be guided not only by cost
indicators, but also by the quality of life, by the common good, the economy must
pursue the task of achieving of "common prosperity" and solidarity of all.
Thus, in recent decades, we see a process of "returning" culture into
economic doctrine [20, 60-84]. There has been a steady increase in the number of
economic studies devoted to culture. An important factor in the growth of interest
in culture by economists became the stunning economic success of the East Asian
countries, which led to the realization that this success are based on cultural
differences, in particular, on Confucian values [29]. Economists, striving to
improve the basic principle of economic action, were forced to turn to the
historical and sociocultural context of economic processes. In this way, not only
economic sociology, but also institutional economic science has developed. With
the development of a New Institutional Economics (D. North, O. Williamson, R.
Coase), the cultural considerations entered into the mainstream of economic
science. The institutional economy stresses the need to take into account the
cultural context of economic action, its socio-cultural embeddedness, to study of
formal and informal institutions as constraints of economic activity [20].
Conclusions. Considered from the standpoint of the system-theoretical
approach, the process of separating of the economy from a social whole is a natural

14
spontaneous process of social differentiation. In the course of this process, the
economy becomes more and more autonomous.
The process of autonomization of the economy in relation to social life,
which in its essence has been manifested in the formation of European capitalism,
was reflected in the content of economic science, the features of which became
value neutrality, universalism, desire to get rid of social and cultural influences in
the modeling of economic processes.
The autonomization of the economy in modern Western societies leads to
situation when economy acquires a self-sufficient and expansive character.
Economic imperatives come into conflict with humanistic social values and ideals.
The concept of self-organization considers this process as a dysfunctional
divergence between the local criterion of social selection and the ultimate criterion.
As an ultimate criterion of social selection and as the substance of all socio-
economic processes is regarded the holistic process of man's self-production.
Strengthening the self-sufficient nature of the economic in relation to the
society generates crisis phenomena that threaten the very existence of society. The
task is to achieve mutual coherence of the economic and the social
The resolution of this task of restoring unity and coherence of the economic
and social is seen on the ways of the "socialization" of the economy, the
development of the social state, as well as the overcoming of the value neutrality of
economic science.

References:
1. Edited by Y. Kozak, T. Shengelia. World Economy - – Tbilisi : PH «UNIVERSAL» ,
2015. – 185 p.
2. Luhmann Niklas. Einführung in die Systemtheorie. Dirk Baecker (Hrsg.). Carl-Auer-
Systeme Verlag. Zweite Auflage, Heidelberg, - 2004 – 347 S.
3. Edited by Y. Kozak, T. Shengelia World Economy and International Economic
Relations - Tbilisi : PH «UNIVERSAL» , 2016, - 223 p.
4. Luhmann N. Die Wirtschaft der Gesellschaft, Frankfurt am Main, 2. Auflage, 1996.
5. Polanyi K. The Great Transformation: The Political and Economic Origins of Our
Time, 2nd ed. Foreword by Joseph E.Stiglitz) — Boston: Beacon Press, 2001. – 317 p.
6. Luhmann N. Wirtschaft als soziales System // Soziologische Aufkarung,- Bd., 4.
Auflage, Opladen, 1974. S.204-231
7. Buß E. Lehrbuch der Wirtschaftssoziologie. Berlin - New York: de Gruyter. - 1985. -
272 S.
8. Capitalism. Merriam-Webster [Electronic resource]. Mode of access:
https://www.merriam-webster.com/dictionary/capitalism
9. Osnovy kulturologiy. Za red. L.O.Sandjuk ta N.V.Chubelka. Kiyv. – ZUL, 2012. – 400
p. (in Ukrainian)
10. Aristotles. Politics. The Complete Works of Aristotle. Vol.2.Ed. Jonathan Barnes.
Princeton, Princeton University Press, 1991. Paragraphs 1256a-1258a.
11. Saint Thomas Aquinas. The Summa Theologica, Vol. 2 //http:
//www.microbookstudio.com
12. Polanyi K. The Great Transformation: The Political and Economic Origins of Our
Time, 2nd ed. Foreword by Joseph E.Stiglitz) — Boston: Beacon Press, 2001. – 317 p.
13. Weber M. Die protestantische Ethik und der Geist des Kapitalismus. Dirk Kaesler
(Hrsg.). Verlag C.H.Beck oHG, München. - 432 S.
15
 14. Smith A. An Inquiry into the Nature and Causes of the Wealth of Nations. - Metalibri.
– Amsterdan-Lausanne-Melbourne-Milan-New York-Sao Paolo. 2007 - 743 p.
15. Koslowski P. Prinzipien der Ethischen Ökonomie: Grundlagen der Wirtschaftsethik
und der auf die Ökonomie bezogenen Ethik. Mohr Siebeck Verlag, Tübingen, 1994. - 339 S.
16. Sulym A. Kulturno-eticheskije izmerenija chozaistvovanija: nekotorie sovremennie
podchody. Odessa. Astroprint. – 2001. – 161 s. (in Russian)
17. Eucken W. Die Grundlagen der Nationalökonomie. Düsseldorf: Verlag Wirtschaft
und Finanzen GmbH, 1990. XII, 300 S.
18. Albert M. Capitalisme contre capitalisme.Paris, Éditions du Seuil, Coll. «L'Histoire
immédiate », 1991. - 320 p.
19. Brittan S. Capitalism with a Human Face. Edward Elgar Publishing, Inc., 1995. -
320 p.
20. Beugelsdijk S., Маseland R. Culture in Economics/ The press Syndicate of the
university of Cambridge. 2011. – 446 p.
21. Koslowski P. Nationalökonomie als Ethische Ökonomie in der Historischen Schule
der Volkswirtschaftslehre // Jahrbücher für Nationalökonomie und Statistik. G.Fischer Verlag,
Stuttgart. 1995. Bd. (Vol.) 214/1.
22. Marx K. Grundrisse der Kritik der politischen Ökonomie// Marx Engels Werke. Band
42; Dietz Verlag Berlin. - 1966-1979. S. 625-626.
23. Marx K. Das Kapital. Kritik der politischen Ökonomie. Dritter Band. Berlin 1988.
24. Fukuyama F. Trust: The Social Virtues and the Creation of Prosperity. N.Y.: Free
Press, 1995. XV., 457 p.
25. Sen A. Development as Freedom. New York: Alfred A. Knopf: 1999. - 366 pp.
26. Bowels S. The Moral Economy: Why Good Incentives Are No Substitute for Good
Citizens. Yale University Press. 2016. - 333 p.
27. Buchanan J. The Constitution of Economic Policy //American Economic Review.
1987, vol.77, Issue 3, 243-50.
28. Apel K.-O. Diskursethik als Verantwortungsethik und das Problem der ökonomishen
Rationalität //K.-O.Apel. Diskurs und Verantwortung. Das Problem des Ubergangs zur
postkonventionellen Moral. / K.-O.Apel. - Frankfurt am Main: Suhrkamp Verlag, 1997. - S.270-
305
29. Harrison L.E. Huntington S. Culture matters: how values shape human progress. New
York, Basic Books. 2000. - 348 p.

16
 GEORGIA
Temur Shengelia,
Doctor of Economics Full Professor,
Ivane Javakhishvili Tbilisi State University,
Georgia

Theoretical-methodological relation between social capital and trust

and influence on increase of motivation in a company

Annotation. Conception of the Social Capital is used by many scientists. It established

its wide place in economic, social, politological and other sciences. Along with natural and
human capital the social capital essentially influences the growth of efficiency of the
transnational companies and promotes their development. The social capital is not the property
of individual persons, it is established in the social networks and differs from other forms of
capital by the fact that it is reflected not in objects and sujects, but in the human relations that
form a social network. In general, conception of the social capital is inhomogenous and
contracdictory. Despite this, it still establishes a worthy place in economic and social science.
Conception of the social capital is based on the phenomenon of confidence. On the basis of
ethical and philosophical analysis of the category of confidence it can be convincingly said that
without this category development of the society is impossible only by the economic
mechanisms. The present study, on the basis of theoretical-methodological, regressive analysis
of categories of the social capital and confidence, establishes those empiric relations, which exist
between these two categories. Use of the auggested methodology in improvement of the
management activity of the modern corporations is important, because it promotes their
development and growth.
Keywords: social capital, motivation, relations, methodology of measuring, corporations,
efficiency.

Introduction. The scientists have determined that a level of the

unterpersonal and organizational confidence positively influences motivation of
the company employees. Volume of confidence accumulated by the social
system is its basic capital. Confidence, as a component part of the corporative
culture, in the modern competitive economy is a far greater problem than simply
management of the personal. In the companies, in which the degree of confidence
is low, efficiency falls and competitiveness weakens. We should search for the
reasons of this in low motivation of the professional activity. It is also clear that the
confidence does not give a guarantee of high professional motivation. But it is an
obligatory term of its formation. The studies prove that the confidence is
considered to be a basis for not only interpersonal relations, but also for efficiency
of the companies’ activities. We can suppose that the confidence is one of the most
important factors, which influences professional motivation of the personnel.
The studies, dedicated to the problem of relation between the social capital
and the confidence, incompletely reflect the connection between these two
categories and their influence on increase of the motivation among the employees
of the companies. Our study is oriented on promotion to a deeper understanding of
this problem.
17
 Literature Review. Scientific fundamentals of research on conception of the
social capital and the confidence are established in the works of E. Durkheim and
M. Weber. The scientists consider that the confidence is not an individual feature,
which characterizes only a person, but spreads completely on the social group or
the society (Demkin, 2004). For the first time the term “social capital” was used by
renowned scientist L. Hanifan in the discussion “Important substances in everyday
life of people”. Group solidarity and social relations are considered by L. Hanifan
to be such “substances” (Lanzmann, 2007). We come across a systematic analysis
of the social capital in the works of French sociologist Bourdieu. He explains the
social capital, as “unity of potential resources, which are related by
institutionalized strong networks of mutual acquiantance and acknowledgement”
(Bourdieu, 2002). It is seen from this explanation of P. Bourdieu that the social
capital represents the resources existing in the social netwoks. Concept “the social
capital” is quite widely explained by J. Coleman. In his opinion, the social capital
is the potential of mutual confidence and mutual support, which is deliberately
established in interpersonal relations (Coleman, 2001). In the studies, conducted by
R. Patnem, in the analysis of the social capital, the accent is focused on the nature
of its economic, public wellbeing. The present approach, which was further
developed in the works of F. Fukuyama and other schientists, much determined the
present condition of scientific discussions in this branch. Main idea of F.
Fukuyama is that excess of confidence in the society generates the social capital,
which differs from other forms of the human capital by that it is formed and
transferred through such cultural mechanisms, as is religion, tradition or historical
customs and habits (Fukuyama, 2006).
On the basis of comparison of capital with the material forms and their
analysis a conclusion can be made that the category “social capital” is
characterized by the following features: 1. The social capital, the same as the
material forms of the capiyal, is a resource, which is fiormed in the sphere of social
relations and has an ability of conversion; 2. The social capital differs from the
material forms of the capital, as it is located in the structure of relations; 3. The
social capital is not an object of property, it is formed in the social networks (p 5,
Shengelia, 2012).
Conception of the social capital is based on the concept of confidence
(Lanzmann, 2007). It should be surely said that without confidence the society
development is impossible only by the economic mechanisms. On the basis of
ethical-philosophical analysis we can outline four most important sides of the
present phenomenon: confidence is discussed as the system of moral relations
between people; an act of confidence is characterized as a volunary manifestation
of the subject; confidence is realized by way of transmitting the intimate ideas and
sentiments.
Research of Methodology. 51 persons took part in the research, which
were engaged in the international company “Wendy’s”. In the process of research
were selected people from 30 to 55 years of age, which had high education; in the
group were 25 women and 25 men. Thus a gender balance was preserved.

18
 In the process of research was used the methodology of assessment of the
social capital of organization, established by R. Shaw (Shaw, 2014), which
involved several stages.
1. At the first stage the questions involved 10 polar evidences, connected
with the factor of confidence in the organization. The answers were evaluated from
1 to 5 scores.
2. Second stage imvolved the questions, concerning motivation of human
labor activity. The methodology for evaluation of the motives for work was
elaborated in the socio-psychological laboratory of the Tbilisi State University
Center of Fundamental Research (Shengelia, 2012). By this methodology a
respondent was demanded to define priorities, to select meaning of each motive. In
the process of assessment were used scores from 1 to 10. An important priority was
assessed by 1 score and unimportant – by 10.
3. Further questions were oriented to revealing of stimuli, which motivate
best performance of professional activity by the employees. The questionary
suggests 5 stimuli, such as: high salary, possibility to receive a premium,
participation in the profit of the organization, the perspective to become one of the
owners of the company, possibility to settle important tasks. The answers vary
from 1 score – “do not stimulate” to 5 scores – “stimulate very much”.
III. Next group of questions is connected with the individual data of the
personnel. Here was determined: age of a respondent, gender, national belonging,
occupied position, religious belonging, education, etc.
For processing the primary data a standard packet SPSS 9.0 for Windows
was used. Average mathematical calculation was done by the confidence scale and
the analysis was made by the method of partial correlations. The method of
correlation analysis was used for establishment of the union between the
confidence and the motivation. In the process of analysis average meaning and
dispersion were determined in the organization by the scale of the social capital
evaluation (Table1).

Table 1.
Average meaning and dispersion according to the social capital
evaluation scale in the organization
Average meaning and
Issues dispersion according Dispersion
to the scale of social
capital evaluation in
the organization
1. Power and control are in the
hands of only several persons or a
2,64 1,20
group; at all the levels people have
power and control

19
 2. Contradictions between different
groups are a usual case; different
3,60 1,35
groups positively cooperate with
one another
3. Employees cannot freely express
their opinions; employees freely 2,86 1,34
express their opinions
4. Much control and restriction are
as to what can be done; employees
3,01 1,20
are given freedom of activities to
conduct work.
5. People have no confidence to one
another; people have important 3,39 0,61
confidence to one another
6. Employees concentrate on
internal problems of the
3,05 1,25
organization; employees
concentrate on the competitors
7. Employees want to determine
higher goals; employees do not try 3,17 1,21
to set wider goals
8. No agreement is reached on the
goals and criteria of the company
activities; full agreement is reached 3,51 1,44
on the goals and criteria of the
company activities
9. Employees often do not reach
results; employees almost always 3,25 0,91
reach the planned results
10. Weak connection exists between
work, payment and recognition; 2,97 1,69
strong connection is between them

By the scale of the social capital evaluation an average meaning equals

3,15

By the primary results we have obtained, it is impossible to reveal existence

or inexistence of confidence in the entire organization. That’s why, with the
purpose of deeper research average meaning and dispersion are determined by the
scale of work motives evaluation. (Table 2).

20
 Table 2.
Average meaning and dispersion according to the work motives
evaluation scale
Average meaning by
the work motives
Issues Dispersion
evaluation scale

1. Satisfaction from work 4,11 8,62

2. Amount of salary 3,54 5,22
3. Possibility for selfrealization 4,81 6,31
4. Positive atmosphere 3,83 5,91
5. Improvement of qualification 5,61 6,15
6. Career development 5,42 8,65
7. Awareness of the company
6,55 7,40
image and designation
8. Location of work place 7,10 5,71
9. Possibility to use preferences 6,98 7,28
10. Regime of work 6,77 6,53

Average meaning and dispersion according to the work motives scale

equals 3,01

To deepen the research we have established average meaning and dispersion

according to the scale of main labor stimuli evaluation (Table 3).

Table 3.
Average meaning and dispersion according to the scale of main labor
stimuli evaluation
Average meaning by the
Issues
work motives evaluation Dispersion
scale
1. Participation in the
3,01 1,80
organization profit
2. High salary 4,11 0,63
3. Possibility to receive
3,71 1,39
premium
4. Perspective to be one
of the owners of the 2,41 2,18
company
5. Settlement of
3,78 1,20
interesting tasks

21
 Average meaning and dispersion according to the work stimuli scale
equals 3,48

After a short review of the situation of confidence was conducted in the

company and we received average meanings according to the each respondent, on
the basis of a correlative analysis we determined the relation between the factors.
The methodology for organizational confidence evaliation was specified by –
Cronbach’s coefficient

Table 4.
Check of confidence evaluation scale by α-Cronbach’s coefficient

confidence evaluation scale α-Cronbach’s coefficient

1. Power 801
2. Cooperation 695
3. Possibility to express ideas 701
4. Freedom 717
5. Confidence 809
6. Foreign orientation 821
7. Goals 801
8. Adoption of ideology 778
9. Success 789
10. Payment for work 802

Analysis of agreement (n = 47) showed that it is high and - Cronbach’s

coefficient = 0, 87, which points to validity of the methodology we have used.
By the confidence evaluation scale the partial correlations of polar
evidences, motives and motivation stimuli, according to gender and age, are
presented in Table 5.

Table 5.
Partial correlations of polar evidences, motives and motivation stimuli
i10 i9 i8 i5 i4 i2 i1 m1 m3 m4 m5
soc1 coeff.
-0,093 -0,252 0,058 0,304 -0,164 0,086 0,025 0,089 0,313 -0,020 0,300
k
value 0,543 0,095 0,706 0,043 0,281 0,576 0,870 0,561 0,036 0,894 0,045
soc3 coeff.
0,387 -0,220 0,316 0,224 0,096 0,249 0,211 0,343 0,296 0,150 0,329
k
value 0,009 0,147 0,035 0,140 0,533 0,099 0,165 0,021 0,048 0,325 0,027
soc4 coeff.
-0,189 -0,133 0,305 -0,059 0,109 0,189 0,181 0,157 0,118 -0,202 0,129
k
value 0,214 0,383 0,041 0,702 0,475 0,215 0,234 0,303 0,441 0,183 0,399
soc6 coeff.
-0,320 -0,246 -0,276 0,086 0,260 0,182 0,166 0,362 0,218 0,348 0,145
k
value 0,032 0,103 0,066 0,574 0,085 0,232 0,275 0,015 0,150 0,019 0,342
soc7 coeff.
0,292 -0,014 -0,177 0,116 0,166 0,190 0,033 0,239 0,069 0,291 0,147
k
value 0,052 0,925 0,244 0,449 0,276 0,212 0,828 0,113 0,653 0,053 0,334
soc8 coeff.
0,349 -0,261 -0,157 -0,100 0,114 0,285 0,429 0,056 0,023 -0,073 -0,001
k
22
 value 0,019 0,084 0,304 0,512 0,455 0,058 0,003 0,713 0,880 0,634 0,994
soc9 coeff.
-0,108 -0,250 -0,017 0,039 0,130 0,005 0,105 0,184 -0,041 -0,040 -0,102
k
value 0,481 0,098 0,913 0,797 0,396 0,972 0,492 0,228 0,790 0,794 0,505
soc1 coeff.
0,012 -0,201 -0,030 -0,097 -0,103 0,081 0,000 0,316 -0,161 0,180 -0,124
0 k
value 0,939 0,186 0,847 0,528 0,502 0,597 0,999 0,035 0,290 0,236 0,418

Analysis and Results. It is seen from Table 1 that by the social capital
evalution scale an average meaning is higher than 0,05, and no important relation
was noticed between an average index of confidence per each respondent and
motivation. But if we assess the motivation correlation table with separate aspects
of confidence, then we can establish some important correlations. Namely, in the
company “Wendy’s” exists positive correlation beeween freedom of activity and
possibility of selfrealization; payment for work is connected with such stimulus, as
participation in the company profit; close relations exist between power and career;
the scale of expression of ideas is positively related with satisfaction received from
work, possibility of selfrealization and settlement of interesting tasks; orientation
on competition is positively related with participation in the organization profit and
the perspective to become one of the owners of the company, and negatively – with
satisfaction received from work; payment for work is connected with such a
stimulus, as participation in the company profit.
Thus, proceeding from the obtained results, we can make the conclusion that
main hypothesis of our research, according to which was proved that the level of
interpersonal and organizational confidence positively influences the motivation of
employees.
Conclusions. In result of the research, existence of positive correlation
between the social capital and motivation was established. That mutual relation is
revealed, which exists between the social capital and the motivation.
Establishment of the mutual relation of these components is of practical
value, because study and analysis of the confidence parameters for formation of an
employee’s motivation is an important task from the viewpoint of increase of the
company competitiveness. Therefore, to increase an employee’s motivation to the
work activity, it is necessary to influence these parameters, which determine the
company success, the possibility of which is given by the methodology we have
elaborated.

References:
1. Bourdieu P. (2002) Forms of capital. Economic sociology. Vol. 3. # 5, November.
P. 82.
2. Demkin O. (2004) Social capital: theoretical research foundation and operational
parameters. Sociology: theory, methods, marketing. # 4. P. 67.
3. Malevich A. (2006) Social capital and economic interaction. Krakov, U-Press. P. 128.
4. Coleman J. (2001) Capital social and human / Social sciences and contemporaneity. #
3. P. 49.
5. Lanzmann A. (2007) Essence of social capital of the organization // New in economy
and management. Issue 11. – Krakov, KSU. P. 87.

23
 6. Lebedeva N., Tatarko A. (2007) Values of culture and society development. M.: SU-
HSE Publishers. P. 241.
7. Minkute-Henriksen P., Imanavichene Zh. (2006) Social capital of the organization:
methodology of research. Socis # 3. P. 98.
8. Nort V. (2005) Economic sociology. London. 448 p.
9. Fukuyama F. (2006) Confidence. Katowice, I-press.
10. Hekhauzen. (2011) Motivation and activity. Vol. I. 234 p.
11. Shaw P. (2014) Keys to confidence in the organization. M. “Delo” Publishers. P
98.
12. Shengelia T. (2012) Modernization and the society. Tbilisi, Universal. P. 236.

Zurab Kirkitadze
Doctoral Student
Ivane Javakhishvili Tbilisi State University

Discussion of passed measures for attraction of FDI

and affirmation of their consistency
Annotation. In this article are discussed measures passed for attraction of FDI and is
proved the consistency of this passed measures. for example are discussed the reforms that were
passed in the country and by usage of statistical data is represented such dynamics of FDI that
proves that this reforms were consistent for attraction of FDI despite of the fact that there are
such years in the dynamics when FDI inflow decreased in Georgia. Also are discussed the
factors that in combination would significantly stimulate the inflow of FDI in the country that in
turn is further proved by comparison of two dynamics. Also we discuss such factors that may
hinder the inflow of FDI in the country.
Keywords: measures, consistency of measures, opposite measures, Georgia.

Introduction. According to eclectic paradigm the inflow of FDI into the

country also depends on location advantages that represents not only theoretical
view but is also proved by the fact that FDI occurs basically between rich countries
and it almost does not occur between poor countries. We prove the eclectic
paradigm by usage of rich countries because the factors that are discussed by
eclectic paradigm and are considered the main factors for stimulation of FDI are
characteristics of rich countries. We can consider location advantages as
investment climate that in turn stimulates the inflow of FDI in the country.
Consequently we discuss the factors that would stimulate the inflow of FDI in the
country and according to statistical data we prove that the factors that we
mentioned in the article and that improve the investment climate really stimulated
the inflow of FDI into Georgia. Consequently according to Dunning’s Eclectic
Paradigm and by taking into consideration some of the aspects of his theory we
introduce the main factors for rising the investment activity and we prove the
consistency of this factors by usage of statistical data of National Statistics Office
of Georgia.
Despite of the fact that we can consider other factors that stimulate the
investment activity we consider the factors that are discussed in this article because

24
we prove the consistency of the latter with high precision by usage of statistical
data. But if try the attraction of FDI by the factors that are discussed in this article
then we may not attract some of the investors whose motivation is different from
the motivation of investors who already made investment because of the factors
that we mentioned in this article.
Current situation beginning from the past. We introduce the dynamics of
FDI in the next table including year 2016 (Table 1).

Table 1.
Foreign direct investment
Year Total
(Million US dollar)
2005 449.8
2006 1190.4
2007 2014.8
2008 1564.0
2009 658.4
2010 814.5
2011 1117.2
2012 911.6
2013 941.9
2014 1758.4
2015 1564.5
2016 1645.4

The table is created by usage of reference 2.

By looking at the above table we can see that inflow of FDI was among of
the highest inflows of FDI into the country in 2016. By help of new economic
reforms and stimulus the inflow of FDI into the country increased considerably.
Particularly, the inflow of FDI in 2005 was 449.8 million US dollar, in 2006 it was
1190.4 million US dollar, in 2007 it was 2014.8. The mentioned facts prove it that
for example after 2004 when were passed reforms in order to create liberal tax
system and business friendly environment were important factors for attraction of
FDI. Although despite of significant decrease of FDI in 2008-2009 we can anyway
say that mentioned economic reforms were consistent for attraction of FDI because
the mentioned decrease of FDI should be attributed to war that was between
Georgia and Russia in 2008. (FDI decreased in Georgia after 2009 mainly because
of the conflict with Russia in south Ossetia in summer of 2008. if we improve the
relationships with Russia we can attract more vertical FDI. The rising trend of FDI
inflow into Georgia was more or less maintained in Georgia except 2008 when
25
started war with Russia and there was World Financial Crisis[1, p.2]). The fact that
war that started between Russia and Georgia was the reason of decrease of FDI is
proved further by it that in 2010-2015 FDI used to increase each year (by
exception of two years when decrease of FDI was not significant, but in 2008-2009
FDI decreased significantly) that can be explained by following: the negative
effects of war were more present after start of the war, but when passed some years
after start of war the negative effects of FDI decreased. According to mentioned
we can say with high accuracy that after 2004 when there passed reforms in order
to establish liberal tax system and business friendly environment for potential
investors were important factors for attraction of FDI because there are years after
2004 when FDI inflow was very high and when the negative effects of war
decreased after 2008 in 2014-2016 the inflow of FDI was also very high. Also such
dynamics of FDI is explained by the fact that tax rate is acceptable because was
passed new tax code in 2005 that significantly reduced tax types and tax rates.
Also such dynamics of FDI is explained by the fact that in Georgia happened the
significant improvement of business environment, progress in trade liberalization,
improvement of trade related infrastructure and were relaxed customs procedures
and light burden from government regulations is considered as advantage in
Georgia.
Also in 2014-2016 high inflow of FDI into the country is explained by the
fact that we need only two procedures and two days for registration of business and
there is no requirement on minimum capital. there were created two multimillion
investments funds in Georgia in order to help new players on the market – the
partnership fund and Georgian co-investment fund. The main aim of partnership
fund is to stimulate investment in Georgia by participation in the starting phase of
development of investment project. [3] This fund was established in 2011.
Consequently if this fund will not have to make co-investment in the capital of
investor the financial resources that will be given by this fund to investor will be
used by investor not for minimum capital requirement but for other useful purposes
by the investor. Finally we can say that this two factors can significantly stimulate
the inflow of FDI into Georgia. here the mentioned factors are considered the
significant factors for attraction of FDI into Georgia despite of the fact that in 2012
and 2013 the inflow of FDI was not very high in Georgia that can be explained by
it that this years were closer to 2008(when there was war between Georgia and
Russia), but in 2014-2016 we had high FDI inflow that proves that negative effects
reduced gradually and not immediately. Although there exist factors in Georgia
that can hinder FDI inflow into the country.
Consequently we make conclusion that we stimulate inflow of FDI into
country more by such strategy that will be oriented on attraction of FDI not only by
one way. Our conclusion is proved by the fact that by implementation of some
measures for improvement of investment climate after 2004 FDI increased,
although when was created partnership fund in 2011 Georgia attracted in 2014-
2016 the same size FDI as in 2006-2008 despite the fact that there was war
between Georgia and Russia in 2008. Consequently if there had not been war in the

26
country, the FDI inflow in Georgia would have been greater in 2014-2016 than it
was in 2006-2008.
Description of the concept of location advantages (investment climate).
We consider such factors under location advantages that will promote the job of
investor. For example low taxes because when taxes decrease investor will have to
pay less and will be increased his profit. We discuss such fund as location
advantage as is partnership fund because this fund finance the part of capital to
investor that is required for making investment and consequently gives the investor
chance to save some money, to produce more and to receive higher profit. Also
what seems location disadvantage can be regarded as location advantage for
example high taxes can be regarded also as location advantage when the investor
makes investment by such projects that are linked with high expenses.
Also we can consider except of mentioned factors for stimulation of FDI
other factors. for example such factors as subsidies, low tariffs and quotas from
host country to neighbor countries for such investors who will be motivated by
export from host country, size of market, less competition, increasing demand of
consumer and so on. So in nutshell we consider location advantages all those
factors that will stimulate the inflow of FDI into the country and will promote the
job of the investor (will help him to receive higher profit)
But taxes should not be reduced significantly in the country because this can
significantly reduce budget income. We recommend to reduce taxes by small
amount gradually and to monitor it that whether benefits derived from investor will
be higher than concessions that makes country for investor. If benefits derived
from investor are very high, then we can reduce taxes to the level that will make it
possible to attract high volume of FDI. The mentioned decision can be made by
Georgian National investment agency because the aim of this agency is to attract
Greenfield investments and to stimulate mergers and acquisitions.
We should also mention that location advantages in the context of taxes will
not be very low taxes, but some optimal level of taxes such that won’t create big
burden for investor and will also create enough budgetary income some part of
which will be used for giving financial resources to investor and to local firms.
The factors that may hinder inflow of FDI. Some investors mentioned that
because of high interest rate they prefer to receive credit from banks in Europe
whose interest rates are lower. According to one body electricity cost is considered
the main burden by the firm. The introduced changes will create less employer
friendly labor code. The second problem for foreign investors for import or
production of various products is bad work of people at custom-house that is also
consistent with discoveries of other researches. Some investors suffer at custom-
house from people who are not experienced enough in their job and they waste
time at custom-house.
Correlation analysis between FDI and average monthly nominal salary.
Here we test salary because we can consider it as location advantage because if
salary is low then investor will be able to give low salary to his employees and if

27
salary expense will be low then investor’s profit will be high. Consequently we
conduct correlation analysis between FDI and salary.

Table 2.
Dynamics of FDI and average monthly salary in years 2004-2014
(million GEL)

Year FDI Average monthly

salary
2004 908 0.0001566
2005 805 0.0002042
2006 2130 0.0002779
2007 3203 0.0003681
2008 2596 0.0005349
2009 1106 0.0005568
2010 1441 0.0005976
2011 1866 0.000636
2012 1504 0.0007125
2013 1620 0.0007731
2014 3095 0.000818

covariance Analysis: ordinary

Date: 03/28/17 Time: 22:11
sample: 1 11
Included observations: 11
covariance
correlation FDI Average monthly salary
FDI 626191.2
1.000000
Average monthly salary
0.054408 4.76E-08
0.315081 1.000000

Correlation between the variables is represented in the following table

according to EViews output.
According to EViews correlation between variables is 0.315081. so this
means that when salary increases FDI also increases that can be proved by the
following: as we mentioned from the beginning the country sought to increase FDI
not only with one factor and consequently despite of the fact that salary was

28
increasing FDI also increased that in turn proves our conclusion that when country
sought to attract FDI with several factors it attracted high volume of FDI.
Conclusion. Ultimately there were passed many measures for attraction of
FDI to Georgia. If we keep situation that was created after passed measures we will
especially attract investors that are like those investors who made investment
because of mentioned measures in Georgia. If government officials try to keep
conditions that were created after mentioned reforms we will attract additional
investors especially such investors who did not know about these reforms in
Georgia and whose motivation will be analogous to motivations of investors who
made investment in Georgia because of these mentioned reforms.

References:
1. Local Investment Climate and the Role of (Sustainable) FDI: The Case of Georgia
2. http://geostat.ge/?action=page&p_id=2230&lang=geo
3. http://www.fund.ge/geo/who_we_are/4
4.http://www.nplg.gov.ge/gsdl/cgi-bin/library.exe?e=d-01000-00---off-0ekonomik--00-1-
---0-10-0---0---0direct-10---4-------0-1l--11-ka-50---20-about---00-3-1-00-0-0-11-1-0utfZz-8-
00&cl=CL1.4&d=HASH6519caad6bbf4e8f4bb051.6.2&x=1

Shota Veshapidze
Doctor of Economics,
Professor,
Georgian Technical University

Ilia Chavchavadze’s concepet of nation’s common welfare

focused on European values
Annotation. The paper deals with Ilia’s concept and shows what practical results can
bring it’s implementation. Ilia has systematically set his vision as to why European values are
so important for us, which values should we have been aspiring and how can we implement them
in Georgia, how can we find the ways to adjust European standards to our life features, that will
help us improve each person’s life and will provide with the protection of national identity.
Considering that Georgia has been successfully implementing the policy of mutual beneficial
cooperation with the EU, the study of Ilia’s opinions is the most interesting and relevant.
Keywords: each human’s happiness human's happiness, welfare, economic integration,
European values, local peculiarities.

Introduction. Georgian orientation policy towards European values has a

long tradition. The aspiration of Georgia towards West is confirmed by history of
the country, Georgian word and deed, policy, Georgian thinking and vision. This
economic thinking vector had been developing and
deepening consistently during the reign of Ayet, Pharnavaz, Vakhtang
Gorgasali, David, Tamar, Giorgi Splendid, Vakhtng VI, Erekle II and the others. In
this case Sulkhan-Saba Orbeliani, Solomon Dodashvili, Dimitri Kipiani, Ilia
Chavchavadze, Niko Nikoladze, Vazha Pshavela, David Sarajishvili, Sergei
29
Meskhi, Jonah Meunargia, Tedo Sakhokia, Ekvtime Takaishvili, David
Kakabadze, Grigol Robakidze, and others made a great contribution.
In this article we would like to refer Ilia’s concept oriented on European
values.In this concept in order to protect the national identity, the importance of
orientation of European values is systematically reflected. Historically the direct
result of such progressive aspirations should consider the fact that Georgia
received vizaliberization on February 2, 2017. Citizens of Georgia obtained the
right to replace without a visa.
In 2017 is the 180th anniversary of his birth and the 110th anniversary of his
death.
The total number of Ilia’s Literary and journalistic works are 20 books. In
the first five books there are given lyrics, poems, short stories and other literary
texts. The next 15 books are related to Ilia’s publicist letters and researches. The
empirical researches shows us that Ilia Chavchavadze is the most popular and
cited name in Georgia. Till today more than two dozen major publications have
written about him. For better understanding of the scale of Ilia’s creativity, we
need to get introduced to his general conception. These are the main guidelines set
for Georgian society in order to achieve the universal walfare for each human’s
life. The mentioned aspirations must be based on morality, faith, love, patriotism,
justice, equality, peace, protection of human rights, economic prosperity,
implementation of permanent reforms, establishment of true professionalism in any
case, taking into consideration the advanced experiences of others in order to gain
the success.
Main Part. Ilia Chavchavadze learned the life of the nation in whole and
revealed its identity. Ilia substantiated that the national identity was determined by
the values underpinned by the nation's distinctive traditions, culture, language, love
of homeland, religion.
Whole period of Ilia’s activety was accompanied by the process of
globalization. Georgia was facing lots of problems as well as the modern
globalized world. The majority of the population was illiterate of literacy, there
was the low economic prosperity, the economic environment was limited,
monopolized, agriculture and Industry were backward. No adequate reform were
implemented, nor the necessary investments were in sight.
The nation's identity was marred, its identity was threatening the danger,
Georgia was becoming the part of Russia Empire. Ilia concluded that it could not
go on living like this. An action was needed.According to Ilia’s general conception
the main subject (main direction) of our struggle (of activity) was “the restoration
of fallen identity, the recovering and the protection of every potential danger “. [1,
467].
Ilia Chavchavadze quoted the experience of European countries, for
example, how Czechs made up their identity, restored and preserved their
traditions and values, made progress. Ilia also determined such ways for Georgia.
Ilia’s libertarian economic philosophy was serving to the material interests of the
nation. Ilia substantiated with arguments that for further economic development of

30
Georgia the most important was free trading, open economy, the liberal
intervation of government, liberal tax significance.Like free trade supporters, "free
traiders", he also considered that it was the way and the means of achieving
"economic happiness"..
For this purpose he was taking into consideration the local pecularities at
the process of implementation of the experiences of other countries’. He thought
it was the most important to consider William Petty’s, Adam Smith’s, Ricardo’s,
Sismondi’s, J. Stuart Mill’s, Gustav Shmoler’s, kobden’s, Brighton’s, Robert
Peel’s, Bastiat’s, Garnier’s, Chevalier’s, Pazhe’s, Makkulokh’s, Mordvinov’s and
other well-known scientist-economist’s theoretical approaches. Ilia evaluated
everything according to local peculiarities, environmental conditions and the
peculiarities which were identified by the time.
The ideology of Georgian variety of Ilia’s liberalism is based on these
priorities, his doctrine. This is a view of establishing the advanced experiences of
Europe and others, so that we would not lose our traditions, manners, habits and
in addition, take into account the others’ best practices, that is the way to achieve
optimal synthesis.
Ilia Chavchavadze actively studied all aspects of life, was creating a true
worldview, was forming, was directly involved and incited in the creation and
management of public institutions, contributed each human opinion in order to
reach goals of public welfare.
Ilya established true values in Georgian society. It was he who formed the
basics of main values of economic liberalism, of which the first was the creation of
opportunities for the further development of free economy. Based on the
discussion of Mesiner’s project,Ilia substantiated with arguments that the most
important was to create competitive environment, to search necessary
investments.” The creation of monopolies hinders the process. [2]. The total
economical prosperity is significantly impeded by insecurity of private property,
bureaucracy, corruption, insufficient economic reforming, the lack of
professionalism, the lining of the local peculiarities.” [12, 13, 14, 15].
Ilia Chavchavadze believed that the country should use its absolute and
rational advantages of its economy, in such way, that would not threaten the
economic sustainability and would make easy and cheap to obtain the necessary
resources for people’s living.
It is important to reveal fully and use the economic potention of the country
with the maximum benefit.
Ilia reasonably examined "Customs policy of Europe, free trading and
protectin. He argued that at the conditions of the liberal market economy, the
finding of absolute superiority is the most important strategic task”.[3]
Ilia Chavchavadze systematically developed the ways of success of
economic activities in Georgia. He considered them in the world context. Ilia
indicated that in order to strengthen agriculture and factory manufacture, we
needed to accumulate “ the necessary knowledge and experience”. It was
necessary not to let anybody to outstrip us and we were to take our signs ourselves.
31
This was the most important. In XVII-XVIII centuries and till XIX 60-ies this
area was very limited and Georgian people were developing only mini industry. It
was necessary to be actively involved in the international division of labor. Such
was the requirement of the century. [4, 40].
For economic promotion of the country Ilia considered expediently on
increasing of the labor productivity and deepening reasonably agricultural
specialization. He thought that it was necessary to start the development of the real
economy, to get every benefit which was giving us our country. This was the only
way we could achieve and realize our competitive advantages.
Thus we can learn how to benefit much more from the ground in the
conditions of one and the same labor and expense, can learn how to get more
benefit from harvest and use all the opportunities which are generously given by
the climate and soil of our Country, which always has a buyer both here and
abroad. Ilia considered on the fact that by using of law requirements of unity of
absolute and comparative advantages, it would be possible to achieve the
sustainable development of the country.
This will give us ability to produce all kinds of goods, which is available for
the country and can achieve sustainable development of the country, maintain it’s
"self-existance" and also be involved most effectively in the international division
of labor.
Ilia substantiated that according to the potential of the country,was possible
and reasonable to give priority attention to tea, sorghum, carthame, silk, cotton, all
kinds of fruit trees, grape crops, wine, almost all kinds of oils, painting and
creating favorable conditions for the development of pharmaceutical plants,
because "the nature of our country gives us such possibilities. The importance
of proper education is necessary. In the East, the development of the land gives us
the chance to get more precious harvestable cite by using the same labor, hard
working, the same climate and soil " [5, 64-65].
He was giving examples of experiences of Belgium, England, Germany,
Holland, the US. He paid attention to commercial aspect of agricultural, to the
development of searches of cheap credit, the importance of case leading with the
help of condominium, the importance of the necessity of proper education,
culturing of the soils of the west Georgia the irrigation of dry lands of East, the
protection of harvest from damages of pests and natural disasters, the cultivation of
cereals, livestock development.
Ilia Chavchavadze considered that the true benefit of the country was based
on the fact that the both the first and the other countries should be well.
The country will get more benefit itself if it brings more benefit to others.
It should be noted Ilia was not considerimg on the benefit and welfare of
the most developed country at that time - England - indepemdently, seperetaly, but
he considered it in regional and global context. In the same way he considered
Georgia. By his opinion it was linking door between Europe and Asia, according to
what we are always needed to strengthen the mutual beneficial cooperation
between Asia and Europe. [6, 242].

32
 Ilia thought that the openness of the economy (open economy) was one of
essential ways for Economic success, as well as the establishment of foreign
economic relations with other countries. He believed thoroughly that international
and domestic trade required a peaceful, cheap, quick way and thought that only
cheap and high-quality goods could be the basics of any success in economy. [5,
62-63].
Ilya considered the necessity of the involment of the coutry in the world
processes of economic integration. According to Ilia’s conception the particular
attention was to be paid on rich human, natural and mineral resources,
climate, the assimilation of water resources, the development of good
communication roads, efficient use of Baku-Batumi railway, the development of
all modes of transport, the withdrawal of pipeline transport from Baku till Black
Sea and efficient use of Caucasian oil mines, the creation of favorable conditions
for wine and other agricultural products in the world market.
In December 31, 1897, Ilia Chavchavadze published a study in which he
summed up the way Georgian people passed through the continual battles, wars
and bloodshed during two thounads years, and expressed his hypothesis about the
survival goods. Ilia explained that the nation was survived by the fact that during
it’s life, the true patriotism was always accompanied by true professionalism. [7].
The boon of the economic organization of old Georgia was also very important.
Soil and the other resources had been dealt in such a way that one could not find a
man without estate and flat in the country.
Everybody created equal conditions for agriculture and nourishment. The
optimal ratio was achieved for the satisfaction of the interests of household,
agricultural, private and public content. The agriculture was running so that at the
process of benefit distribution which were got from the resources, the basic rights
of living and human beings were strongly protected [8].
It was also very important the “peculiar institute of property” in Georgia.
Ilia noted: the “peculiar institute of property” in Georgia is such kind of "land
ownership, which is not private, for rent, but it is something standing in the middle,
a special, sort of, kind of land ownership". [9].
In such cases, the employers could use their land in their ownership and own
it forever, also they were able to gift it to their descendants, though they had no
right to sell it. Such approach was very important as it could bring benefit to the
country and gave ability to the people to use it’s resources without any exception
and fully. According to Ilia’s conception the main aim of the society was “the
happiness of each person”. [10, 326; 11, 373]
His conclusion was that the duty of human being was to set the rule of the
continuous self-assessment as the main principle of the activity. The rule - how
could we bring usefulness to each individual and the whole society - from our
activety. We are needed not only for us, but for others too.
A century ago Ilia Chavchavadze had got to grips with Georgian and
European spiritual affinities and the goods by using of which our nation could go
on sharing of advanced European values. Ilia thought that these values were

33
universal by their nature and were acceptable to everyone, as it allowed us to
make progress irreversible.
This was not the way of unreasonable experimentations or civilized
experiences, but it was the way of using of civilized experiences, the way of
learning and using of standards of “European Science” as a "measure" or "basket",
which had been already tested and used elsewhere. Ilia said: "Here's the thing,
and this is the way to reach the goal. Adolescent-humanity must be prepared
diligently and own the faithful knowledge, as far as possible, should learn
fundamentally the European science and by using of European experience, by such
shotgun should start the job of our country.
We could not show better way to our reliable boy-men, than this one,
which had already been experienced and examined elsewhere. We should have to
face to this subject and keep this way.
Other measures are false and futile: they would be imitation of someone
else's will and not on our own needs. ". [1, 468-469]. The main idea is clear, for
Georgia the only way to reach the goal is not the way of imitation, but our own,
based on our needs, based on the grounds of nationality. Without that, transmission
of other person's experiences would be unsucessful.
European values expressed our quest assure of each human’s prosperity.
These values indicate how to find a universal " peace, prosperity, happiness,
respect and the glory. " |As we are, all together, and each of us separately, an
integral part of the whole nation and we must seek to achieve the happiness of
each person “in the prosperity of the entire nation and not seperatly“ [11, 372-
373]. Only thus "our lives can be one of the great stream of united forces", and
thus "the unity of kindness can have useful spread for everyone”.
Ilia Chavchavadze published letters in "Iveria" with such sections as
"Internal review","Policy Review" and etc. He analyzed the content of values,
such as freedom, women's rights, moral clarity (its importance for the future of the
nation). He reviewed the goodness of the supporting societies, which were created
in England. He referred to to the necessity of the establishment of the International
Court of Justice, in order to strengthen the peace throughout the world. His
reference about the importance of the state thinking is noteworthy for Georgia. He
referendced that "French moral strength is the love of the fatherland".
Ilia focused his attention especially on the protection of justice, on the fact
that ”the law equality was the basic cornerstone of the decent structure of
community”, that “ the health of the nation is the largest task of the state”, that
there is a "need of such an institution, where one can have the fun conversation
and relaxation” and etc.
Ilia considered that the implementation of European values was the first
concern of the state for the protection of human rights of each and whole nation
and rule of Law, life, liberty, property, equality, harmoni and understanding, the
means of the conversion into their prosperity.He spoke about need of
“Europenisation” (or it’s orientation on Eoropean values) of Georgian writing.

34
It is important that Ilia Chavchavadze considered life events rationally ie the in
reality. His main charachteristic peculiarity is that he researched everything in
accordance with his own country, it’s location (it’s geostrategic location), on the
ground of environmental and historical circumstances (time circumstances). His
theory of economic life is represented not as a sequence of events, but as an
understanding (explanation) of a ratio. All the time Ilia had been ascertaining the
search of a ratio.
Ilia explained with arguments what was the optimal, true ratio, between two
major, private and public forms of property. ; Has argued that when the labor was
free in time and space, that was the better ratio of these two types of property. As
a criteria he considers “Universal", by its importance elevated “national fee” till its
world value (important for everyone, generating the similar use).
He drew attention to the importance of the relationship between national and
regional interests; He believed that all "local minor items" were to be solved by
local authorities. but on the national level of the state should be considered: “the
adoption of the universal laws” is the common law-making, "the total income and
expenditure," the finances of the country and "arrangement of universal army " ie
the defense of the country.
In order to develop economy of the country Ilia considered significantly the
establishment of local goverment, the optimal separation between true local
goverment and self-government in accordance with the “European experience”. He
argued free-trading (liberal, open) and importance of reasonable ratio of a
protectionist foreign economic policy in order to provide "self-existence" and
"self-development" of the country and many others.
Only on basis of establishing of such ratio is possible to form the true
optimal economic policy, which would be acceptable for the whole society. This is
an important method to define the optimal synthesis of universal and national
values, This is the only way to maintain our „I“, „local trifles“, traditions and
morals, common progress. Such approaches had applied functions in the epoch of
contemporary globalization.
Ilia Chavchavadze argued that the similar solutions of similar problems
could not be acceptable for all countries, moreover nor coping of the experiences
of the different countries as templates could be useful for any of them. The solution
of such problems are requiring the various approaches in different countries.
No doubt we should use and stay extremely motivated on the study the of local
peculiarities.
In order to resolve the problems of the miserable life of the workers, Ilia
suggested an important conclusion, based on examples of England,Germany and
France. According to the experiences obtained by others’ passed way had an
invaluable importance and they (insights without distortion) should be used
undoubtedly for learning of local peculiarities. Ilia considered exemplary on
"European education, management and governance of the country, European rules
and orders". He taught us to open the door for European civilization, as it was the
most advanced and progressive. He believed that we should take into

35
consideration the advanced experiences of all countries. His main conclusion is the
following: from the advanced countries we should replicate everything, which is
required for the boon and happiness of the country.
Conclusions. Ilia formed the main basic values of Georgian variety of
economic liberalism, the foremost of which is the ability to create the opportunities
for free economic development. He justified reasonably the importance of free
trading, the open economy, the governmental liberal interference and liberal taxes.
He considered on the necessary involvement in the world economic integration
processes.
In order to ensure the country's economic promotion, he considered on
enlarging labour productivity and reasonable deepening of specialization, also the
creation of competitive environment, to find the necessary investments, to
overcome monopolies. He thought that the common economic prosperity was
prevented significantly by the private property insecurity, by bureaucracy, the
corruption, the lack of economic reform and the institutionalization, the lack of
professionalism, he lining of local peculiarities.
Even a century and a half ago Ilia Chavchavadze realized the Georgian and
European spiritual relations and the goods that our country could get by sharing
leading European values. Ilia thought that these values were parochial and were
acceptable for everyone, as it allowed us to make the progress unrecoverable. By
Ilia’s opinion the implementation of European values will protect the rights of
every person and of the nation in whole, democracy, freedom of speech, the
minorities, the law rule, life, liberty, property, equality, harmony and
understanding, also can be a means to increase the welfare. Their
implementations will require different approaches in different countries.

References:
1. I.Chavchavadze. Home Review (Slavs’ example. For what should we prepare the
young man? ...) The complete works im twenty volumes.vol. VI, "by Ilia Foundation", Tb., 1997.
p. 459-473.
2. I.Chavchavadze. Home Review. Mr. Meisner’s project. The complete works im
twenty volumes, Volume VII. "by Ilia Foundation", 2005. p. 26 - 79.
3. I.Chavchavadze. Customs policy in Europe, free-trading and protection. The complete
works im twenty volumes, Volume IX. "by Ilia Foundation", 2006. p. 385-401.
4. I.Chavchavadze. Agricultural Union of Kakheti . The complete works in ten volumes,
Volume 7, Tb., 1956. p. 36-56.
5. I. Chavchavadze. Our opinions of valuable sectors of Agriculture. The complete
works in ten volumes, Volume 7, Tb., 1956. p. 61-66.
6. I.Chavchavadze. Home Review (East Case and we. We are something for somebody
or....) The complete works in twenty volumes,Vol. VI, "by Ilia Foundation", Tb., 1997. p. 241-
262.
7. I.Chavchavadze. What can I say? How can I make you happy? The complete works in
ten volumes, Volume 5, Tb., 1955. p. 10-14.
8. I.Chavchavadze. About old Georgian Economical Pile. The complete works in ten
volumes, Volume 4, Tb., 1955. p. 175-178.
9. "Iveria", 1886, 221, p. 2.

36
 10. I. Chavchavadze. The nineteenth century The complete works in twenty volumes,
Volume XIV. "by Ilia Foundation", 2007. p. 324-327.
11. Chavchavadze. The Equality of Titles, The complete works in twenty volumes, Vol
X. "by Ilia Foundation", 2007. p. 371-373.
12. I. Chavchavadze. Life and Law. The complete works in ten volumes, Volume 6, Tb.,
1956, p. 7-114.
13. I.Chavchavadze. Khiznebi case. The complete works in ten volumes, Volume 6, Tb.,
1956. p. 115-150.
14. Chavchavadze. The ownership private and community land. The complete works in
ten volumes, Volume 6, Tb., 1956. p. 151-200.
15. Chavchavadze. Drawbacks of social life and it’s economic reasons. The complete
works in ten volumes, Volume 6, Tb., 1956. p. 201-240.
16. Chavchavadze. Self action. The complete works in twenty volumes, Volume IX. "by
the Ilia Foundation", 2006. p. 652-657.
17. I. asatiani (1994). Ilia Chavchavadze and Tbilisi Georgian Homestead Bank. Tbilisi,
"Science. - 385 p.
18. Sh.Veshapidze. (1999). Ilia’s methodology of economic research and current issues
of modern economic development. Tbilisi. - 296 p.
19. G. Todua. The universal law of sustainable economy and advantageous ratio, the
magazine. "Economy", 1996, # 12.
20. T.Sartania. (2007). Ilia Chavchavadze about the ways of economic development of
ways. Ilya chatschavadze - 170. Publishing house "Batumi University". - P. 167-181.
21. Kistauri Sh. Ilia Chavchavadze-the great Georgian 'banker-financier, Tb., 1998.
22. . Shengelia T. Multiculturalism, as a socio-economic phenomenon and important
determinant of business. Publishing house. "Universal", Tbilisi, 2015. -335 p.
23. Silagadze, A. (2006). Sources of Economic Doctrines. Publication of Tbilisi
University, Tbilisi.
24.Silagadze, A. (2011). Economic Teachings, Ilya Chavchavadze and Modernity- "Actual
problems of Historical and economic Teachings ". Moscow, "VZFEI", pp.71 -77.
25. Silagadze, A., Atanelishvili, T. (2010). Some questions of economic doctrines in
Georgia. Moscow. Silagadze, A. (2009). Aspects of economic doctrines in feudal Georgia -
Historical and economic sciences in the past and present. Moscow.

Khatuna Berishvili
Doctor of economics,
Associate professor,
Tbilisi State University,
Georgia

Formalized-crosscultural analysis of the mental features of social

groups and their use in the international business

Annotation. In practice of international business is the task of greatest importance. With

this aim in view, use of ethno-metric methods in practice enables us to conduct analysis of the
mental determinants of different ethnic groups on the basis of formalized methods. Our study
highlights those methodological problems of ethno -metric analysis, which concern the mentality
indicators. The results of mentality research are cited on the example of Imereti and Kakheti
regions of Georgia and the potentials are discussed of using the ethno-metric measures in
business.

37
 Keywords: social group, mentality, ethno-metric methods, measuring, influence on
business.

Introduction. In the end of XIX century ethnology was more abstract

philosophy than a positive study of the life reality. In XX century, study of ethnic
unities at the level of their qualitative description (with enlisting of domineering
characteristic traits in any culture) appeared to be insufficient. On the basis of
processing the data of studies conducted in that period, it became possible to
calculate the numerical indexes, which makes possible to numerically determine
how great the difference is between the nations according to the ethnic sign.
From mid-XX Formalized cross-cultural analysis of the mental determinants
of different social groups and the use of its results century the abstract
philosophical conclusions on differences between the cultures of different
countries were already supported and checked by the data of the mass study of
stereotypes and values. Since that time we can talk about ethnometry – a new
direction of studies, which focuses its attention on the analysis of mental
determinants of different ethnic groups on the basis of use of formalized
(mathematical) methods.
Use of Ethnometric Methods in the Study of National Mentality. Most
mportant component in the analysis of national mentality is unification of criteria
for description of mental determinants. Search for such criteria is possible in two
ways: a starting point for the first is theoretical discussion, i.e. it is built on
qualitative studies. Second is based on the data of mass interviews. Whatever way
is chosen, we should take into consideration that in both cases a necessary element
for substantiation of the conclusions is use of a method of cross-cultural
comparison (multi-cultural approach).
The greatest and most large-scale study of culturological indicators, which is
built on revealing the quantitative determinants, is connected with the work of
famous scientist G. Hofstede [1, 2]. In the schientist’s study the choice of empiric
indicators was pre-determined and initially it did not aim at search for culturl
universalias, but the data collected later on the basis of comparison, the differences
existing between different countries were revealed. Based on the results of the
conducted study indicators were outlined, which can be used to describe and
characterize the systems of values domineering among representatives of different
countries and ethnic groups. Among them are: (PDI – Power Distance); (UAI –
Uncertainty Avoidance); (IDV – Individualism); (MAS – Masculinity) and finally,
Confucian Dynamism (CDI – Confucian dynamism).
G. Hofstede conducted his study in several stages. The questionnaires he
used first belonged to 1967-1969 and 1971-1973 [1]. The methods used in these
studies experienced considerable changes further on. Thus, indicator of
individualism initially was calculated on the basis of the questions “how much
important”. Among them was, for example, the question “how much important for
you is to have such work, which will leave you enough time for private or family
life”. A respondent was suggested a five-point scale to evaluate those 14 sides of
life, which were connected with “work purpose”. After the factoral analysis was
38
conducted the following 6 empiric indicators were selected for IDV indicator (see
Table 1).

Table 1
Empiric Indexes of Indicator „Individualism“
Determinants Factoral loading1
1. Aspiration to search of time for his own self or his own
(0,86)
family
2.Value of freedom (possibility to search for the way to
(0,49)
independently conduct work)
3. Negative attitude to routine work*aspiration or such
work, which gives a feeling of achievement, victory) (0,46)
4. Returns from work (-0,63)
5. Aspiration for comfort at work (-0,69)
6. Value of study (aspiration for improvement of
(-0,82)
qualification)
The author explained positive and negative values of factoral loading in the
following way. In Hofstede’s opinion.The first three speak for human
independence on the organization where he works (“private life separately, work
separately”), and last three, on the contrary, stress human dependence on
organization (“work and private life are united”). IDV index changes from 0 to 100
and it is received from transforming the value of individualism factor (from -2 to
+2) by the following formula:
IDV = 50 + 25*X, where X – this is factor value.
Analogous procedures were conducted for indicator of “masculinity”
(MAS). The formula for calculation of remaining two (PDI and UAI) indicators is
based on average values.
In result of using this methodology, initially, from 40 studied countries,
according to dimension, each four received numerical evaluations in the interval
from 0 to 100. Despite the fact that the countries were on the positions from 0 to
100, theoretical frames of values of PDI and UAI ondicators were much wider.
Due to difficulty in calculation of IDV and MAS indicators, in the later version of
the questionnairy [3] G. Hofstede introduced important changes.
In addition to above-described worksheets one more form of the worksheet
exists (the most popular by the given moment), which is named as “Value Survey
Module 1994” (VSM 94). VSM worksheet was formed in the Institute for
Research on Intercultural Cooperation – IRIC. From 1980 one of its founders was
G. Hofstede. Before VSM 94 other versions of this worksheet also existed – VSM
80 (some simplified variant of the worksheet used in questioning conducted by
the IBM corporation). VSM 81, VSM 82. These worksheets differed both by the

1
In factoral loading is implied the coefficient of correlation between the country average indicator
and the factor according to each determinant.

39
number of questions and their meaning. The material, obtained through them
became the basis for elaboration of VSM 94 [4].
Along with recognition of G. Hofstede’s merits, the scientists mentioned
about defects in the system of indicators suggested by him. Main argument here is
suspicious operationalism of the indicators. Thus, in some works [5, pp 423-475;
pp 127-150] differences in empirical indicators selected for each index were
mentioned. It is stressed in them that these determinants, according to which the
indexes are built, mostly reflect G. Hofstede’s advantages. Another defect of G.
Hofstede’s system is connected with representativeness of selection used by him.
Despite this, those also who recognize all negative features of the
instrumentarium created by G. Hofstede, as a rule, do not deny existence of
cultural universalias, even more, intensively use G/ Hofstede’s experience. In
result, some scientists suggest new approaches in direction of operationalization
of indicators presented by G. Hofstede.
Two other large-scale studies, which carry cross-cultural character, went
just this way: GLOBE (director R. Hose) [7, pp 171-233; pp503-520;] and WVS
(director R. Engelhart) [10, pp 19-51; 9, p. 12].
The study program GLOBAL – Global leadership and organizational
behavior effectivenemss was elaborated by R. Hose and starting from 1993 it is a
cross-cultural project, within the franes of which the representatives of 62
countries were interviewed. Main idea of the project was in study of interrelations
between national, organizational culture and organizational leadership.
Within the project WVS (World Values Survey) were studied cultural
traditions, as the factor of political and economic behavior formation. Within the
franmes of the present project about 65 states were studied. On the whole, the
results of GLOBE and WVS studies correlate with the data received by G.
Hofstede.
Use of Ethnometric Methods in Study of Crosscultural Determinants in
Georgia. The scientists from Georgia not only participate in the international
cross-cultural processes, but also conduct original studies based on the western
approaches and conceptions. Use of the methodology of G. Hofstede is of the
greatest importance. It should be stressed that the studies conducted according to
G. Hofstede’s methodology were based on different questionnaires (later we come
from the first variant of G. Hofstede’s questionnaire, because the conceptual basis
of the sudy is put in it, also just this variant is more available for the Georgian
rsearchers by the book (Hofstede G. Culture’s Consequences: Intern Differences
in Work-Related Values. On other studies qualitative description of each indicator
is used and on its basis methodology of constructing one’s own scale. As an
example we can cite the work [11].
Namely, the indicator of “Avoidance of Indefiniteness” with G. Hofstede is
built based on three indicators: prientation to rules, orientation to permanent work
place and stress.
1. “Orientation to rules” was measured by five-point scale (“fully agree”
or “fully disagree”) and proceeds from the discussion: “The company rules should

40
never be violated, even when an employee considers this is in the interests of the
company”.
2. “Permanent work place” was measured by the supposed answers to
the following question: “how long are you going to work in this company?”
Supposed answers were as follows: 1) mostly two years; 2) from two to five years;
3) more than five years; 4) until retire to pension.
3. To measure “stress” the respondents stressed the question – “how
often do you feel nervousness and tension at work?” The answers were grouped
from 1 (“often have such a feeling”) up to five points (“never experience it”).
Some changes were brought into this operationalization by scientist
A. Iaumov [11]. He based this indicator already on five features: (benefit of work
procedures standardization, importance of rules and provisons in work, importance
of instructions on work, expectation for exact observance of instructions, and
detalization of instructions connected with work). A. Naumov took only one
indicator of G, Hofstede – orientation to rules – for the basis of operationalization.
This indicator is probably the key one in the given index, but not the only one at
least. On the other part, by choosing only one key indicator, A. Naumov directed
his study from general cultural problems to the analysis of business and
management culture.
In the studies conducted in Georgia in 2014 we followed the same way. As
purpose of our studies was to receive complete indicators on the population, we
took for the basis such a questionnaire, which involved information not only on the
values of work activity.
For comparison let’s discuss the same indicator as in the previous case.
The respondents were suggested a list of alternative discussions: “wished to
live where…” (see Table 2) and expression of agreement with it. If a respondent
fully agreed with the discussion, which was on the left, then he should circle the
figure “1”, if he agreed with the discussion on the right, he should circle the figure
“5”. If he faced difficulty to agree unconditionally with both proofs, then he should
circle “2” or “4” depending on which approach was more acceptable for him.
Finally, if both ideas were equally acceptable for him, he should circle the figure
“3”.
Table 2.
Fragment of the questionnaire to measure „Avoidance of
Indefiniteness“
Wished to live where: 1 – full agreement with left assertion, 5 – full
agreement with right assertion, 2 and 4 – preference to any, 3 – equal agreement
with them).

Children in families are

taught to treat indefinite Children are taught in families to
and pre unforeseen avoid indefinite and pre
12345
situation as a normal unforeseen situations, to strive
event of everyday life for clarity in relations

41
Man should not always
Man should always carry with
carry with him the
12345 him the documents (passport,
documents (passport,
certificate, etc)
certificate, etc)
Despite possibilities of
failures and problems in In the collective they welcome
the collective, they 12345 preservation of stability,
welcome readiness to avoidance of risk
risk
In the collective they
positively behave to
It is accepted in the collective
those, whose ideas and
12345 that ideas and behavior of all the
behavior do not coincide
members should be agreed
with the ideas and
behavior of majority
Exists quite a small
Exist numerous tules, which
number of rules, which 12345
should be obeyed
should be obeyed
Regular increase in To preserve work is more
salary is more important 12345 important than regular increase
than to preserve work of salary

Index of “Avoidence of Indefiniteness” is calculated as total points on all

the questions, which later will be brought to the kind, comparison of which could
be possible with the data of G. Hofstede (analogous to the procedure, used by the
Netherlander scientist). It is easily noticeable that in the left column of Table 2
expressions of rules of life are grouped; during which people patiently behave to
indefiniteness, difference in opinions, and in the right column all the expressions
and risks of different ideas are inacceptable for them. In result, is received
quantitative evaluation of the respondent to the values of avoidance of
indefiniteness (0-25 points – weak avoidance of indefiniteness, 75-100 points –
strong avoidane of indefiniteness).
In our case, the following determinants were used – indefiniteness, as the
norm of life, readiness for risk, ability to stand different ideas, demand for
detailed laws and rules, formalization of life. The first three determinants belong
to the indicator “stress”, and the last two – to “orientation to rules”. Two
indicators were taken into consideration from three suggested by G, Hofstede. At
the same time the indicator “stress” is considered indirectly.
Comparison of Cross-Cultural Mentality in Georgia. In 2014-2015 the
population of two central regions of Georgia – Kartli and Imereti – were
interviewed. The number of respondents was 557 and 545 respectively; three-step
methodology was used. At the first step, selection of the regions was ongoing
within the borders of three natural-geographical zones (north, center, and south),
which are located on the territory of the regions. At the second step, selection of
42
different populated areas inside the regions was conducted. At the third, selected
interview was held according to sex and age with preservation of composition of
the population. The data obtained (42% in Kartli and Imereti residents, 38% -
urban population, 20% - rural population) was then corrected according to the
indicator “employment”.
The data received turned to be close to one another by importance (see
Table 3), which witnesses comparative unity of the mental space in the central
part of Georgia.
At the same time, some differentiation is also noticed: as we supposed,
Kartli region located close to Tbilisi, the capital of Georgia differs by a high level
of individualism and less distance of power. It seems that the closer we are to the
center, the stronger the elements of western culture are revealed. The effect of
water spread acts: the“drop” of European value priorities spreads from the capital
enclave all over the country, and is felt more strongly in the central regions and
loses force in the periphery.

Table 3.
Meanings of Hofstede’s indicators for Kartli and Imereti regions
(2014 – 2015)

Kartli Imereti
Indicator
2014 2015 2015
PDI 46,3 46,2 47,5

IDV 53,6 51,7 45,0

MAS 44,5 40,8 46,0

UAI - 52,1 -

CDI (LTO) - 48,9 -

Use of Hofstede’s indicators for the analysis of social group conflicts.

Ethnometric approach gives one more interesting possibility – to outline the so-
called conflicting groups.We should suppose that the groups, which differ
strongest from the main mass of the population by their value indicators, in
inadequate (conflicting) situation, with more probability, reveal deviant
(inacceptable for other cultures) forms of behavior. From this viewpoint we’ll
discuss the results of interviews conducted in 2014 in the regions of Kartli and
Imereti according to the social groups (Table 4).
Firstly, study of Kartli and Imereti regions conducted in 2014 enables us to
make a conclusion that a group of entrepreneurs is stronger outlined by all three
indicators – it occupies the first place according to IDV and MAS indicators, third
43
and second – by PDI indicator. These results characterize the business sphere, in
case the conflicting situation arises, as the most potentially explosive and less
predictable. At the same time, attention should be focused on “comparatively
larger distance of power”., which points to the oriental signs in the sphere of
Georgian entrepreneurship.

Table 4.
Hofstede’s indicators according to Kartli and Imereti regions for
different professional groups (study of 2014)
PDI IDV MAS
Social groups
Kartli Imereti Kartli Imereti Kartli Imereti
entrepreneurs 47,7 47,9 54 63,1 54,3 52,3
workers 46,9 46,8 48,3 50,4 48,2 46,3
students 37,9 40,4 52,6 53,8 47,8 46,4
military servicemen 44,7 43,9 46,1 52,3 48,2 43,7
pensioners 53,3 53,1 40,0 46,7 44 38,6
state municipal
47,4 47,1 43,6 53,8 38,6 38,6
employees
Engineering technical
personnel
46,6 46,4 43,8 52,5 43,6 45,7
humanitarian
43,7 40,4 43,5 52 43 40,9
intellectuals

Another interesting conclusion is received in the process of analyzing such a

group, which maximum differs with value orientations from the entrepreneurs.
To measure the distance between the target groups and to determine degree
of their likeness, we used Euclid distance square (dist).
With its mental indicators, claim for the role of entrepreneirs’ opposite group
can have: In case of Kartli, pensioners (dist = 16, 4), humanitarian intellectuals
(dist = 13, 1), engineering-technical personnel (dist = 12, 1), also, state and
municipal employees (dist = 11, 1).
In case of Imereti – pensioners (dist = 22, 6), humanitarian intellectuals (dist
= 16, 2) and state and municipal personnel (dist = 12, 7).
The result of study witnesses a very little role of pensioners, humanitarian
intellectuals, state and municipal personnel in the social life, passive social position
of intellectuals, inacceptability of a new style of life by pensioners, and dichotomy
“business-power” demands special attention
Conflict between entrepreneurs and officials is long fixed by scientists and
researchers. If we take into consideration that the historically established relations
of entrepreneurs and officials in the post-Soviet Georgia already brought these two
groups to apprehension of a special social group with its own interests, then
contradictions between entrepreneurs and officials acquire special importance.
To prove the hypotheses presented by us, we consider necessary further
deepening of studies. First of all, attention should be concentrated on different
cross-cultural researches used by the scientists, specification, expansion and
44
deepening of methodics. In addition to deepening of the methodological base,
expansion of empiric database is required. Ethnometric studies should embrace
peripheral regions of Georgia. Practically, all the studies conducted up to the
present day concerned the central – European regions, and the peripheries still
remain “incognito territory”. One of the tasks of scientific study should be
compilation of Georgia’s ethnometric map (like geographic), which will show us
the “relief” of the mentality of the Georgia’s population and will outline potentially
“volcanic’ districts. To observe the dynamics of ethnometric indicators and to
determine the place of Georgia on the world map of management, it is expedient to
conduct annual monitoring of studied regions of our country.
Conclusions. The study we conducted highlights methodological problems
of formalized ethnometric analysis, which concern the indicators of mental
analysis in different social (first of all ethnic) groups. It presents methodological
problems of ethnometric analysis and discusses the potentials for use of
ethnometric measures. The results reeived from study of mentality are cited on the
example of regions of Georgia – Imereti and Kakheti. In result of the analysis
different approaches were revealed of various social groups to business and the
need for their consideration.

References:
1. Hofstede G. Culture’s Consequences: Intern Differences in Work-Related Values.
Beverly Hills., 1980.
2. Hofstede G. Cultures and Organizacions (Software of the Mind). Harper Collins
Publishers, 1994.
3. Hofstede G., Kolman L., Nocolescu O., Pajumaa I. Characteristics of the Ideal Job
among Students in Eight Countries // Key Issies in Cross-Cultural Psychology. 1996, P. 199-
216.
4. IRIC (Institute for Research on Intercultural Cooperation) - http: //
kubnw5.kub.nl/web/iric/index2.htm
5. Roberts K., Boyacigiller N. Cross-national organizational research: The grasp of the
blind men // Research in Organizational Behavior. 1984. Vol. 6. P. 423-475.
6. Dorfmann P.W., Howell J.P. Dimensions of national culture and effective
leadership patterns:
Hofstede revisited // Advances in international comparative management. 1988. Vol. 3. P.
127-150.
7. House R., Hanges P. Cultural influences on Leadership and Organizations. Project
GLOBE // Advances in Global Leadership. 1999. Vol. 1. P. 171-233.
8. Koopman P., Hartog D., Konrad E. National Culture and Leadership Profiles in
Europe: Some Results From the GLOBE Study // European Journal of Work and Organizational
Psychology. 1999. Vol. 8. № 4. P. 503-520.
9. Inglehart R., Baker W. Modernization, Cultural Change, and the Persistence of
Traditional Values // American Sociological Review. February 2000. Vol. 65.
(http://wvs.isr.umich.edu/index.html).
10. R. Engelhart, Culture and Democracy // How values promote social progress.
Moscow, 2002, pp 106-128.
11. A. Naumov, Hofstede’s Measures (influence of national culture on business
management) // 1996. # 3, pp 70-103.

45
 Lali Khikhadze,
Doctor of economics,
Tbilisi State University,
Georgia

The mission of world trading organization in the conditions of

globalization and its influence on the economically transitional
countries
Annotation. Economic globalization isthe current world’s real process. Deterring it, is
impossible. It represents the global marketplace’s forming process of the merchandise, the
service and the factors of reproduction. It is followed by the qualitative transformation of the
states and the economic individuals, both involved in this process. The different dimensions of
the world economic globalization process include: Free trading of merchandise and service, the
international circulation of the capital, the international shifting of the working power, the
growing tendencies of the strategic alliances and the growing networks, the free movement of the
technologies, information, ideas and the knowledge. This means, that these types of international
economic relationships become global and cover the whole world. Moreover, their united
operation deepens the integration, theinteraction and the interdependence of the countries.
Nowadays’ process of globalization has an important institutionalsupport. The existence
of global organizations proves this. The world trading organization plays a special role, which
implements the support and the regulation of the trade – economic work with the states.
The world trading organization is one of the most important organizations in today’s
world, which is determined to promote the stable development and liberalization of the global
trading, to regulate and minimize the trading litigations in between the states.
Keywords: Economic globalization; Liberalization; World trading organization;
Transitional and developing countries; Foreign trading policy; Predominant support regime.

Economic globalization is a real process in current world and it is impossible

to stop it. Because the development of globalization is tightly connected with the
reinforcement of the world trading competition. This is represented in the usage of
united standards for all countries and the formation of micro economic policies.
In the conditions of globalization it is crucial for the economically
transitional countries to cooperate with the international organizations. The world
trading organization is one of the most important, global organization in the world.
Its goal is to promote the stable development and liberalization of the international
trading, to regulate and minimize the trading litigations in between the states. The
processes of globalization, which are happening in the world, should be used for
economical ascendance, improvement of living standards and the well – being of
citizens, by the economically transitional countries. The countries, which are
members of VMO, including Georgia, should decrease the danger of forming the
economic, financial, ecological and energetic danger of crisis and the levelof
poverty.
The international global organizations, such as: International exchange fund,
World bank group, world trading organization and other important global
institutions should help the developing and economically transitional countries
integrate and harmonize in economy. This should be done so that the economically
46
transitional countries can be able to get broad opportunities of economic growth
and development.
In the conditions of globalization, the foreign trading politics isa pretty
difficult field for every country. It represents the achievement of optimal volume
and structure of foreign trading operations, during which, a country should not
only be able to protect the national marketplace, but also the development of
favorable foreign trading, with the partner countries.
In order to develop, regulate and form trading relationships with different
countries, the world trading organization uses such regulating norms and
settlements, which ensure the making of beneficial decisions not only from
developed, but also from developing and transitional countries.
The liberalization politics, which was formed by VMO in the international
trading system, corresponds the modern demands of the 21st century. Wethink, that
the liberalization politics should spread over the global, financial institutes. The
process of modernization and transformation should affect the international
exchange fund and World Bank group, in order to avoid the global economic and
financial crisis.
In conditions of globalization, the main goal of VMO is to decrease the
importing tariff sin sequence and abolish different barriers of non-tariffs. The
enlargement of international trading and minimizing the barriers, will give the
developed and economically transitional countries to use the world resources
effectively and rationally. This ensures the VMO member countries with the
economic stability and solid development.
The states, which are members of VMO (163 countries) take responsibility
for their trade - economic relationships will be determined towards raising life
standards, fullemployment, permanently growing salaries, effective demands and
developed production. World common wealth in VMO’s scope, confesses that for
the developing and especially the economically transitional countries, the
guarantee for their economic development is crucial. For achieving these goals, the
countries make versatile and two sided, favorable contracts, conventions. These are
oriented towards custom tariffs and abolishment of discrimination in the
international trading relationships. According to VMO, GATT, GATS and TRIPS
create such rules of a game in the world, which cannot be altered by member states
by their will and it has an imperative character. For the self-protection from the
unfair trading, VMO has developed two contracts about antidumping politics
(ADP), subsidizing and compensative measurements (SCM). The states use these
for the protection of marketplace.
According to the rules of VMO, every country has a right to implement the
events of a national marketplace. If the country’s economy and local trading is in
danger, which means that the importing country can temporarily increase the
custom tariffs in comparison with the link tariffs, or impose the restrictions on the
quantity of the import and use the rules directed against the discrimination in
trading, just like antidumping and compensative measurements. And that is aimed
for protecting the fair trading conditions. In case of unfair competition,the affected

47
country can address the litigation settlement organ (DSU), which is the main basis
of the versatile trading system’s legal regulation and safety. The VMO’s member
countries take responsibility not to review the issues of the trading rules only one
way, but to find the fair mechanism for solving the commercial litigations and
protect the settlements and rules of VMO.
Like other post social countries, Georgia is an economically transitional
country and the main direction of its trading economic policy is the full integration
in the world trading economy and the extension of the foreign trading policy.
Achieving this would be impossible without becoming a member of the world
trading organization, which, by the help of the trading negotiations and collective
discussions, represents the versatile trading system’s international and institutional,
organizational basis. Also establishes and regulates the trading relationships
between different countries.
A thorough liberalization had been carried out after Georgia became a
member of VMO(Year 2000, June 14th), in particular: the export – import license
has been cancelled, the tariff was imposed on the import from custom cost on rate
of 12% or 5 %. The custom payment has been cancelled to expand exporting, all
types of concessions are imposed on the import of the industry’s merchandise.
This sort of liberal trading policy developed good prerequisite for Georgia’s
establishment in VMO [1.P.211].
A connection with the VMO’s conventions leads Georgia to full integration
in world trading system. The share of VMO’s member countries goes up to more
then 95, moreover leads to the perfection of the foreign trading, service and field of
the intellectual property protection.
The improvement of the trading conditions and the avoidance of the
discriminative behavior, in Georgia’s international exporting production
marketplace, is guaranteed to be fairly and objectively considered by the VMO, as
well as when the dispute takes place.
The effective enactment of Georgia’s versatile and one sided contracts,
attracting the foreign investments, the formation of favorable conditions and
investment climate is crucially important for the economically transitional
countries. Because the purposeful usage of the foreign investments is the basis of
growth and integration of the international trading.
Georgia, as an economically transitional country, has benefited much from
becoming a member of VMO. But it is necessary to economically document some
problems, in particular: It must become one of the main directions of the trading
policy to put the fields of strategic importance in a preferential condition from the
side of the state and to expand the nomenclature of the exported production. This is
in order for the initial link and the tariff rate to create a favorable condition to the
local trading, which is yet beginning to grow.
The local production should firstly become competitive in a country’s inside
marketplace, then in the world marketplace. Special attention must be paid to the
quality of the production, the production consumer’s features and ecological
cleanliness, as the number one guaranty of the export’s extension.

48
 Georgia, as VMO’s member country, has a versatile contract with the
European Union on free trading. Also with DST, USA and thecontract of free
trading is still under process of being made with China. Two – sided contracts are
formed with more than 140 trading partner states. There are 10 strategic countries
which hold a special place: Turkey, Ukraine, Azerbaijan, Russia, Armenia,
Moldova, Belarus, Baltic countries. So, in Georgia’s neighbor countries, the
exporting with the free trading regime, can be carried out without charging and is
fully under the exposure of VMO’s international trading principles [2. p.54].
The free trading regime with the EU countries and the statistics of the
foreign trading tariffs’ reduction proves the economic improvement. The tight
communication with the international marketplaces is one of the main factors of
Georgia’s local trading’s development and the creation of new production. But on
the global marketplace, the strict competitive mechanism importantly develops the
geographical diversification and the diversity of the production’s assortment.
Participating in this type of competition enables the companies to gain
organizational and technological experience.
The VMO member countries should strengthen their work for gainingthe
exporting marketplace and master the long lasting segment of the marketplace. But
if we consider Georgia’s foreign trading policy’s condition, (2015 – 2016) the
exporting from Georgia has not been implemented in the world’s 60 countries [5].
These include: Finland, Argentina, Morocco, Slovenia, Indonesia, Ireland, Egypt,
Norway,Croatia, New Zealand, Hon Kong, etc.
Significant amount of production is imported from these countries to
Georgia, which is of no strategic importance for the country, because with the
policy, which replaces the import, can be produced more trustworthy, beneficial
and high quality production for the consumer.
In conditions of the world economic globalization and integration, the
extension of the economic relationships with the EU, is the most important thing
for Georgia. Because, it is in the strategic and trading economic interests of
Georgia to move towards the EU’s membership. The contract of free trading will
promote this very much and it is valid and ratified since 2015, 1st September.
The contract of free trading between Georgia and EU will promote the
establishment of the European norms and standards in trade – economic and legal
fields and will regulate the non-tariff barrier issues. Georgia’s active involvement
in the EU’s trade – economic world, will promote the growth of the agriculture,
electronics, informative technologies, light industry and the competition in the
marketplace.
In Georgia’s foreign trading relationships, the roles and significance of:
Ukraine, Russian federation and Azerbaijan is unchangeable. Especially with
Russia and Ukraine, Georgia has many century background, which enables the
independent states to revive the foreign trading relationships again, guarding the
equal rights and favorable principles and carry out the transformation of the trade –
economic development. It is proved, that for any country, the largest trading
partner country is the neighbor state. According to that, for the DST countries,

49
reviving trade – economic relationships and developing the trade – economic
partnership, is vitally important. From the year 2012, 20th of august, Russian
federation became a member of VMO. This fact promotes the trading embargo’s
cancellation between two neighbor states and improves the trading policy.
In the nearest perspective, between Georgia and Russia, it is very important
to develop free trading and to create free economic zones in the conflictive regions.
(Apkhazeti and Samachablo)
On the stage of world economic development, Georgia and the whole south
Caucasus countries have become the interest point for the political, trade –
economic and highly developed countries, such as: USA, Germany, Japan, china,
Russian federation, etc. This happened, because Georgia has a unique geographical
location, natural and artificial recourses. It is located on the world cross-road and is
the natural bridge, which connects thewest to east, the north to south. Using
Georgia’s transporting potential is already a reality and the developed countries are
ready to modernize the old Silk Road.
According to the 21st century demands, the active cooperation with the
global organizations and the world trading organizations paves the way for Georgia
to take a decent place in the international trading system. And to also significantly
increase the collaboration with the VMO member countries, on the basis of a
favorable and equal policy.
The fulfilling integration with the world trading organizations is no doubt a
progressive and dynamic process for the transitional countries. The liberalization
of the international trading policy, the contract of free trading with the most
countries of the world, extension of the exporting potential and the enlargement of
the production’s nomenclature will become the guaranty of the country’s
development and revival.

References:
1. T. Shengelia. Global business, Tb., 2014
2. E. Meqvabishvili, Economic globalization: Directions, challenges, perspectives.Tb.,
2016
3. L. Khikhadze, the basic of deals of world trading organization and Georgia’s foreign
policies, Monography. Tb., 2014.
4. http://geostat.ge/?action=page&p_id=2230&lang=geo
5. http://www.fund.ge/geo/who_we_are/4

50
 MOLDOVA
Alexandru Gribincea,
PhD., Prof.,
Free International University of Moldova
Silvia Lazari, PhD,
Free International University of Moldova
Georgeta Gherghina, PhD,
Free International University of Moldova

Estimated synergy banking services market

Annotation. Rapidly advancing technological progress. Mankind has already entered the
fourth stage of technological development. Scientific and technical progress penetrating in all
fields, including banking. Grazie advances in IT, banks fall agree to implement various IT
technologies of banking practice. Besides facilitating these operations, accelerate operations,
release staff from routine work human. Thus, in the future banks will reduce the number of staff,
branches, subsidiaries, etc., more insistently implementing IT technologies, products supplied
remote banking services through social networks and through annexes offered by banks. Hence
the banks' interest in IT. Banks do not have the knowledge and potential to develop these
programs. As a result, IT companies will gradually assimilate banks, and the first examples
already exist on the banking market. The research purpose is to investigate the state of things in
the banking market, estimating prospects to determine vector policy implementation in the field
of domestic banks.
Keywords: banking sector, the future of Banks Virtual Banks, bank mergers, bank
Competitiveness.

Introduction. In the next two decades, the banking sector is expected to

change drastically. While banks are preoccupied with their own problems small,
inner-IT companies and startups are gradually learning to penetration and
activation in banking and financial services sector. So, about 10% of the revenue
returns Starbucks mobile financial services. Amazon launches its own payment
service for receiving banking services through art installations and mobile,
Facebook allowed users to send live messenger one-another's money. Banks are
forced to adapt to jucul on "new ground" - otherwise they are subject to decline
slowly but surely towards extinction. Scientists, economists and bankers forward
various hypotheses how this financial area and how banks can compete with IT
companies.
Research purposes. This research aims to elucidate trends in the global
banking market and prospects for the market in Moldova in the context of high-
tech makers.
The research methodology includes an analysis, comparison, prediction,
extrapolation, empirical research, induction and deduction.
Results and analysis. Perspective online banks is due to two things:
convenience and efficiency for the customer regarding banking activity.
Virtualization is one of the main trends of development of the banking sector. The
future of virtual banks, where there will be queues at offices. Virtualization creates
51
competitive advantages as it allows to reduce costs and improve service quality.
Online banks rely on IT. For example, a number of players made the money
transfer as simple as communicating on social networks.
Banks have developed for this purpose a messenger (communication
program online by sending audio or written in real time between two or more users
simultaneously), through which it is only necessary to select the source, insert the
amount of transfer and pressed the "send" button. By another application mobile
funds transfer bank only needs to select a recipient from the list of contacts in
social networks, mailboxes or phonebook.

Fig. 1.Number of collaborators in Top-10 global IT companies, 2016 [8]

Banks have implemented programs of social networking features: all natural

and legal persons’ accounts is reflected on the screen simultaneously. Make a bank
transfer is equal to perform certain movements with the mouse to trigger various
actions. Any transaction can be discussed in chats, each transaction can attach a
comment or photos.
Banks can achieve online transaction currency after the exchange rate. iBank
boasts number of security elements. Financial accounts are no longer maintained
the accounts on cards - your virtual complement amount necessary immediately
before you perform commercial SMS by sending the eve of customer acquisition
by the bank. Thus, offenders would need to compromise not only account but also
to take physical possession of the phone user. "The surest card - is that which is 0".

52
 Capitalizations (billion USD)
Fig. 1.Capitalization in the Top-10 global IT companies, 2016 [8]

Allegedly smartphones and embedded chips will replace credit cards. Some
authors noted that "digital bank" [4], will reduce the market significance, branches
and representative offices of banks as customer service channels will diminish as
they approached the bank digitization. Only in 2011 across Europe were closed
about 7200 branches and agencies. It is not important how fast, but bank
subsidiaries and branches will disappear.
Romania's main banks - branches of foreign banks, 2013
• Italo Romena Bank - Italy
• Bank of Cyprus - Cyprus
• Bloom Bank France - France
• BNP Paribas Fortis - Belgium
• Caixabank - Spain
• Citibank - Ireland
• ING Bank - Netherlands
• Credito Montepio - Portugal
• TBI Bank - Bulgaria
Source: NBR FGDB [11]
With great predict we can say that traditionales books will disappear in the
next 10 years. They will be replaced by smart phone and chips in clothing, smart
watches and other things. In some European countries it is already possible to fill
the car with fuel without going outside. Banking application locates service
stations, and can enter only column number, brand of gasoline. The fuel supply is
automatically started immediately after receiving money in your bank account.
Soon cars will be powered by gasoline, "communicating" with the software petrol
station.
53
 The future is not far away, but in the doorway. In the subway, you can pay
the fare, bringing smartphone NFC-chip tourniquets and banking application. After
a few years, we will be able to repeat the same procedure without smartphones,
bankcard NFC-ring. To withdraw money from ATM also will not need special
equipment - just accessing online banking using a smart phone, scan the QR code
and enter the menu cash withdrawal. The new economy will be based on chips and
objects through the internet and the cash rate will not exceed 30%. However, to
completely eradicate cache will not be possible even for the most advanced
governments. In Sweden, transfer payments only reached 70% share.
Bank branches will turn into showrooms. The main functions of retail
banking subsidiaries of the 20th century - are cash transactions: Deposit and
withdrawal. In the XXI century, transactions are online and you will not need
many bank branches. There is no need for consultation expected if there is a
mobile application and a call center of the bank. In the future, the department will
play showrooms, where customers are trained how to use mobile banking function
or product.
Companies of this kind already exists in Poland since 2012 (mBank), which
proposed a new architecture for digital Social banks. Its customers can transact
through Facebook, through video services etc. The bank closed practically all
branches and maintaining old infrastructure spending were directed towards
advertising the new method. As a result about 2/3 of guests accepted new platform
[7].
Another example is British bank Atom Digital. The Bank received banking
license and now carries out its work successfully. Atom provides services
exclusively through mobile electronic installations. Clint to open an account just to
install necessary software in your mobile phone to log into it, select the type of
account, a photo ID and some data indicate. Banks of this type exist in Russia [1].
"Тинькофф Банк» has no branches or ATMs, and all service is performed
remotely. Simultaneously banching Internet is considered as the best in Russia for
many years already.
The internet banking service has such great advantage that it saves you from
going to the bank for a wide range of operations, from money transfers direct debit
services, pay bills, view account statements, making deposits or applying for a
loan.
Collaboration with suppliers of goods and services. Banks have something
there at Google, Facebook, and thousands of online stores - access to credit card
users. Sellers of goods and services can only guess what customers are outside the
trading platform. For example, the seller of goods does not know that their
customer has just purchased a plane ticket to Paris and jewelry seller are not aware
when assisting buyers anniversary. If sellers would be willing information would
better meet the wishes of customers. All this information is available to banks. But
banks can not reveal confidential information about its customers openly - that
could lead to image loss and problems with controlling bodies. But harsh

54
anonymous data is not affected by these restrictions. Financial enterprises will gain
based on collaboration with commercial companies.
Intelligent system for tracking expenses. Technologies require banks to be
more humane, intelligent, and according to the authors of the research will be able
to recognize customers and predict their behavior. Focuses on predicting future
events. Based on knowledge of organizational behavior, managers can predict
certain behavioral responses in relation to changes. Thus, a manager can predict
the behavior of loyal consumers and will use this information to make decisions. It
provides organizational behavior techniques that facilitate human control.
Although modern society is based on the concept of individual freedom,
controlling behavior is viewed by managers as a valuable tool offered by
organizational behavior in achieving efficiency.
The bank of the future will have more information about the client than it is
today. Bankers will likely know what a person can lose their jobs or, conversely,
will be advanced in the post if his salary will be stable or increase. New technology
will help banks to decide on the issuance automatically and individually credits for
each person.
API (Application Programming Interface). APIs - are rules that govern how
the software interact with each other. Each bank has multiple complex programs
developed in different periods, different di programmers. With time code extends
programs to hundreds of thousands and implementation of innovations becomes
more difficult. To compete with IT companies is only possible through a method -
combining all the programs into a single system via API and a digital heartbeat.
Experts and journalists already discussing a new era in software. In some
works [7] authors polemic on the importance of API-first design. Previous
interface was put on the forefront, but this task soon becomes second. API
architecture becomes important and which eventually will be front-end - is not so
important.
API is necessary for banks to create their own digital basic and interact
better with customers. A great example of innovation in this area - Fidor Bank.
Financial institution recently received an award for Global Banking Awards
platform API that enables customers and partners to connect indirectly from banks
[2].
Based on this technology, bank customers can transfer money via Twitter,
commercialize and use criptomoneda by third parties based on use banking
services. Criptomonedă or criptovalută (in English CryptoCurrency) is a type of
digital currency, virtual currency surrogate unbanked used as means of payment
(eg Bitcoin, Litecoin, dogecoin, OneCoin, PreisCoin). In Germany, there is already
a single API, using the customer can work with any bank in the country. It operates
a similar system in Poland identified in one of the banks can open one account to
another. A sixth largest bank in Spain, Bankinter uses Amazon cloud to run
simulations of credit risk in 20 minutes to 23 hours in advance. A major US
investment firm uses AWS to run simulations of credit risk for long-term debt and
capital backed securities in its subsidiary in London. By using AWS can scale up

55
large amounts of on-demand technology infrastructure and pay only for what it
uses. With such a vast computing capacity available on demand, it is extremely
important to the capital markets industry where milliseconds of difference can
mean millions in profit, the company said.
Financial structures become increasingly the same with IT companies, and
this requires high performance computing centers. The first steps in this direction
have already been taken by the Dutch bank DNB, which allowed the use Amazon
Web Services for a range of banking services, including Web sites, mobile
applications platform for retail banking, calculations of high performance and
analysis credit risk. These technologies are used by other banks, including Dutch
bank Robeco Asset find $ 8 billion, the Spanish bank Bankinter, Australia Suncorp
Bank etc. However the bank will look like in the future? Or will stop work or
transform IT-company.

Fig. 1. Bankers survey results on the question over how many years the
mobile phone will replace bank cards, 2016
Source: authors' investigations.

Currently banks and IT companies, involved in financial services, occupies a

rival tendency to draw his side a part of the market. IT companies have
elaborations and technologies, strong side is the experience of banks in the
financial market and the opportunity to provide financial services complex.
Important is to clarify the banks' ability to fight the competitive IT company for a
56
"niche" market or a synergy between competitors. As a result of investigations we
can conclude:
1. Appear changes in the behavior of people who do not want to waste time
to shop, travel, they can get away.
2. Increasing IT spending. Сost the solutions for banking activity grows
every year, and the structure changes have occurred. A few years ago the main
expenses for the incumbent communication systems and their amortization,
networks, servers and managers work in sections. After 2010 trends began to
change, banks began investing accelerated in gathering information and increasing
banking security. These investments have given an impetus to the development.
The banking system is looking for IT specialists. Sector Information Technologies
(IT) in Moldova has seen steady growth in recent years, despite the economic crisis
in other areas. IT professionals are "look" and paid by companies in the country
with salaries higher than those of a minister. Their number remains very small,
which is why the labor market goes a struggle for youth employment still at the
university. The minimum salary for an IT specialist is 400-500 USD / month. [5].
(Average wage per economy 2016, Moldova - MDL 084.0 5 / month; k) Financial
and insurance - 10 338.9 MDL / month) [3]. A normal programmer in Moldova
receives from 1000-4000 USD / month. And the United States is identical [12].
3. Own ecosystem. Large companies are not tempted to just a product
distribution. They orient their vector towards the formation of ecosystems, which
will become a distributor for multiple services and will act as a magnet to attract
customers. This requires substantial financial allocations IT systems. As a result,
these companies have to assess prospects three variants: own acces develop
ecosystem to integrate into any alien or disappear. In addition to all necessary
team, a leader versed presence, the presence of a considerable number of
consumers with income not less than 1000 USD.
4. E-Marketplace (virtual marketplace where buyers and sellers meet to
exchange goods, services or information). In traditional designs ecommerce see
only servicing sell-side, the side that organizes the sale and e-marketplace is
oriented towards interaction broader - it only becomes conductor ecosystem, where
customers live and supply, who are consumers in the end. In the future about 50%
of transactions will be made through this system. It serves as example the Alibaba
Group, comprising more than 50% market share in China in the context of buyer-
seller interaction. Amazon, get 50% of income on account of provision of
opportunity sellers to find buyer through the platform. The new e-comm system,
logistics, postal operators, major retailers, banks and major IT players will become
e-marketplace.
5. Criptocurrency the moment did not become a significant player in the
market of electronic transactions. Visa and Master Card at the moment, I do not
see criptocurrency serious competitor. Maybe in the future they will have more
significance, but to date, their presence is poorly visible.
6. Chat - program that allows online conversations transmitted (almost)
instant messaging. Customers will not ring. For effective communication banks

57
must integrate with social networks and chats launch them. Compared to the chat
should be approached creatively, he has developed, making voice extensions, etc.,
otherwise the idea can be costly and inefficient. Currently some banks to delay,
divert equipped with technology, artificial intelligence and neural networks. In this
way they become self-organizing and chats can be integrated banking channels,
where everyone can write.
7. Cashless (no cash, no money). Banks today are less convincing vis-a-vis
cash. Getting money in cash is free to issue a cash deposit - the free, and for a
cashless transfer of money - a fee is charged. Financial institutions do not stimulate
transactions by viraemnt. Sixth feel effects as necessary as most banks to pass on
these methods.
8. Bek office should become an IT platform. Back office department consists
of people with special training, aimed at confirming the execution of orders and
their enforcement or non-enforcement department fornt office. Tracking the orders
consist of: Cashing value of purchase orders and sales orders in paying the
settlement period; Dealing daily transaction reports submitted by both markets by
acknowledgments of order execution; Tracking Recording dividends and interest
according to data from the accounting department; Archiving orders executed,
expired, canceled or changed, and certificates of shareholders. Service should be
modernized and automated.
9. Synergy more effective than confrontation. Financial institutions can take
credit market banks and P2P transfers and contactless payments. But even without
banks and financial institutions will not survive because its work will use existing
banks Classic. For these reasons it is necessary not to make rebranding market, but
to combine the capabilities of others. Future decisions are by combining financial
and banking systems (internal and external).
10. Big Data - is the future that will allow the bank customer knows better.
The problem lies in the fact that many banks have already learned to collect
massive big data, but little appeal may examine.
In these conditions, necessary to increase the maximum level of security that
will allow use of the latest technologies based on artificial intelligence, biometrics,
Big Data and other innovative technologies.

References:
1. Analysts: online banks will form the vanguard of IT-company competition. https: // ria
.ru / economy / 20151030 / 1310838013.html [visit 10.03.2017].
2. How will the future look like banks. http: //tv.rbc .ru / archive / Levchenko /
589c941d9a7947 ef 0 647823d[visit 10.03.2017].
3. Average earnings on Economic Activities, 2016 [http: // Statbank. statistics. md /
pxweb / pxweb / en / 30% 20sociala 20Statistica% / 30% 20Statistica% 20sociala
SAL010__serii% __03% __ 20lunare 20FM / SAL015100.px / table / tableViewLayout1 /? =
ab853741-0baf-4ad7 rxid -bea4-0768f496c793 [visit 10.03.2017].
4. Digital bank: strategies to launch or become a digital bank / Chris Skinner. Singapore:
Marshall Cavendish Business, 2014. 314 p.

58
 5. Moldova is "hungry" for IT specialists / http: // www .timpul. md / article / in-republic
-Moldova-e-hungry-for-specialists-it-44737.html [visit 10.03.2017].
6. Some Banks Are Heading To The Cloud - More Are Planning To. https: // www.
forbes. com / sites / tomgroenfeldt / 2014/06/26 / Some-banks-is-heading-to-the-cloud-more-is-
planning to / # 73 c 613c58c9b[visit 10.03.2017].
7. Coding Of The Future Is Here, And It Threatens To Wipe Out Everything In Its Path.
https: // TechCrunch. com / 2015/09/27 / of- the- future- coding -is- here- and- to- threatens-
wipe- out everything -in- its-path[visit 10.03.2017].
8. Top-10 global IT companies: the number of employees and capitalization
(infographics). https: // dev. by / slow / main / top-10[visit 10.03.2017].
9. The seller intellect. http: // forbes. net. u / shops / Forbes / 1427402 [visit 10. 03. 2017]
10.Tezis top-cifrovom-nastojaschem-i-buduschem. https://delo .ua /finance/-10[visit
10.03.2017].
11. Ale bank branches straine. http: // www .banknews .com / news / 67308 [visit
10.03.2017].
12. Wage-good-for-developers. http: // www. publika. md /[visit 10.03.2017].

Maxim Sandu,
postgraduate, Free International University of Moldova
Alexandr Gribincea,
PhD, professor, Free International University of Moldova

Global problems of manking and economic safety

Annotation. At the present stage of the development of civilization, more than ever were
sharply raised the questions, without the solution of which, the further progressive movement of
humanity along the path of economic progress is impossible. Despite the fact that the economy is
only a part of human activity, from its development in the 21st century, to a greater extent
depend the problems of security and the preservation of peace, the natural environment and the
human environment, as well as moral, religious and philosophical values. The end of the
twentieth and early twenty-first centuries led to the development of a number of local, specific
issues of the development of countries and regions in the category of global ones. However, it
should be recognized that the internationalization played a decisive role in this process.
Keywords: Globalization major problems, economic security, social and economic tasks,
society, nature, environment.

Introduction. As a rule, huge material and financial resources are required

to solve global problems. The main criteria for assigning a problem to the global
category are considered to be its scale and the need for joint efforts to eliminate it.
Global problems - inconsistencies between the most significant planetary needs
and the possibility of their meeting by the joint efforts of humanity in a certain
period of time.
Examples of global problems of the world. The global problems of humanity
are problems that affect the vital interests of the entire population of the world and
require for their solution joint efforts of all states of the world. In modern
conditions, global problems include: the North-South problem; The problem of
poverty; Food problem; Energy problem; The problem of ecology and sustainable
development; Demographic problem; The problem of human development; The
59
problem of ensuring human security; The problem of development of the World
Ocean.
Other global problems are also emerging. According to their origin, nature
and methods of solution, global problems, according to the classification accepted
by international organizations, are divided into three groups. The first group
consists of problems determined by the basic socio-economic and political tasks of
humanity. These include the preservation of peace, the cessation of the arms race
and disarmament, the non-militarization of outer space, the creation of favorable
conditions for world social progress, and the overcoming of the lag in the
development of countries with low per capita incomes. The second group covers a
set of problems that unfold in the triad "man - society - technology". These
problems should take into account the effectiveness of the use of scientific and
technical progress in the interests of harmonious social development and the
elimination of the negative impact of technology on people, the growth of
population, the establishment of human rights in the state, its release from overly
strengthened control of state institutions, especially on personal freedom as an
essential component of human rights. The third group is represented by problems
related to socio-economic processes and the environment, that is, the problems of
relations along the line of society-nature. This includes the solution of raw
materials, energy and food problems, overcoming the environmental crisis,
covering more and more new areas and capable of destroying the human life[2].
The number of global problems is growing, in some publications of recent
years there are more than twenty problems of our time, but most authors identify
four major global problems: environmental, peacekeeping and disarmament,
demographic, fuel and raw materials. The scale, place and role of individual global
problems are changing. The environmental problem has now come to the forefront,
although until recently its place was occupied by the struggle for peace and
disarmament. There are also changes within global problems: some of their
components lose their former significance and new ones are emerging. So, in the
struggle for peace and disarmament, the main emphasis was on reducing the means
of mass destruction, non-proliferation of mass weapons, developing and
implementing measures to convert military production; In the fuel and raw
materials problem, a real possibility of the exhaustibility of a number of non-
renewable natural resources has appeared, and in the demographic one new tasks
have arisen associated with a significant expansion of international migration of
the population, labor resources, etc. In the twenty-first century, humanity is
especially keenly aware of the need to solve global problems that cover many
aspects of life and affect all countries without exception. All global problems are
closely intertwined with each other; therefore, it is not possible to solve each of
them individually by the efforts of only some countries. There are a lot of global
problems; we will single out the most significant of them at this stage of human
development[3]. One of the most urgent global problems today is energy. This
problem was confirmed in the mid-1970s of the last century during the oil crisis.
Let us highlight some of the most significant reasons for the emergence of a global

60
energy problem: the uneven stratification of mineral resources on the territory of
the globe; Unevenness and growth of consumption by various states; incomplete
production of primary raw materials; absence and inefficient secondary processing
of mineral resources. For all of the above reasons, we can add one more, which is
in the field of economic policy. This is a global competition for fuel and energy
resources, for their division and redistribution between giant fuel corporations. At
the present stage and for many years ahead, the solution of the global energy
problem will depend on the degree of reduction in the energy intensity of the
economy, that is, on the energy expenditure per unit of GDP produced [4]. The
reduction in the specific energy intensity of the economy is the central task of the
energy policy of the countries, without which the energy sector will inevitably
restrain the country's socio-economic development. Solving this problem requires a
rational restructuring of the economy. Along with the expected structural changes
in the economy, intensive implementation of organizational and technological
measures to save fuel and energy is also envisaged, that is, a targeted energy-
saving policy. The result of structural changes in the economy and the
implementation of energy-saving policies should be a significant reduction by the
year 2030 of energy intensity of the global economy. The energy factor in world
politics plays a key role, along with military, political or economic factors. Russia
ranks first in the world in terms of natural gas reserves (23% of the world's
reserves) and in terms of its annual production, providing about a quarter of the
world trade in this energy carrier, dominating the European gas market. In July-
August 2015, the indicators of the extractive sector were in the positive zone: in
August, the increase in extraction of minerals in annual terms was 0.7%, including
0.4% in the extraction of fuel and energy minerals. Characteristic for the fuel and
energy complex this year was the outstripping growth of crude oil supplies to
external markets in comparison with its volumes processed in the domestic market.
Oil production in January-August 2015 increased by 1.4% compared to the same
period of 2014, its exports increased by 7.3%, and crude oil processing accounted
for 98.4% of the corresponding indicator of 2014. It should be noted that in 2014
the situation on the world oil market has radically changed. The average price for 1
barrel of oil in 2014 was $ 100-110, now, in 2015, the average price for 1 barrel of
oil is $ 40-50. In our country, great importance is attached to energy security, a
high level of which ensures economic and national security in general[1]. The
energy sector has a huge impact on the social situation in the country, since the
level of energy comfort and the degree of availability of energy resources largely
determine and will determine the quality of life of citizens. In connection with the
current foreign policy, the oil and gas sector came under severe restrictions from
several countries. To date, there are different points of view on the long-term
prospects for the development of the global oil industry. Today, there are different
points of view on the long-term prospects for the development of the global oil
industry. Some experts suggest that oil will lose its position in the first half of the
21st century. Proven world geological reserves of gas and coal significantly exceed
oil reserves. However, the use of coal in terms of existing global environmental

61
problems significantly reduces the scope of its use. Therefore, today the prevailing
opinion is that more than one decade of oil will have the greatest importance
among hydrocarbon energy carriers. The global energy problem is the problem of
providing humanity with fuel and energy. At present, the most developed countries
of the world are aimed at achieving the maximum possible energy independence;
the less developed countries are experiencing an increase in energy dependence.
Increasing demand requires a redistribution of existing energy supplies, increased
energy production and the development of alternative energy sources. Alternative
sources of energy include: energy of the sun, wind, water, thermonuclear fusion,
etc. The sun is practically inexhaustible source of thermal energy. The use of solar
energy is the cheapest and easiest way to solve some energy problems. In some
countries, using the energy of the Sun solves partially the problem of providing
houses with thermal energy and hot water supply. The conversion of solar energy
into electrical energy, where a small amount of the latter is required, has found its
application in calculators, telephones, etc. Widely are conducted work on the use
of wind energy in Canada, Sweden, Germany and other countries. In addition to
inexhaustibility of the resource and high environmental compatibility of production
the advantages of wind turbines are relatively low cost of energy received by them
(approximately 2-3 times lower than at TPPs and NPPs). First of all, we will make
a brief description of the current state of the electricity sector in the Republic of
Moldova. Over the past 10 years, the electricity consumed is at the level of 4
billion kWh and it is unlikely that this level will change much in the near future.
The winter maximum of the load reaches 1000 MW, and the summer maximum
does not exceed 500 MW[6].
By own sources are covered approximately 20% of consumption, and the
remaining 80% are imported from the Kuchurhan state district power plant. The
installed capacity of own sources can easily cover 30%, but due to low heat load
this is impossible. One of the solutions to increase the amount of electricity
produced by own sources is the integration of renewable energy sources, i.e. the
energy of the sun and wind. Further, we will analyze the technical potential of the
sun and wind available on the territory of Moldova to understand "To what extent
can these sources cover the necessary consumption?".
The wind potential. According to various measurements, it is established
that at an altitude of 50 m above the earth, more than 98% of the country's territory
is blown by winds with an average speed of 4.0-7.5 m / s, and at an altitude of 100
m -5.0-8.0 m / s. The southern part of the country, which occupies about 30.5% of
the territory, is more blown, and the average wind speed is within 5-8 m / s. It is
followed by the northern part of the country, which occupies 29.6% of the
territory, and then the central part with 25.3%. In the central zone, there are more
urban and rural settlements, as well as large forest tracts, which together increase
the roughness of the earth and consequently reduce the wind speed. Below is a map
of the winds of Moldova.

62
 According to this map, the wind
at a speed of 6,1-6,7 m/s prevail in the
southern part of the country. A careful
analysis of the wind speed distribution
shows that for Moldova it is
recommended to use wind installations
of the 3rd class (average annual wind
speed 6,0-7,5 m / s) with a mast height
of 100 m, and which can be
theoretically established in the southern
region in the area 10432 km2, in the
center at 8,129 km2 and in the northern
part at 10088 km2. To produce electric
power on a large scale, it is worth using
the existing wind potential at a height
of 100 m. For this purpose it is possible
Fig. 1. Winds Map: to use zones from all 3 regions of the
Source: Agency for Energy Efficiency [7]. country with good wind potential (4th
class, 400-500 W / m2) and excellent
potential (5th class, 500-600 W / m2). Taking into account all the limitations, this
potential is estimated at the level of 9,150.0 MW and exceeds by much the
country's need. The wind potential, which can really be used, is at least 3 times
higher than current consumption.
Solar potential. The duration of
sunshine in Moldova ranges from 2100 h
/ year in the north and about 2300 h / year
in the south. The average annual
irradiated solar energy in the country is
presented below on the solar map.
As can be seen from the solar atlas,
the radiated energy is in the range of
1240-1400kWh / m2. In fact, recently this
indicator has grown in the south of the
country to 1500kW / m2. To date,
photovoltaic converters are widely used
with efficiency of 15%. This means that
from each m2 you can get about 195 kWh
/ g of electrical energy. In order to cover
the entire amount of electric energy
consumed, it is theoretically necessary to
have photovoltaic panels with an area of
20512821 m2 or 20.52 km2. The
Fig. 2. The solar map of Moldova [7]. Republic of Moldova has an area of
63
33,846 km2. This means that we need to cover about 0.06% of the country with
panels. n the other hand, technologies do not stand still and there are photovoltaic
panels with an efficiency of 30%, but they are still very expensive. If you use such
panels you need to cover only 0,03% of the territory of the country. In fact, it is
easy to cover such an area, but at the moment there are several obstacles that
hamper the development of these clean energy sources. First, there are technical
limitations that currently limit the maximum level of integration of intermittent
energy sources, such as wind turbines and photovoltaic installations at 150 MW.
Secondly, the new Law No. 10 from 26.02.2016 on the promotion of renewable
energy sources will come into force only on 25.03.2017. This will promote the
development of renewable sources of low power for each consumer, which was not
possible under the old law. This will also create more attractive conditions for
investors who are ready to put into operation a large-capacity power plant.
In addition to these two sources of energy - wind and sun - Moldova also has
biofuel, which can be used in part to produce electricity. Potential of biofuel is
presented below.

thousand tonnes/year
Fig. 3. Potential of biofuels [6]

Some estimates show that the country's biofuel potential can cover even up
to 20% of the total energy demand of the country, which today is 2300-2400 toe
(tons of oil equivalent). To date, the production of electricity from renewable
sources is very low (see table below).

64
 Table. 1.
Electrical energy produced from RES [3].
No. Source Power, MW
1 Photovoltaic panels 2,0
2 Wind Turbines 2,3
3 Biogas 2,81
4 TOTAL 7,11

Thus, in this table, it is obvious that today the installed capacity is very
small, and the electricity produced by them is below 1% of total consumption. On
the other hand, it is necessary to achieve a 10% share by 2020 of the target set in
the official documents of the Republic.
Conclusions. Moldova theoretically has sufficient potential to cover its
electricity consumption from wind and solar energy. In principle, to get at least 20-
30% of electricity from renewable sources, it is necessary to make a lot of effort.
The European Union has adopted as a priority in the near future a significant
decarbonization of the energy sector, using innovative solutions and technologies
to convert renewable energy sources, to overcome, which will allow a lot to move
the current limit of 25-30% permissible for connecting unstable sources to the
network. Moldova as a country with European aspirations, as well as lacking its
own mineral energy resources, should follow the same path - an increase in the rate
of renewable energy sources. In order to significantly overcome the permissible
level of 150 MW for connecting to the network of unstable sources, it is necessary
to find solutions for efficient management of distributed renewable sources, to
have a system of high accuracy in predicting the energy of renewable energy, to
have effective technical solutions for balancing the low-cost power system,
produced from renewable sources. With the growth of electricity production from
renewable energy sources, the import of electricity from Kuchurhan will also
decrease, and this will bring many benefits, the main ones being: 1) reduction of
natural gas consumption in Transnistria and reduction of debts to Gazprom, since
consumed natural gas at the power plant is not paid and Debt continues to grow. At
the moment, it is unclear who will ultimately pay this debt and there is a risk that
this duty will be placed on the shoulders of the whole country; 2) reduction of
greenhouse gas emissions, which will help Moldova achieve the goal of reducing
CO2 emissions by 20% by 2020.

References:
1. Gribincea A. Corporația multinațională ca o rețea a securității economice regionale. Republic
of Moldova within the context of the new architecture of regional security. Conferință
internațională. 15 may 2015. Chișinău: CSSAS, 2015.
2. Gribincea A. Securitatea societală și economică. Impactul politicii externe asupra interesului
național. Conferintă știintifico-practică, 15 mai 2015. Chișinău: IRIM, 2015, p.6, 22, 54.
3. Gribincea A., Percinschi N., Cernei M. Aspecte teorético-practice ale asigurării securității
energetice prin intermediul utilizării inovațiilor în sectorul energetic. Simposion științific

65
internațional. Sectorul serviciilor în sec. XXI: realizări, problema, perspective, 26-27 martie
2010, Chișinău: USM, 2010. p.221-226.
4. Gvozdicova V.I. Global Energy Problem and Perspectives of Russia's Energy Security. In:
Young Scientist. - 2016. - №1. - P. 422-425.
5. Perspectivele dezvoltarii resurselor regenerabile. [visit 10.03.2017] https ://ava. md/ 2017/
02/14/.
6. Potential of biofuels. Agency for Energy Efficiency. Chisinau: 2016.
7. The solar map of Moldova. [visit 10.03.2017] http ://www .mappery. com/ Solar-Radiation-
Map-of-Moldova.
8. Winds Map: Source: Agency for Energy Efficiency. [visit 10.03.2017] http ://www .mappery.
com/

Igor Enicov,
PhD, Professor,
Free International University of Moldova

The implementation of the integrated management of the risk in the

commercial bank
Annotation. In this paper is presented the possibility of implementing the system of
integrated management of risk in the commercial banks in the Republic of Moldova. It is
succinctly presented the situation of the banking system and the strategy for the implementation
of standards Basel III in the basis of the information submitted by the National Bank of
Moldova. Is subsequently described the concept of integrated management of risk and presented
a case study on applying the methodology of the VAR (Value at risk) to measure the influence of
the amendment to the interest rates on amendment to the net monthly income concerned of
interest (MNI).
Keywords: the integrated management of risk, value at risk, changing the interest rate on
the loans, the interest rate risk, net monthly income afferent interest.

Introduction. It is considered that the risk management in the commercial

bank is influenced by three main powers: 1-owners of the bank, 2-bank
management and 3-society, whose interests are represented by the regulatory
bodies [2]. It is clear that each of these powers in certain time intervals, or in
certain specific conditions, may have different purposes. The main purpose of the
components for reglementation is to approximate the maximum possible amount
of bank capital by the sum of the risks to be borne by the bank. Namely in
accordance with this purpose by the Committee of banking supervision of the
Basle Convention have been proposed the detailed methods for the assessment and
management of risk in the commercial banks [4].
Even if they are obliged to respect normative acts imposed by the regulatory
bodies and control, in certain situations, the managers of the banks are interested in
the development of alternative techniques, the more sophisticated, of risk
management. In theory there are known several conceptions of risk management.
From these considerations, but also for that at present the "in accordance with the
regulations issued by the National Bank of Moldova and the suitability of capital
66
banks in the Republic of Moldova is determined in accordance with the Basel I,
which are relatively simple and only covers the credit risk concerned the bank's
activity in comparison with the provisions of the Basel II and Basle III, which
require the calculation of the requirement of the capital taking account of the risks
of credit, the market share and operational" [5], we believe that it is necessary to a
new approach in which it will be possible to formulate and solve the problem of
creating a management of integrated risks . This approach is supported by more
authors [1],[3]. The main problem of this approach is the complexity of this
project, the large amount of information required, the impact of the decision-
making erroneous or Non-optimal, significant spending the maintenance of staff
and integrated systems in the management of risk assessment. In this article we
will present our vision on the possibility of implementation of integrated
management of risk in the commercial banks in the Republic of Moldova.
Current situation. The analysis of the financial situation of the banking
sector in 2016, submitted by NBM, shows that "assets recorded an increase, banks
becoming more resistant, being capitalized and with a high level of liquidity,
which gives the possibility of the banks to finance more active the economy of the
country. At the same time, the banking sector was confronted with some problems
related to the high level of non-performing loans, while maintaining the trend of
decline of the business of credit. In this respect, the banks will continue and
fortifice the framework on corporate governance and management of the risks
which are subject to these" [6].
At the same time, "following the discovery of indices relating to the non-
transparent structure of shareholders and the commitment to credit operations with
increased risk, National Bank of Moldova, in compliance with the provisions of the
Law financial institutions, established on 11.06.2015 for special supervision on 3
banks (BC "Moldova-Agroindbank" S.A., BC "Moldindconbank" S.A. and B.C.
"Victoriabank" S.A., hold in total 64.2 percent of the assets of the banking sector).
In connection with the changes in the legislation, special surveillance has been
substituted with intensive supervision pending resolution of the problems existing
in the banks. For each of the banks referred to, the National Bank has created
groups of monitoring that analyzes the financial situation, transactions, the agenda
of the organs of the board shall participate at the meetings, and in case of necessity
the NBM issues recommendations as regards the activity of these banks" [6].
Entry into force of the Law concerning the activity of Central Banks and of
investment companies, which is planned for the end of the year 2017 and
subsequent entry into force of the regulatory framework secondary implementation
of its provisions, will devote the passage from the implementation of international
standards and Basel I to the latest standards in the field - Basel III [6].
As mentioned in the Strategy of implementation of standards Basel III in the
light of the legal European framework, the best method of implementation of the
Basle Convention III, it will be a general approach of preparation on the steps with
a view to the completion of both the banking legislation in force and the
preparation of the staff of the NBM, as well as of staff and supervised banks". In

67
question it is necessary to "the development of an adequate infrastructure, the
development of systems for the management of risks and the adequacy of capital,
the discipline of the market and financial stability and implementation of new
instruments of surveillance of the banks which are comparable with those of the
European Communities"[5].
However, even if the risks to be addressed in the Basel III, including the
degree of credit risk, the risk of the market and operational risk have become more
complex and is conscious of the existence of mutual correlations between them, for
the time being it is too early to talk about the management of banking risks fully
integrated. In addition, we mention that, the representatives of the Basel
Convention are sure of the accuracy of the approaches of the referred to in the rules
drawn up by the Committee, but this optimism is not shared by all the commercial
banks.
The description of the concept. It is known that, the determination of the
integrated risk of the bank, we can only rely on sizes determined for certain
categories of risks, because the diversification of substantially reduce the
maximum size of the likely loss. At the same time, exaggerating the role of
diversification and the volatility correlations between different categories of risks
may result in insufficient capital.
In addition, it is wrong to appreciate the risk as something negative, because
the risk is indissolubly opportunity. Thus, the traditional techniques of risk
management are usually fragmented and liabilities, facing the insurance and the
prevention of losses. This approach to the risk assessment does not take into
account that the risks are a source of competitive advantages. Recent advances in
respect of models and strategies of risk management recognize that the competitive
potential of the risk in the framework of a systems approach that maximizes the
value of a financial institutions. Currently, the general trend in the field of risk
management is expressed by the evolution of the design of the traditional,
hierarchical, processing, with separate exposures to the risk, by the design of the
integrated, holistic, with solutions consistent coherent and integrated management
of risks.
In the framework of the system for the integrated management of risk all
exposures at risk are covered in a uniform manner, as a system integrity and
coherent system of cells of the business and of exposures to various hazards, of
connections between these and the mutual wrapping and interactions plots. The
system identifies and traps all these risks, evaluate the potential consequences and
adopt an approach active (aggressive) in relation to the uncertainty and risk
inherent in achieve business objectives fixed and in the creation of value [7].
The fundamental principle of a system of integrated management of the risk
is the idea that the management of the risk is the service of each employee and that
risk management is not limited only to the level of the board of directors or the
financial division. Risk management should become a part of the culture of the
banking institution, together with a system of values and manners of
communication of the information.

68
 From the point of view of the conceptual, but most of all, technical, a system
of integrated management of risk must be capable of measuring and to strengthen
all the relevant risks in a manner consistency, taking into account all the existing
correlations and possible, and to present the exposure and the sensitivity of the
bank to any risk factor in any moment of time.
In spite of his character of innovation in the field of risk management,
analysts and managers informed of recent developments in financial theory already
considers that it is only a matter of time until the systems of integrated
management of risk will become standards for financial institutions. Information
Technology and financial theory have come to a level of development at which the
greatest obstacles to the implementation of integrated systems of risk management
are no longer of a technical nature or assay, but the administrative and, in some
contexts, of an economic nature. The cells of business have formed, standardized
procedures and the new information systems should be implemented in such a way
as to enable the and to facilitate both centralized control and centralized
management of the risks.
Any system of integrated management of risk offers the following [7]:
Data centralization. All data and information are centralized in a database in
which are stored all information relating the positions and transactions.
Establishing a single data bases involves important restructuring in the
organizational structure and it is important that the banks do not underestimate the
importance and the significance of this approach. Published complexity and
difficulty in assembling a database of centralized data can have negative
consequences from the point of view of the time and of the costs which the bank
will have to bear after implementation of the poor system.
Analytical processes. Any system of integrated management systems
required for data processing. These systems will depend on the risks to which it is
exposed to a bank and the level of sophistication required by management in their
management. Where there are affected the financial risks, analytical methods (for
example: Monte Carlo, value-at-risk, stress testing, etc.) may be incorporated in the
framework of these systems. In certain cases, the schemes to will analyze the
exposures to the various hazards (for example: for credit risk the market risk) will
incorporate both traditional methods, simple (for example: credit scoring) and
more sophisticated (for example: Credit-at-risk measure generated).
Monitoring and evaluation. The analytical processes of systems of risk
management will be integrated into a central monitoring and evaluation. These
systems will include:
• systems of operational and the tracing of any problems;
• monitoring systems and assistance in the appropriateness of decisions (for
example: the application of the limit positions of other constraints and restrictions
of operational and technical);
• systems for the validation of prices, estimates of the VaR and of the results
of other models used for analytical purposes;

69
 • systems for the collection and processing of data for the adjustment of the
estimates to the risk and the evaluation of the performance.
Merits decisions. The results generated by these systems will be used in the
risk assessment process as well as in the management of risks. Reports having a
different in appearance depending on the specificities and their destination will be
produced by the information systems and will be remitted to the persons
responsible (for example: reports of validation and verification of the data and their
integrity; reports of performance; reports evidence of the decisions, etc.).
Essential condition for any plausible integrated management is assuming a
commitment to develop and implement an integrated approach and consistency, as
well as to support all the efforts of direct attached to the realization of this
approach.
The first step is to identify the most relevant risks which affects cash flow
and the position of the economic and financial standing of the bank. The process of
identifying the channeling require all the information and the main resources
available (primarily of the information society and human). By participating in this
process, personnel responsible are engaged in a management consistency and the
judicious risk analysis and in the implementation of policies of risk management
adopted by the management.
The second step is the definition of consistent methodologies for the
evaluation of the different types of risk. Otherwise, the performances of the
adjusted to the risk related to various cells of the business will not be able to be
compared.
The third step is to create the principles and policies, as well as the definition
of roles and responsibilities for the functions and posts responsible for risk
management with the aim of increasing the effectiveness of the operational
processes for the management of risks.
When the management system integrated of the risk is implemented in a
financial institution, it is recommended that a gradual approach in the stage of the
integrated design of risk management: a progressive implementation in small
increments, but sure, then a giant leap. But the bank should select a cell turnover in
the quality of pilot projects in the case in which they are concerned a limited
number of types of risk. The primary responsibilities of this pilot cells will be the
coordination of the activities of risk management within the central bank, the
creation of methods and consolidated methodologies for the evaluation of risks and
the reporting of these risks factors of the relevant decision (for example: Risk
Metrics department of the company JP Morgan).
A date but with winning the experience in managing the risks, the policies
and procedures related risk management, laid down for pilot, may be extended to
other cells of the bank.
One of the key principles of the integrated management of the risk consists
in the concentration of their resources and efforts not in the direction of reducing
the risks, but in the direction of the optimization of the portfolio of risks and of
generating the best results possible with a view to establishing a competitive

70
advantage and improve performance of business through making decisions based
on the overview for the bank.
There will still be a common language for communication of risks should be
created. This will make it easier and that he would support the dialogs of the
relative risks of the managers and employees.
The establishment of a common language begins with the definition of the
concept of risk in the context of the activity of the bank. This implies the
understanding of the uncertainty with which will be facing the institution.
A methodology must be created for the identification and the determination of the
priorities of the risks. Also will be identified sources of risk from which several
categories of risk can be identified.
In order to assess the risks of the bank may be structured on the basis of the
components of the profit. So by the risk we understand the deviation of the income
of the Bank from the values estimated in the outcome of the impact of the factors
of risk. This risk can be evaluated, for example, by diverting or indicators of the
volatility of the Return On Assets (RA), the Net Present Value (NPV), the monthly
net income concerned of interest (MNI), etc.
Case study. The study is to implement the methodology of the VaR (Value
at risk) to measure the influence of the amendment to the interest rates on
amendment to the monthly net income concerned of interest (MNI).
The calculation of the Monthly Income Net Interest (MNI) for the month of
reporting shall be carried out according to the formula:

1
( × − × ) × , (1)
12

where, A, P – active/passive sensitive to changing interest rate;

i – the class of maturity/reassessment;
, − the average rate of interest for the assets/liabilities which are
sensitive to changing interest rate;
n – the number of the classes of maturity/reassessment.
Changing the MNI due to the increase of the annual rates of interest rate
with 2 p.p. shall be calculated according to the formula:

1
△ ( ×△ − ×△ )× , (2)
12

For the purpose of calculating the ΔMNImonth, the assets and liabilities that
are sensitive to changing the interest rate should be grouped into classes of
maturity/reevaluation and calculate the average interest rate for each class of
maturity/reassessment according to the formula:

71
 ∑
( )= , (3)

Where: ( ) – the average of the average weighted ( );

t – the number of the observation;

– the average rate of interest for the class of maturity/reassessment i at

the time of observation t;
T – the total number of observations.
Calculate the standard deviation mean square ( ) for each class of
maturity/ revaluation.

∑ − ( )
( )= , (4)

Calculate the standard deviation mean square MNI monthly according to the
formula:
1
( )= × + −2× × × × , (5) × ×
12
Where: A, P - the assets/liabilities which are sensitive to changing interest
rate;
σ rAi, σ rpi – standard deviation mean square of interest rate subsidies on the
assets and liabilities that are sensitive to changing the interest rate on the class by
maturity/reassessment i;
pi – the correlation the amendment to the interest rates on the assets and
liabilities that are sensitive to changing the interest rate on the class by
maturity/reassessment i.

Table 1.
The calculation of the influence of the amendment to the interest rates
on the assets and liabilities of the sensitive areas on the income of the net
interest
The class of maturity/reassessment (months)
Indicators To
1 2 3 6 9 12 > 12
view
Active sensitive to changing interest rate
rA – average
annual interest
2,41 8,69 12,06 13,54 14,27 17,67 18,54 14,63
rate on assets,
%
( ), % 7,29 10,37 14,32 15,11 15,39 15,85 16,39 14,46
72
 σ (ri) 0,0316 0,0271 0,0223 0,0158 0,0095 0,0118 0,0163 0,0088
ASD,
23903 67667 45243 36809 109973 103409 132899 180878
thousand mdl
Monthly
Income
relating to 48,05 490,03 454,75 415,37 1308,19 1522,43 2052,98 2205,34
interest rate,
thousand mdl
Liabilities that are sensitive to changing interest rate
rP – Average
annual interest
6,00 8,14 8,18 9,97 10,66 11,12 13,66 8,76
rate on the
liabilities, %
( ), % 6,25 9,10 8,96 8,87 8,86 8,74 9,49 9,09
σ (ri) 0,0377 0,0175 0,0209 0,0220 0,0156 0,0186 0,0166 0,0113
PSD, thousand
31491 92390 30106 23655 56231 78928 138865 53852
mdl
Monthly
expenditure
relating to 157,57 626,69 205,25 196,58 499,55 731,63 1580,71 393,11
interest rate,
thousand mdl
The estimation of the influence of the interest rate on the MNI
The
-0,4701 0,1211 0,0863 -0,1334 0,2553 0,6404 0,5450 0,4477
correlation
σ (MNIi)
thousand 140,007 190,93 95,226 69,243 98,6411 96,5923 177,682 118,545
mdl
MNImonth,
thousand -109,52 -136,7 249,5 218,78 808,637 790,798 472,269 1812,23
mdl

The amendment to the forecast MNI, shall be carried out on the basis of the
gap of the facility, and with a probability of 99 %, it is the minimum level of the
stability of the banking process recommended by the Supervisory Committee of
the banking sector to the Basle Convention.
VAR =  MNI *2,33 = 986,868 * 2,33 = 2 299,4 thousand mdl.
As in the case of distribution of the normal, if the probability is 0.01 when
 p is equal to 2.33, we will obtain that the maximum change in the monthly
income net interest will not exceed, for the data from the example presented,
2299,4 thousand mdl.
Evident that the methods for the determination of the overall risk must also
be developed. Appear here a string of difficulties:
- to the integration of indicators of risk in the framework of the portfolio,
exepmlu for the purpose of determining the global VaR, the values of the
indicators cannot simply be collected;
- must be considered that, in fact, the risk is not subject to the normal
allocation;

73
 - the initial weights of the instruments in the portfolio, as a general rule, it
shall be maintained constant;
- must be taken into account the correlation between the different categories
of risks.
But this means that for the determination of the Var global, parametric
modeling method (Method Variant-Covarianta, method or RiskMetriks) will
seriously underestimate the overall risk. So you have to use the method is mainly
historical simulation, which in turn has a drawback high: predict the evolution of
the parameters in the future on the basis of their value in the past. Or you will need
to use the methods of simulation, such as Monte Carlo, which is a flex but requires
a great power of calculation.
Conclusions. The concept of integrated management of the risk is relatively
simple. In any activity, the risk is inherent in any business decisions. And this
possibility must be administered by a competent manner and efficiency. An
integrated management system of the risk shall propose solutions ad hoc this
challenge and offers a consistent approach and integrated risk management and is,
in particular, very attractive for financial institutions. Once the financial
institutions becoming more complex, it is obvious that the traditional approaches
of risk management and supervision of the management will gradually become
unsuitable. If banks want to prosper in a marked by the continued growth of the
complexity of the then the managemnt of integrated risk is not an option but a
necessity.

References:
1. Dowd Kevin. Enterprise-Wide Risk Management for Corporates. Global Treasury
News. September, 1998;
2. Enicov I. Evaluarea riscului financiar în banca comercială. Chişinău 2007, CEP USM.;
3. Froot Kenneth, Scharfstein David, Stein Jeremy. A Framework for Risk Management.
Harvard Business Review. 1994
4. Hennie van Greuning, Sonja Brajovic Bratanovic, Analyzing and Managing Banking
Risk, Bucuresti, 2004;
5. Strategia de implementare a standardelor Basel III în Republica Moldova prin prisma
cadrului legislativ european (CRD IV). Disponibil: http://bnm.md/files/Strategia%20(web).pdf ,
accesat 28.01.2017;
6. Situația financiară a sectorului bancar în anul 2016. Disponibil:
http://bnm.md/ro/content/situatia-financiara-sectorului-bancar-anul-2016, accesat 31.01.2017;
7. Vlad Tomozei, Igor Enicov, Iurie Oboroc. Riscuri și instrumente financiare de
acoperire. Chișinău, Evrica, 2002.

74
 Alexandru Gribincea,
PhD., Prof.,
Free International University of Moldova,
Salih Kaya,
Prof. Dr.,
Meditterranean University of Montenegro,
Bestenigâr Kara,
PhD, Student, Free International University of Moldova

Turkey and Romania. A promising partnership

Annotation. Under the general catogory of international relations; this study shortly
brings forward the bilateral economic and political relations between Turkey and Romania,
whose cooperation has become closer particularly since Romaniaʹs European Union
membership. Within this frame the subject of article has been searched in depth as follows: short
history of bilateral relations between Turkey and Romania, short analysis about economic
outlook of the two countries as well as bilateral foreign trade between the two countries. The
topic of article is a current issue. Turkeyʹs present relations with Romania are counted as one of
the best foreign policy of Turkey at the Balkans, which have been continuing within the frame of
mutual understanding, friendship and cooperation. The reflection of mentinoned relations can be
seen obviously within economic indicators, where Turkey ranks as the largest trade partner of
Romania within the Balkans, Middle East and non-EU countries. On this basis the aim of the
study is to reveal the recent developments within bilateral relations and economic performances
of the both countries then to determinate problems underlying their economies finally to find out
bilateral foreign trade and investment relations.
Keywords: Cooperation, economy, export, import, growth.

Introductıon. ʺUnited we stand divided we fallʺ ‒ an old proverb.

Cooperation, partnership or close relations arising from friendship are important
strategic facts of being stronger for countries, through which they always support
each other materially and spiritually or in case of violation militariliy considering
current international arena.
In this context the relations of Turkey and Romania have been continuing
since 625 years taking the Ottoman Empire period into account. Bilateral relations
of Romania and Turkey are quite closed, which have been continuing
warmheartedly at strategic partnership level today. Turkey supports Romaniaʹs
policies everywhere including NATO, and Romaniaʹs supports Turkey in the EU
framework. Bilateral foreign relations of the two countries are counted as one of
the best foreign policy of Turkey within the Balkans and Europe.
The impacts of common history and deep cultural links obviously gather the
two countries. Today 70 thousand of Ghuzz and Tatarian Turks remaining from the
Ottoman Empire live in Romania, alongside of more than a thousand of Romanian
immigrants who reside in Turkey.
The reflections of such a good partnership can be seen within economy of
the two countries. Today Turkey is the largest trade parner of Romania within the
Balkans, Middle East and non-EU countries alongside Turkey is the 5th largest
export partner.

75
 Polıtıcal dımensıon. Todayʹs Romania is located on the route connecting
Turkey with Western and Northern Europe as well it is the second largest country
after Turkey compared to Balkan states in terms of area and population. (With an
area of 238.391 km2 Romania, where live 19.37 million of people is the largest
country in Southeastern Europe and the 12th largest country in whole Europe. On
the other hand area of Turkey is 783.562 km2, where 78,7 million people live.
Apart from that Thrace is an extension of the Balkans, centered on the borders of
Bulgaria, Greece and Turkey. Within this frame we can compare Turkey with the
Balkan states (See Figure 1)).

Figure 1: Turkeyʹs Neighbour Country Romania

Source: U.S. Department of Defense, 2016.

We can see 4 critical points considering bilateral relations between Turkey

and Romania: Ottoman period, pre-World War II, Cold war period, post-cold-war
period and current period.
Ottoman Period. Bilateral relations between Turkey and Romania date back
to 1391, when Romania entered to the Ottoman administration. Those days
Romania consisted of three principalities: Moldavia, Wallachia and Ardeal. These
three principialities had fallen under the auspices of the Ottoman Empire on 15th
and 16th centuries. firstly Moldavia entered to Ottoman administration in 1391,
then Wallachia and Ardeal. Moldavia had been under the domination of the
Ottoman Empire throughout 487 years from 1391 to 1878, Wallachia had been
during 423 years from 1455 to 1878 and Ardeal had been through 160 years from
1526 to 1686. Moldavia and Wallachia were buffer states in the Ottoman period.
They were independent at internal affairs and they were dependent on Ottoman
Empire at foreign relations. They paid taxation to empire and they provided
military assistance at wars. Voivodes of principialities were appointed by Ottoman
sultans. (Voivode literally means war-lord, which is a Slavic title that originally
denoted the principal commander of a military force. During Ottoman times,
Voivode was the title borne by the ruler of a province, whose powers included the
administration, security and tax collection under a special regime). Besides they
supplied the food needs of Istanbul, which was the capital of the Ottoman Empire
in that period. For example they provided almost whole wheat need of Istanbul.
76
When the Ottoman Empire lost the 1806-1812 Russo-Turkish War, it signed the
Treaty of Bucharest with the Russian Empire on 28 May 1812 and ceded the
eastern half of Moldavia to Russia which afterwards became known as Bessarabia.
This agreement divided Moldavia into two. After the second defeat of the Ottoman
Empire against to the Russsian Empire as a result of Russo-Turkish War (1877-
78), Moldavia and Wallachia gained their independence via Treaty of Berlin in
1878 and they merged under the name of Romania. The Romanian War of
Independence is a part of the Russo-Turkish War (1877-78). Then the Kingdom of
Romania was established in 1881 and existed until 1947 (Özkan, 2012:152).
Pre-World War II. In the meantime the Ottoman Empire collapsed a few
years after the World War I and the Republic of Turkey was established on 29
October 1923. Then political developments in 1930s such as Italyʹs enlargement
endavours at the Middle East and the Balkans, the Nazi Partyʹs rise to power and
Europeʹs arms race were begun to be seen as threat against to the world peace. This
situation led Turkey and Romania to come together. Accordingly a new stage in
bilateral relations started. Within this frame Turkey and Romania signed an
agreement on friendship, non-aggression, arbitration and conciliation on 17
October 1933. Then the Balkan Pact was signed by Turkey, Greece, Yugoslavia
and Romania on 9 February 1934 for maintaining the geopolitical status in the
region following World War I (Embassy of Romania to the Republic of Turkey,
2015). Then embassies were opened mutually in both Romania and Turkey in
1938, which strengthened bilateral relations.
Cold War Period. During World War II Romania became as an ally of Nazi
Germany against to the Soviet Union until 1944, then it joined the Allied Powers.
After the World War II the world countries were divided as Western and Eastern
blocks, in other words polarization came to light and the Cold War period began.
In this period there was an international political and military tension without using
violence on the world. The two blocks had completely different political,
economic, social and military ideologies from each other. The United States (U.S.)
and Soviet Union were two superpowers leading the world, that had strong
economic, political and military positions. Countries supporting U.S. including
Turkey gathered under the roof of North Atlantic Treaty Organization (NATO),
which was also known as ʹʹWestern Allianceʹʹ and other countries supporting the
Soviet Union united with the Warsaw Pact. Turkey wanted to take part within
NATO to get rid of Soviet threat completely. Thatʹs why Turkey sent a brigade of
soldiers to the Korean War in 1950 for proving that it accompanies with the
Atlantic countries. In this way Turkeyʹs territories and territorial integrity would be
secured within the frame of NATO against the Soviet Union. Thus Turkey joined
to NATO on 18 February 1952 concurrently with Greece. Within this frame the
Kingdom of Romania collapsed after war and Romania was announced as
ʺRomanian Peopleʹs Republicʺ which became a socialist republic as well as a
member of the Warsaw Pact in 1947.
Within the Cold War period Romania became as one of the most important
ally of the Soviet Union and bilateral relations between Turkey and Romania
77
almost stopped. Two countries were at different poles that led them to be
ideologically, politically, socially, economically as well as militarily seperated
from each other. Besides an unobjective and biased generation towards Turkish
minority in Romania started to grow due to effect of marxist leninist ideology and
education in this manner (Adıyaman, 2011).
Post-cold War Period. The Cold War Period ended in 1991, when the
Soviet Union collapsed. But towards the end of Cold war the main countries
including Romania that held the Soviet Union together started to dissolve due to
economic rout. Even Mr. Nicolae Ceausescu as a General Secretary of the
Romanian Communist Party who had been in power during 25 years prompted a
revolt resisting evolution, he eventually fell in 1989. One year later the National
Salvation Front led by Mr. Ion Iliescu run a general election and took over 70% of
the votes. In this way Romania transited to democracy, free market economy and a
multi-party system.
Romania has started to turn its face to West within transition period. In the
context of relations with the West its passion of participation to European family
and a common future perspective with NATO opened a new stage at bilateral
relations between Turkey and Romania. Romania looked for a cooperation way
with the Western Word using its trumpcard that it wasnʹt involved defacto in
Yugoslaviaʹs dissolution process in 1990s. Turkey and Romaniaʹs high-level visits
at this point contributed positive impact at bilateral relations (Özlem, 2007:44).
Current Relations. Turkey was the only country, that supported Romania
and Bulgaria for NATO membership through a decision, which was accepted in
parliamentary assembly of NATO. Romania gained full-membership at NATO in
2004, which also joined to EU in 2007. In other respects Romania is the only
country, that supports Turkey in EU through its policies even EU abstain to enroll
Turkey. This was an important point of bilateral relations between the two
countries. Mutual understanding, friendship and cooperation dominated at bilateral
relations in this period. As is known to all Turkey defends development of political
stability, its continuation and peacekeeping at foreign policy directed towards the
Balkans. In this context Turkey frequently visits region to enchance international
dialogue. Romania supports Turkeyʹs this role in the Balkans.
Within this frame H.E. Mr. Recep Tayyip Erdogan, Former Prime Minister
of that period and Current President of Republic of Turkey visited Romania on 24-
26 October 2007, then H.E. Mr. Abdullah Gul, Former President of Republic of
Turkey of that period visited Romania on 2-3 March 2008. After that the H.E. Mr.
Traian Basescu, President of Romania of that period, paid a working visit to
Turkey on 21 August 2008. After this visit H.E. Mr. Ahmet Davutoglu, Former
Minister of Foreign Affairs of that period and current Prime Minister visited
Romania on 2-3 July 2009 and 31 August-1 September 2011. H.E. Mr. Traian
Basescu paid a state visit to Turkey in December 2011, during which the Strategic
Partnership Declaration aiming at enchancing bilateral relations in every field,
particularly in the political and economic domains, was signed. The Action Plan in
the implementation of the mentioned document was signed during the official visit
78
of H.E. Mr. Titus Corlatean, former Minister of Foreign Affairs of Romania on 13-
14 March 2013. Besides Former Minister for EU Affairs and Chief Negotiator H.E.
Mr. Egemen Bagis visited Romania on 4-5 April 2012, while H.E. Mr. Traian
Basescu, President of Romania traveled to Turkey within the framework of the
Black Sea Economic Cooperation Summit on 26 June 2012. H.E. Mr. Traian
Basescu accepted the invitation of H.E. Mr. Recep Tayyip Erdogan President of
Republic of Turkey paid an official visit to Turkey on 5-6 February 2014 (Republic
of Turkey Ministry of Foreign Affairs [MFA], 2015) (The Action Plan for the
implementation of the Strategic Partnership Document was signed in March 2013.
The EU Minister and Chief Negotiator Mr. Volkan BOZKIR have made an official
visit to Romania in February,2016).
H.E. Mr. Recep Tayyip Erdogan also paid an official visit to Romania on 1
April 2015 in conclusion. The president of Turkey H.E. Mr. Recep Tayyip
Erdogan cut short his official visit to Romania due to pay his condolences to the
family of Prosecutor Mr. Mehmet Selim ŞİMŞEK, who was taken hostage and
slain at the Istanbul Caglayan Justice Palace on 31 March 2015. Both countries
signed bilateral cooperation agreements on water, forestry, meteorology and
hydrology spheres and declaration on the establishment of a joint economic and
commercial committee establishment, agreement on cooperation between Anadolu
Agency and Romanian National News Agency and memorandum of understanding
and agreement on exchange of documents between the National Library of Turkey
and National Library of Romania (Ağanoğlu, 2015).
Even Turkey and Romania donʹt have a common border, they have a coast
on the Black Sea and they are also important to each other with the Bosphours
factor. Within this frame both Romania and Turkey are founding members of the
Organization of the Black Sea Economic Cooperation (BSEC) and Romania is a
member of the Black Sea Naval Cooperation Task Group led by Turkey. Besides
they are also two of founding members of the South East European Cooperation
Process (SEECP), which is in force to strengthen security and political situation, to
enchance economic economic dialogue and to cooperate in main domains as
human resources, democracy, justice and battle against illegal activites. In addition
to that both Romania and Turkey take part at international platforms such as
Council of Europe, NATO, United Nations (UN), Organization for Security and
Cooperation in Europe, World Trade Organization etc.
Another important fact providing such close bilateral relations between
Turkey and Romania is obviously deep cultural links and common historical
heritage. Bilateral relations date back to the end of 14th century as noted above.
Today 70 thousand of Ghuzz and Tatarian Turks as an ethnic minority remaining
from the Ottoman Empire live in Romania. According to Article 6 of the
Romanian Constituton, the ethnic minorities living in Romania can preservate,
develope and express their ethnic, cultural, linguistic and religious identitiy
including education in the mother tongue. Within this frame mentioned Turks
alongside of the other 16 ethnical minorities enjoy their rights through
organizations established by them. These organizations have political party status
79
and minority groups are represented in the parliament in proportion to their
numbers. In this context Ghuzz and Tatarian Turks have one seat each in
parliament (MFA, 2015). Apart from that approximately 20 thousand of Turkish
citizen live in Romania as businessman or employee. Accordingly about 90
thousand of Turkish people totally live in Romania, which isnʹt a small figure.
Besides about 1.300 of Romanian immigrants currently live in Turkey.
Economıc snapshot. Romania has the second largest market status after
Poland in Central and Eastern Europe, that is a growing country since its EU
membership. Romania as an exsoviet republic had entered to struggle period after
the revolution in 1989 to reconstruct its economy. Within this frame Romania has
started to adapt to the free-market economy as well as has begun to attach
importance to foreign trade with the object of economic development. Besides a
great deal of reforms were made by Romania for the same purpose. In this context
all state-controlled establishments quickly and transparently have been privatized
and policies towards enchancing life standarts of Romanian citizens have applied.
These reforms were supported by international organizations as the International
Monetary Fund (IMF), the World Bank and EU. Romania gained full-membership
at EU which makes it one of an attractive country of Europe.
On the other hand national economy have some problems. Romania is the
lowest country of the EU after Bulgaria in the context of economic productivity.
Tax incomes canʹt reach to sufficient level by virtue of problems such as high-level
grey economy, crowded rural population contributing subduedly to tax system,
irrgular tax collection etc. Besides Romania is one of the most vulnarable country
in terms of per capita income, environment standarts, education expenditure as
well as tax debts. Accordingly countryʹs tight commercial and financial
engagement with the Euro area make its economy risky against to developments of
Euro area (Republic of Turkey Ministry of Economy, 2015).
In the meantime Turkey also as Romania has free market economy today,
that stopped import-substitution policies and has started to apply outward-oriented
policies for developing and sustainable economy since 1970s. Today Turkish
economy has competetive rules, where private sector plays leading role and public
sector plays regulator role. As a current emerging economy Turkey has the worldʹs
18th largest nominal gross domestic product with 799,535 billion USD and 18th
largest GDP by purchasing power parity (PPP) with 10.185 USD on
macroeconomic dimension. Structural reforms in compliance with the EU
accession process definetely contributed Turkey to become an important economic
player of today. Additionally the EU is Turkeyʹs largest economic partner,
accounting for 40% of Turkish trade alongside of Turkey ranks 6th in EUʹs top
import and 5th in export markets via EU-Turkey Customs Union (Delegation of
the EU to Turkey, 2015). But as well as Romania Turkey also struggles with
current basic economic issues that makes Turkish economy vulnerable such as
impact of political instability at neighbour countries, non-falling inflation, current
account deficit, fiscal deficit, slowdown of economic growth, external financing
needs, increasing unemployment rate.
80
 Economic Performances of the Two Countries. Romanian economy
recorded a rapid increase with 6.9% of GDP growth in 2007 and 8.5% in 2008
thanks to fast economic growth in the middle of 2000s, increase of economic
indicators and continuation of this trend after EU membership (See Table 1). But
after the beginning of the global recession in 2008 this process was interrupted. In
other words its economy decreased 7.1% in 2009, which entered to recovery
process in 2010. Accordingly in comparison to 2012 it showed a market
improvement in 2013 as well as in 2014.

Table 1.
Real GDP Growth of Romania and Turkey within 2004-2014 period
Countries 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Turkey* 9.4 8.4 6.9 4.7 0.7 -4.7 9.2 8.8 2.2 4.0 2.9
Romania 8.4 4.2 8.1 6.9 8.5 -7.1 -0.8 1.1 0.6 3.4 3.0
Source: Eurostat, 2016. Access: http://ec.europa.eu/eurostat.

*Turkeyʹs GDP Growth were taken from the Turkish Statistical Institute by
virtue of Eurostat didnʹt indicate these datas.
We can say that 2008 was a fruitful year for Romania. Its nominal GDP
reached to 204.3 billion USD, which has been the highest level ever. After the
financial crisis this level fell to 189,8 billion USD in 2011. As of 2014 the given
amount has been represented as 199 billion US$, which is almost fourfold less than
Turkeyʹs, however it is a sign of recovery in comparison to 2011. Besides Romania
almost cought Turkey in terms of GDP PPP with 9.996 USD as of 2014. Fiscal
policies in the country includes enlargement of tax base, prevention of tax fraud,
reach the consolidated budget aims negotiated by EU and IMF, while decline tax
rates. All we know that EU in parallel with Euro Area economically came to a
dead end due to global financial crisis, which has started to recover recently.
Accordingly impacts of crisis in the Euro Area reflects Romania negatively at
macroeconomic dimension. Because Romania exports above 70 % of goods and
services to EU. Besides approximately 82% of its bank existence belong to the
EUʹs localized banks. In other words they are connected to each other. In this sense
crisis in EU affects Romanian economy and foreign companies abstain about
realization of investment. But alongside of mentioned problems Romanian
economy firstly recorded a visible GDP growth after crisis in 2013 with 3.4% (See
Table 2). This is a sign of entrance to recovery process through domestic demand
and strong exports even though economic growth level is under pre-crisis. Due to
above mentioned investment abstention there was investment decline that led
growth level to fall from 3.4% to 3.0% in 2014. Through a stable labour market,
domestic demands and economic assistances real GDP growth was observed as
2.7% in 2015, which is expected showing a small growth in 2016 (European
Comission, 2015:3).

81
 Table 2.
GDP growth rates in volume of the EU, Turkey and Romania based on
seasonally adjusted data
Countries 2014 in 2015 Q1 2015 Q2 2015 Q3 2015 in 2016
total (%) (%) (%) (%) total (%)
EU-28 1.4 0.6 0.5 0.4 1.7 2.1
Romania 3.0 1.4 0.0 1.4 2.7 2.9
Turkey* 2.9 2.5 3.8 4.0 3.7 3,2
Source: European Economic Forecast-Winter 2015, prepared by European Comission.

*Turkeyʹs GDP Growth Rates in the first, second and the third quarters were
taken from the Turkish Statistical Institute by virtue of European Comission didnʹt
remark these datas.
Within the frame of economic assistances, Romaniaʹs amount of utilization
from EU foundations or grant programmes providing a sustainable environment
will be more compared to past years according to expectations (Kaya, 2008:25).
The amount of foundation for Romania is about 22 billion Euro for 2014-2020
period. Besides amount of foundations for Romanian agricultural sector is 17.5
billion Euro. In other respects Turkish economyʹs growth performance is under
potential, which paints an unsteady picture, compared to Romania. Economy
recovers after crisis and retrenches. As Romania Turkey also entered to crisis
period in 2009 with 4.7% decrease of real GDP growth (See Table 2). In 2010
economy of Turkey recorded a visible high growth with 9.2% however its growth
was 2.2% in 2012, 4% in 2013 and 2.9% in 2014, which is less than Romaniaʹs.
This unsteady picture is an argument of structural problems and a wrong growth
model entering to axis of global capital movements notably of United Stateʹs
Federal Reserve System. On the other hand middle income trap that can not move
Turkeyʹs GDP PPP amount forward from 10.000 USD creating differences across
the country from the point of regional development, which are closely related to
this situation. Besides, Turkeyʹs economic growth realizes mostly by import and
external financing, which makes Turkey to be dependent on foreign sources
(Yüceol, 2014:9).
Turkeyʹs economic growth in 2015 was observed as 3.7%. This can be
counted as success under the hard conjuncture of 2015 against to such as
uncertanties of two elections, financial market fluactions based on expectation of
interest rate hike of Federal Reserve System, geopolitical tensions, EUʹs economic
problems and economic slowdown of China.
Within this frame economic growth of the third quarter contributed Turkeyʹs
overall picture in 2015, which was 4,0% above expectations (See Table 2). In this
period Turkish economic growth was about two times more than other emerging
countries. Domestic consumption with 2.2 point, inventory variation with 1.0
point, public final consumption with 0.8 point and net export with 0.1 point drove
up the growth. According to expectations Turkish economic growth will reach up
to 4% in 2016 which is above Romania through newly adopted reforms. Economic
82
growth perspective of both Romania and Turkey looks higher than whole EU. In
other words EUʹs total economic growth was 1.7% in 2015, which is expected to
be 2.1% in 2016.
Romania is in Advance at Tourism. On the other hand tourism is one of
main item of economic development for both Turkey and Romania. Besides it is
the biggest developed sector in Romania, which outdistances trading sector. The
contribution of tourism to total GDP was 4.8% in 2014 and 4.9% in 2015,
according to the World Travel and Tourism Councilʹs Economic Impact 2015
report. On the other hand a visible decline is coming into question for Turkey in
comparison to Romania. The contribution of tourism to total GDP of Turkey was
4,7% in 2014, which fell to 2,8% in 2015 due to recent political developments in
Turkey. The number of tourists visiting Turkey declined 7.2% only on December
2015. Majority of tourisits vising Turkey are from Germany (15,4%) and Russia
(10%). Economic sanctions due to the recent crisis between Turkey and Russia
together with emergence of security concern based on recent attacks in Turkey are
the main reasons of mentioned decline.
Romania is the fourth fastest growing country in the context of tourism.
Besides Sibiu as one of the biggest city of Transylvania and one of the most
important cultural centres of Romania was designated the European Capital of
Culture for the year 2007 along with the city of Luxembourg. On the other hand
Turkey ranked as the fourth biggest tourism destination of Europe and the 6th
biggest destination of the world in 2014 according to the 2015 Tourism Highlights
report of UN World Tourism Organization. Besides Istanbul was a capital of the
four big empires (Roman Empire, Byzantion Empire, Latin Empire and Ottoman
Empire), which was designated the European Capital of Culture for 2010 year. In
conclusion 426 thousand of Romanian tourists visited Turkey and 38 thousand of
Turkish tourists visited Romania in 2014 according to the National Statistics
Institute of Romania.
Bilateral Foreign Trade Figures. Alongside of developing political
bilateral relations economic cooperation between Turkey and Romania gains
momentum every year. Today Romania is a developing country and the only
supporter of Turkey within EU. Besides Romania seems by Turkey as a center
country for spreading to EU. There are several signed agreements in the context of
economic relations. Free Trade Agreement in 1997, Agreement and Protocole
Agreement in Energy and Infrastructure Domains in 2001, Tourism Cooperation
Agreement in 2002 and Economic and Commercial Cooperation Agreement in
2006 were signed by the two countries. Romania joined to the EU on 1 January
2007. As of mentioned date bilateral trade betwen the two countries has been
repealed due to Romaniaʹs EU membership, which has came under the EU-Turkey
Customs Union.
In regard to bilateral foreign trade, foreign trade volume has been about 5,42
billion USD for the last five years (See Table 3). Accordingly it will also be around
6 billion USD at the end of 2015 as expected. Thatʹs why both Turkey and
Romania intend to increase foreign trade volume up to 10 billion USD.
83
 Table 3.
Bilateral Foreign Trade Indicators of Turkey and Romania
(Million USD)
YEAR EXPORTATION IMPORTATION BALANCE VOLUME
2013 2.600 3.600 -1.000 6.200
2014 3.008 3.362 -354 6.370
2015 2.817 2.600 217 5.417
2014/2015 % -6,4 -22,7 161 -15
Changes
Source: TURKSTAT (TÜİK).

Turkish export was represented above 3 billion USD and its import was
3.362 billion USD in total of 2014 that led foreign trade volume to be above 6
billion USD. On the other hand Turkey has foreign trade surplus for the first time
at January-November period of 2015 in comparison to the same period of 2014.
While foreign trade deficit is one of the most important problem of Turkish
economy, this situation even if just a drop would relieve Turkey in financial
context. Today Turkey is the largest trade partner of Romania within the Balkans,
the Middle East and non-EU countries. Besides Turkey is the 5th largest export
market, the 9th import partner of Romania. Additionally Turkey is the 14th largest
partner of Romania in terms of foreign trade surplus (Embassy of Romania to the
Republic of Turkey, 2015).
The main export items of Romania from Turkey are textile, iron-steel, land
vehicles, machines and devices producing energy and the main import products of
Turkey from Romania are metal ores, iron-steel, crude petroleum products and
land vehicles (MFA, 2015).
Romania Looks Like Being Turkeyʹs Future Electricity Exporter.
Speaking of petroleum it would be reminded that there are insignificant number of
countries contaning underground energy resources within own borders without
colony. Romania is one of them, that has one of the largest petroleum reserves in
the European continent and the biggest natural gas reserves in Central and Eastern
Europe. Its proved oil reserves are totally 60 million tons, while its geological
reserves in total 2 billion tons. Besides its proved natural gas reserves
approximately total 150 billion m3, while its geological reserves total 615 billion
m3. Additionally 30 billion cubic meters of natural gas reserve was founded at
common petroleum and natural gas exploration of Lukoil, PanAtlantic and Romgaz
on 15 October 2015 within territorial borders of Romania. Romaniaʹs current oil
reserves could be depleted approximately in 23 years, while its current natural gas
reserves would be enough for 14 years. Romania can become self sufficient in this
context (Radut, 2015). Solely Turkey is a foreign-dependent country at energy
sphere as compared with Romania. In this context Turkey only can produce 7% of
petroleum and imports 93% of crude oil in total. The main oil importers of Turkey
are Iraq with 31%, Iran with 30%, Saudi Arabia with 11%, Nigeria with 10%,
Kazakhstan with 9%, Russia with 3%, Egypt with 1% and Italy with 1%. In respect
84
to natural gas Turkey only can produce 1% on its own. Within this frame Russia
(56%), Iran (19%), Azerbaijan (9%), Algeria (9%) Nigeria (7%) and LNG and spot
market (1%) are the main natural gas supplier of Turkey. Electricity is one of the
main item of energy. In this context Romania exported approximately 7.28 TWh of
electricity in 2014, which is 54% higher compared to 2013. Besides its electricity
consumption totaled 41.1 Twh in 2014 that declined 0.9% compared to 2013. This
situation shows that Romaniaʹs electricity production is more than its consumption
making Romania to become an important electricity producer, which might further
open to foreign countries as a supplier (Radut, 2015a). On the other hand Turkeyʹs
electricity needs are increasing year after year. Turkeyʹs electricity production
remained 4.06% and reached up to 252 TWh, whose electricity consumption
parallelly increased 3.58% and reached up to 257 Twh in comparison to 2013. In
respect to electricity trade, Turkeyʹs electricity export reached up to 2.7 Twh with
119.7% increase, whose electricity import reached up to almost 8 Twh with 7.6%
increase ( Republic of Turkey Energy Market Regulatory [EMRA], 2015:1-3).
According to projections of Ministry of Energy and Natural Resources of Turkey,
its electricity requirement would reach up to 414 Twh in 2023 (MFA, 2016).
Accordingly Turkey is looking for other source and route alternatives due to
regularly increasing need. Turkeyʹs main electricity suppliers are Bulgaria, Iran
and Greece today. Within this frame Turkey plans to import electricity from
Romania by submarine power cable in the Black Sea, which of negotiations has
been continuing since 2006. In case of realization of this project, both countries
might transmit 1000 MWe of electricity by 450 km of line. The feasibility studies
havenʹt finished yet. The cost of this line is expected to be about 600 million Euro.
Within this frame the two countries signed memorandum of understanding of
agreement on electricity transmission and business management cooperation on 23
January 2014 (Grigore, 2015).
Turkeyʹs Contribution to Bilateral Trade. Considering bilateral
investment 13.808 Turkish private companies actively operate in Romania today.
Besides the two important banks of Turkey (Credit Europe and Garanti Bank) are
in service in Romania, where exist a large number of their branches.
The main fields of activity of Turkish companies existing in Romania are
construction, industry, agriculture, banking business, real estate, trading and
manufacturing sector. But they are more effective within construction sector (as in
Russia and many other countries). In this context amount of projects to date
implemented by 90 Turkish construction firms have cost above 6 billion USD.
Additionally Turkish companies rank number two after China at Romaniaʹs first
250 foreign companies.
The cost of Romanian investment in Turkey is 20 million USD. As
mentioned above bilateral foreign trade volume is above 6 billion USD.
Considering these amounts 95% of foreign trade volume belongs to Turkey at
bilateral foreign trade (Ağanoğlu, 2015). Another reason of this situation is
Romaniaʹs foreign trade with the EU. 70% of Romanian foreign trade takes place
within the EU member states.
85
 Romania is pleased to employment generation by Turkish companies.
Besides it provides convenience to Turkish firms. Accordingly we can suppose that
bilateral relations between the two countries and bilateral relations of chambers of
commerce and industry of the two countries are pretty good. As a proof of this,
The Goodwill has been signed by Foreign Economic Relations Board of Turkey
and Chamber of Commerce and Industry of Romania on 1 April 2015 in Romania.
The bilateral investment and foreign trade volume can further increase and gain
momentum in this manner (Foreign Economic Relations Board [DEIK], 2015).
Conclusıons. The bilateral relations of the two countries gradually have
been gaining momentum more particularly after strategic partnership within the
frame of mutual friendship, cooperation and understanding. Common history and
deep cultural links, neighbourhood of the two countries on the Black Sea together
with their similar approaches to regional security and political and economic
interaction will strengthen further their relations.
In respect to economic indicators Turkish economic growth paints an
unsteady picture compared to Romania taking the last five years into account. Both
countries recorded a visible economic growth in 2015 with 2,7% (Romania) and
3,7% (Turkey) that economies of the two countries are also going to progress in
2016, according to expectations.
Tourism as a significant contributor of economy is the most developed
sector in Romania comparing to Turkey. Accordingly tourismʹs contribution to
total GDP of Romania is gradually increasing in opposition to Turkeyʹs. Economic
sanctions aimed at Turkey due to Russian crisis and security concern arising from
recent bombing attacks gave cause for a visible decline in 2015 from 4,7% to
2,8%. If Turkey doesnʹt take necessary measures, decline would further continue
and effect Turkeyʹs economic growth.
Romania seems by Turkey as a center country for spreading to EU. Bilateral
foreign trade volume volume have been recording around 6 billion USD during the
last five years which is mixed blessing. Both countries aims to increase this level
up to 10 billion USD, which means 6 billion USD doesnʹt satisfy them. One of the
main reason of this situation is movement of 70% of Romanian goods within EU.
On the other hand Turkey is the largest trade partner of Romania within non-EU
countries, Balkans and the Middle East, which means that the rest of Romanian
goods are imported by Turkey.
Turkish private companiesʹ investment in Romania is above 6 billion USD.
Romanian investment amount in Turkey is 20 million USD. Considering these
amounts, majority of foreign trade volume and investments belong to Turkey. The
number of Turkish private companies in Romania is closed by 14 thousand today,
which means Turkey has employer status in Romania.

References:
1) Books KAYA, Salih (2013), How to Prepare Projects for EU Funded Programmes, 4th
Ed. Seçkin Yayınevi, Ankara. ÖZKAN, Abdullah (2012), Osmanlıʹnın İzinde-İmparatorluğun Üç
Kıtadaki İzleri, Boyut Publishing Group, Istanbul.
2) Articles
86
 a) Single-authored Articles
ÖZLEM, Kader (2007), ‘’Soğuk Savaş Sonrası Dönemde Romanya’nın Dış Politikasında
Batı Dünyası ve Türkiye’yle İlişkiler’’, Journal of the Black Sea Studies, Vol.12, pp.35-47.
YÜCEOL, Hüseyin M. (2014), ‘’Türkiye Ekonomisi Üzerine Genel Bir Değerlendirme
2014 Yılı ve Sonrası’’, Toprak İşveren Journal, Vol.103, pp.8-11.
3) Anonymous Reports
EUROPEAN COMISSION. (2015), Macroeconomic Imbalances Country Report-
Romania 2015, European Economy Occasional Papers-223, Brussels.
REPUBLIC OF TURKEY ENERGY MARKET REGULATORY AUTHORITY. (2015),
Electricity Market Development Report of 2014, Ankara.
4) Internet Resources
a) Online Articles
ADIYAMAN, Şeyma (2011), ‘’Türkiye-Romanya İlişkileri’’, Wise Men Center for
Strategic Studies, http://www.bilgesam.org/incele/146/-turkiye-romanya-iliskileri/.
b) Online Newspaper Articles
GRIGORE, Laura (28.05.2015), ‘’Romania Export to Electricity to Turkey through
Submarine Cable’’, Business Review, http://www.business-review.eu/featured/romania-to-
export-electricity-to-turkey-through-submarine-cable-81401 (30.01.2016).
RADUT, Constantin (07.01.2015), ‘’ENTSO-E: Romania’s Electricity Exports to
Bulgaria, Serbia and Hungary in 2014-7.28 TWH’’, Nine O’Clock,
http://www.nineoclock.ro/entso-e-romania%E2%80%99s-electricity-exports-to-bulgaria-serbia-
and-hungary-in-2014-7-28twh/ (01.02.2016).
RADUT, Constantin (24.02.2015), ‘’Romania’s Oil and Gas Reserves’’, Nine O’Clock,
http://www.nineoclock.ro/romania%E2%80%99s-oil-and-gas-reserves/ (01.02.2016).
c) Online Anonymous Resources
DELEGATION OF THE EU TO TURKEY. (2015), ‘’Bilateral Trade&Investment
Overview’’, http://avrupa.info.tr/eu-trade-and-economy/bilateral-trade-investments.html
(15.01.2016).
EMBASSY OF ROMANIA IN THE REPUBLIC OF TURKEY. (2015), ‘’Relatii
Bilaterale’’, http://ankara.mae.ro/node/904 (13.01.2016).
FOREIGN ECONOMIC RELATIONS BOARD. (2015), ‘’DEİK ve Romanya Ticaret ve
Sanayi Odası Arasında İyi Niyet Anlaşması İmzalandı’’, http://deik.org.tr/deik-ve-romanya-
ticaret-ve-sanayi-odasi-arasinda-iyi-niyet-anlasmasi-imzalandi (25.01.2016).
MINISTRY OF ECONOMY OF THE REPUBLIC OF TURKEY. (2015), ‘’Genel
Ekonomik Durum’’, http://www.ekonomi.gov.tr/portal/faces/home/disIliskiler/ulkeler/ulke-
detay/Romanya/html-viewer-ulkeler?contentId=UCM%23dDocName%3AEK-
160802&contentTitle=Genel%20Ekonomik%20Durum&_afrLoop=709591656435479&_afrWin
dowMode=0&_afrWindowId=ob7l8r5w4_216#!%40%40%3F_afrWindowId%3Dob7l8r5w4_21
6%26_afrLoop%3D709591656435479%26contentId%3DUCM%2523dDocName%253AEK-
160802%26contentTitle%3DGenel%2BEkonomik%2BDurum%26_afrWindowMode%3D0%26
_adf.ctrl-state%3Dob7l8r5w4_246 (27.01.2016).
MINISTRY OF FOREIGN AFFAIRS OF THE REPUBLIC OF TURKEY. (2015),
‘’Romanya ile İkili İlişkiler’’, http://www.mfa.gov.tr/-turkiye-romanya-siyasi-iliskileri.tr.mfa
(08.12.2016).
MINISTRY OF FOREIGN AFFAIRS OF THE REPUBLIC OF TURKEY. (2015),
‘’Türkiye’nin Enerji Profili ve Stratejisi’’, http ://www.mfa.gov.tr /turkiye_nin-enerji-
stratejisi.tr.mfa (27.12.2016).
5) Audio Visual Media
a) Television Broadcasting
AĞANOĞLU, Yıldırım, (03.04.2015), ‘’Rumeli Yorum’’, Tek Rumeli TV, Istanbul.

87
 Alexandru Gribincea,
PhD, Professor,
Free International University of Moldova
Sergiu Garstea,
PhD Student,
State University of Moldova

Development strategy under world economy recovery

Annotation. Economic development is a quantitative and qualitative concept with a

much wider scope than the economic growth. While economic growth is measured by a limited
number of indicators, of which the most important is the growth rate of GDP, in this context the
economic development implies a dynamic equilibrium in the long run, designing trajectories for
a sustainable growth that will be based on optimum use of all available resources, the continued
development of innovative potential and human capital, creating and developing strong
institutions to foster economic growth and, obviously, but not least, ensure a judicious
distribution of income and wealth (the Gini index). The goal of the research is investigating the
state of the global economy in the early XXI century, in the post-crisis period, in order to detect
development directions and adaptation to new economic conditions. At global level, cheap and
clean natural gas is increasingly becoming a competitor of the coal as the main energy source. It
can be mentioned that in many countries, the coal is starting to become unpopular to the extent
that governments are tightening the laws on environmental protection. The challenges are just as
real and complex as the opportunities. Estimation of the global market is one of the tools of
research, identifying and implementing thoughtful, well-developed solutions. It is important to
define the challenges and opportunities when they arise along the way in order to adjust them
properly and move forward.
Keywords: development, opportunity, possible availability, growth, constraints, strategy.

Introduction. The history of the most successful modernizations allows

noticing two important characteristics, present in almost all of them. Firstly, once
again, the impetus for modernization is the understanding by the elites and society
of the country’s deadlock and the futility of its previous path of development. This
may be the result of either a serious external shock (military defeat): examples
include Russia post-1855, France post-1871, Japan post-World War II; or the
political processes leading to the emergence of a new political system, which
begins to search for its own identity: as it happens in the United States after 1865,
in Germany after 1870, Soviet Russia in the early 1920s or in South Korea after
1950, Malaysia in the 1960s, or in Singapore, which gained independence in 1965;
or the change of the political elite following a long period of deepening stagnation:
as in China’s case in the 1976-1978 years, Spain and Portugal in the early 1980s, in
the Soviet Union after 1985, in Brazil in the early 1990s.
As a consequence, in most modernizing countries the historical continuity
has been broken; even if the elite tried to find some "footholds" in the past these
were rather abstract and quite distant. The recent past was clearly perceived by the
public consciousness as something to distance from. Secondly, in the vast majority
of successfully modernized countries the modernization took place in conditions
when the unity of the elites and the people were strengthening. As a rule,
modernization did not immediately lead to higher standards of living, and even if
88
they were, the growth was significantly slower than the growth of the economy as
a whole (which is explained by the need for large-scale investments and mainly
extensive methods of modernization inherent in its first stages). In these
circumstances, the political and economic elites emphasized their unity with the
people; still the interests of politicians and businessmen were relatively clearly
differentiated: the first sought popularity and fame, the latter – the multiplication of
their capital. Ironically, none of the successful modernizers (or Deng Xiaoping and
Jiang Zemin in China or Lee Kuan Yew in Singapore or M. Mohammad in
Malaysia nor Singh in India or F. Cardoso in Brazil) did not make history as
owners of a large personal fortune or as oligarchs, while the majority of those who
could not boast any achievements (Mobutu Sese Seko in Zaire, M. Suharto in
Indonesia, F. Marcos in the Philippines or Mugabe in Zimbabwe), became some of
the richest people on their continent. Successful countries modernized as a whole,
while unsuccessful mired in corruption and material inequality.
The goal of the research is investigating the state of the global economy in
the early XXI century, in the post-crisis period, in order to detect development
directions and adaptation to new economic conditions.
Results and analysis. In the US, cheap and clean natural gas is increasingly
becoming a competitor of the coal as the main energy source. In other countries,
coal is also starting to become unpopular to the extent that governments are
tightening the laws on environmental protection.
China consumes almost half of all energy coal in the world and is in dire
need to fight against urban pollution and the threat of global warming. The level of
pollution in some parts of Beijing is 265 micrograms per cubic meter, whereas the
WHO states the safe norm for humans is 25 micrograms per square meter. The
reasons to this are smog emissions of enterprises, coal-fired heating systems, as
well as construction dust from the numerous construction projects in Beijing. In
some areas of Beijing's visibility on the road is less than 200 meters. Starting with
January 1st 2014 the country introduced control over the use of low-quality coal, as
well as toughened penalties for companies that pollute the environment. China’s
main source of energy is coal. Currently, the power consumption obtained by
burning coal reaches in China approximately 66% of the total. Coal has become
one of the main causes of severe air pollution in the northern parts of the country.
In this regard, the government intends by 2020 to a 15% increase in energy
consumption from non-fossil sources, and by 2030 – to 20%.
According to the draft plan for the 13th Five-Year Plan (2016-2020), the
authorities intend to use wind and sun energy, nuclear power and energy from
biomass feedstock more in the next five years. According to the document, steel,
energy and chemical industries will be subject to control on the release of
hydrocarbons.
The world's largest energy consumer activates the construction of power
plants using inorganic fuel. In 2015, it was planned to launch power plants using
wind with a total power capacity of 100 GW. The use of solar energy (China is the
largest market of photovoltaic equipment in the world) will increase as well.

89
Globally, the growth of renewable energy will significantly outpace the growth of
energy consumption as a whole (Fig. 1).
China is speeding up the construction of nuclear power plants as well.
Another reason determining Asia status as a key player in this market is the strong
support of nuclear energy by South Korea. Japan will start to run nuclear reactors
mothballed following Fukushima plant accident in 2011, which will reduce the
demand for imported fossil fuels.
Despite the signs of a "green revolution", inorganic fuel is deprived of the
comprehensive support needed for a successful global breakthrough. In 2009
attempts to find a replacement for Kyoto Protocol ended up failing. However, the
recent agreement between the US and China on carbon emissions into the
atmosphere offers hope that other developing countries will start taking more
stringent measures to counter global warming.

Figure 1. Forecast of growth in energy consumption

in the world in 2015-16 by type of sources, % to previous year
Source: The Economist Intelligence Unit.
Financial services: positive signals.
The past and current years are defined by the presence of more favorable
conditions for financial companies than those which followed the crisis of 2008-
2009. The companies began to grow faster and basically found solutions to many
of their old problems. For some, the main task is simply a profit recovery; others
demanded a complete revision of balance sheet accounts and the sale of certain
assets; the third required a capital increase and state aid.
The main factor is the development of global financial services market: only
half of the world's adult population uses the security instruments in regard to their
savings, lending and payments from the standard bank accounts. Even a smaller
proportion is involved in operations on various types of insurance, securities and
pension. For coverage of these share of population is necessary to develop new
budgetary instruments, such as bills on mobile phones, etc. The world economy in
2016 will remain volatile and will not become a main factor in the growth of
financial companies that rely on macroeconomic demand (as opposed to
companies that rely on new complex financial technologies). Financial companies’
possibilities are restricted by heavy financial debt of states and households that do
not allow them to assume additional loans. With regard to industrial corporations,
90
in spite of a certain improvement of their position, they remain cautious regarding
their capacity expansion due to a limited demand. Perhaps the most important
factor for financial firms is the tough post-crisis regulation, which will last for
quite a long time. These include obliging the banks to provide information on the
ratio of debt to equity and liquidity condition. Additionally, throughout the year is
expected the adoption of new regulations on the part of the program of Basel III
and the EU Banking Union, as well as US restrictions on proprietary trading,
embedded in the Dodd-Frank Act. These measures aim at improving the stability
of the financial system during the crisis, but make it less profitable during the
periods of economic growth.
Crises on the housing market and sharp changes in the structure of
investment flows (as in emerging markets in the 1980s-1990s) remain a permanent
threat. There are present risks of renewed deflation in Japan and recession in
Europe.

Figure 2. Bank loans by region in 2014 and 2015, billion USD

Source: The Economist Intelligence Unit.
In recent years, the reputation of commercial banks and traders deteriorated
seriously; to a lesser extent this applies to insurance companies, fund managers and
other financial institutions. The level of confidence in the financial sector remains
very low. Nevertheless, the major financial players as a whole were able to restore
the number of their customers – both among individuals and non-financial
corporations. This was due to the active adaptation measures: reducing costly
branch network, strengthening the presence of the Internet and mobile applications,
improving customer service and security. Competitors from developing countries
are actively joining the western financial companies. Nowadays the Chinese bank’s
advertising can be seen on the highest building of Buenos Aires in Argentina.
Stock markets combine their trading floors and marketplaces in South-East Asia
and South America. Malaysian, Brazilian and Colombian companies carry out
cross-border mergers to strengthen their positions abroad. In 2015, the process of
globalization will continue with a broader set of actors.
Companies of this sector have become much more optimistic over the past
year. Among the main reasons for it should be noted the recovery of health
spending levels in Western Europe are the development of health insurance
systems in Asia and profitability increase of the pharmaceutical companies.

91
 Figure 3. Total financial assets in 2015, trillion USD
Source: The Economist Intelligence Unit.
Healthcare and Pharmaceuticals: the Asian expansion.
An important factor became the Affordable Care Act (Obamacare) in the
United States – the largest health care reform of the last decade. Health insurance
market has spread over millions of people in the country. Under this law, companies
with a number of employees exceeding 50 people were obliged to provide their
employees with medical insurance; for smaller companies the term has been extended
until 2016.
Obama proved to be profitable for many companies. In 2014, shares of
insurance companies such as Humana, United Health, Aetna and Cigna sky
rocketed. They firmly oppose attempts by Republicans to roll down the reform.
Several commercial medical networks, as HCA, also recorded growth in profits
and revenue due to expansion of their customer base. The same phenomena were
applied to pharmaceutical companies . According to experts, the total health
expenditure in the US will grow by 5% in 2015, while sales of the pharmaceutical
companies – by 6%.
A number of other regions will register even a more pronounced growth (see
Fig. 4).

Figure 4. Growth of expenditures on health care per 1 inhabitant

in 2014 and 2015 (forecast) by regions, % compared to previous year
Source: The Economist Intelligence Unit; World Health Organization.

Several Asian countries, including China, India, Indonesia and the

Philippines, are actively building up a system of universal health insurance. Even
92
poorer countries, such as Bangladesh and the Middle East countries, follow this trend.
In Latin America, public health insurance system is a norm, and a number of countries
(like Brazil) are increasingly focused on improving the quality of health care. In
Western Europe, the focus is on improving the efficiency of the health system, which
has become very expensive. But even here the economic recovery (albeit unstable)
allows increasing the number of health care costs.
In connection with the termination in 2015 of a number of patent protections
of drugs companies such as Novartis, Otsuka, and others it is expected an increase
competition from companies that manufacture generics. Even the newest biotech
drugs are becoming more vulnerable to copying. Apparently, generic analogues of
the biotech drugs will experience a wide spread in 2015. Under these conditions,
the pharmaceutical companies try to implement deep restructuring aiming at
reducing costs and increasing investments in research and development. It is
expected the production of new drugs by such companies as Sanofi, Merck & Co.,
Johnson & Johnson. Favorable signs for pharmaceutical companies in Asia were
noted. In India, where the government has long been interested in the greater
availability of drugs than in the protection of innovation, in 2014 has loosened
control over drug prices. In China, the same thing can happen in regard to drugs
outside the system of state subsidies.
The policy change of the two Asian giants in regard to patent protection was
caused by the expanding opportunities in the drugs market. India has already
become the biggest exporter of generic drugs, but the tightening of safety
regulations in the US could threaten its potential revenues. China also considers the
pharmaceutical industry as a source of economic growth and is interested in the
elimination of international trade barriers. In general, global competition in this
sector may increase significantly, on the backdrop of increased costs for health
development.

Figure 5. Expenditures of pharmaceutical industry by region in 2015, trillion

USD
Source: The Economist Intelligence Unit.

Telecommunications: Problems of Interaction. The telecommunications

sector is in a state of rapid structural change. The rapidly growing use of the
Internet, connectivity and interoperability are incorporated into a growing number
of mobile devices. Consumer demands for speed and quality of access to
information, video and audio are becoming more stringent. As a result, mobile
operators, government and Internet service providers are compelled to direct an
93
increasing amount of investment to improve the aging infrastructure.
Adding to that, mobile operators have to find funds to pay for participation
in auctions for frequencies (especially costly developing countries such as India
and Thailand), which leads to the growth of credit debt. A partial solution to the
problems are the linking together of television, broadband, fixed-line and mobile
services. An example is the British Telecom – British fixed-line provider, which
announced its intention to acquire the O2 mobile operator in November 2014, after
which BT shares soared up [BT in talks with Telefónica ...]. Another strategy of
mobile operators is to convince the state to reduce license fees and tariffs for the
used frequencies. These problems can be felt by the customers when excessive
credit debt will force mobile operators to raise prices for their services. Experts
predict that in 2015, the Internet users around the world will consist half of the
world population. However, the majority will still get online by conventional
methods using a broadband connection via PCs at home or at work. At the same
time, in many countries smartphones are becoming increasingly popular, as means
of communication are increasingly improving, covering all social groups.
New features where well demonstrated by the last device of the Apple
company – the iPhone 6. As the number of applications increases, smartphones can
replace credit cards and cash flows. In 2014 in the US has been launched the new
Apple payment system, which allows users to make payments via iPhones and
Apple Watch, and it is expected to reach Europe in 2015. One of the most pressing
and controversial issues remains ensuring "net neutrality" – the principle of equal
regulation of all types of information. Most operators are interested in the model
when content providers pay extra for the provision of faster communication
channels and get an advantage. Consumers, in turn, fear that such a model would
lead to higher prices for Internet services and limit access to users with low
incomes and those living in remote areas. Especially heated discussions take place
in the United States, where in 2014 President Barack Obama appealed to the
Federal Telecommunications Commission with a request to reclassify the Internet
as a public utilities sector. This will entail the regulation of this sector by the type
of water and energy sectors. In 2016 such discussions, will likely occur in other
countries as well. Indian Association of mobile operators (COAI) intends to
discuss with the Government regarding the monetization of services on the basis of
revenue sharing between Internet companies and mobile operators. In the EU, the
current agenda includes the strict rules of network neutrality, prepared by the
European Parliament, which now requires the approval of the Council of Ministers.
So far, only Slovenia and the Netherlands have implemented similar rules, and
there are serious concerns that other European countries will slow down this
process. In Latin America, similar rules were adopted only by Brazil and Chile.
Among other notable events of 2014 it should be noted the rapid rise of the
Chinese company Xiaomi, which is often called the "Chinese Apple". In the third
quarter of 2014 its growth rate reached a three-digit value, turning the company
into the world's third largest producer of smartphones. This was the result of the
fact that the company has won over a significant share in the domestic Chinese

94
market from the Samsung Corporation. At the same time, maintaining the progress
achieved depends on the conquering of foreign markets. Xiaomi plans to start the
production of its smartphones in India and several other developing countries.
The fourth generation 4G mobile communication has become a battle arena
of the operators of mobile telephony. In the near future the same will happen with
5G. By September 2015 a "test area" will be completed and commissioned in the
UK, including companies such as BT, EE, Huawei, Samsung, Vodafone and
others. A number of other projects (which are commonly led by universities) where
initiated by the EU, China, Japan, South Korea and the United States.
Conclusions. More than two decades of independence have passed as the
need for modernization and development emerged, and now it becomes quite
evident that no serious changes occurred in the country. The objectives of
modernization and its main focus are not yet defined. Niches that Republic of
Moldova could fill on the world markets are not yet determined (it is quite naive to
assume that the country can start developing rapidly only by restoring the wine
industry). The emphasis on technological breakthrough seems unconvincing, as no
country has yet reached the standards of post-industrial society, not having
mastered firstly the competitive industry on a large scale, which alone can be the
"customer" and the consumer of new advanced technologies.
The development of the industrial base is not included in the priorities of
local politicians precisely because the ideology of state paternalism assumed by
them suggests that people should "receive" various benefits from the state, which
has the right to redistribute them, and not to create or produce them with their own
efforts. At the time, the great reformer and head of Singapore Lee Kuan Yew
stressed that authoritarian modernization program is very tempting, but always
vulnerable because such modernization requires an ambitious and responsible
leadership.
The main problem of modern Moldova is precisely the absence of such
leadership. The tasks that are set before the country today are the maximal
simulation of changes in the conditions of preservation of the notorious stability,
with which a real modernization was, is and will remain incompatible. As long as
the task itself will not change, until a sober assessment of the state of the domestic
economy will be made, and until a program of purely economic reforms and the
gradual implementation of political and social change will not be elaborated, until
the representatives of the elite, whose interests are inseparably connected with the
raw material orientation of the economy will not be removed from the levers of
political power no changes are to occur.

References:
1. DODU-GUGHEA, L., GRIBINCEA, A. Societăţile transnaţionale ca creator economic.
Chişinău: S.n., 2015. 78 p. ISBN 978-9975-56-235-5.
2. GRIBINCEA, A. Economie mondială: suport de curs. Chişinău: CEP USM, 2013. 280 p.
ISBN 978-9975-71-371-9.
3. GRIBINCEA, A. Organizarea şi tehnica promovării comerţului exterior: suport didactic.
Chişinău: CEP USM, 2011. 375 p. ISBN 978-9975-71-065-7.
4. КОЗАК, Ю.Г., ЛОГВИНОВА, Н.С., ГРИБИНЧА, А. и др. Международные
95
экономичсекие отношения: теория и политика. Киев, 2013. 360 с.
5. GRIBINCEA, A., CĂRBUNE, N. Integrarea economică europeană. Chişinău: CEP USM,
2014. 205 p. ISBN 978-9975-71-503-4.
6. KOZAK, Y.G., SHENGELIA, T., GRIBINCEA, A. World economy: training material.
Tbilisi: PH “Universal”, 2016. 185 p.
7. BAKER, L.B., TOONKEL, J., VLASTELICA, R. Alibaba surges 38 percent on massive
demand in market debut [accesat 10 mai 2016]. Disponibil: http://uk.reuters.com/article/uk-alibaba-ipo-
idUKKBN0HD0D520140920
8. Haier Ranked The #1 Global Major Appliances Brand For 3rd Consecutive Year. 2011, 16
december [accesat 10 mai 2016]. Disponibil: http://www.prnewswire.com/news-releases/haier-ranked-
the-1-global-major-appliances-brand-for-3rd-consecutive-year--euromonitor-135722313.html
9. Primark to enter US market with Boston store. In: The Guardian. 2014, 23 april [accesat 10
mai 2016]. Disponibil: https://www.theguardian.com/business/2014/apr/23/primark-retail-us-market-
boston
10. BOLDUREANU, G., PĂDURARU, T., BOLDUREANU, D. Evolution and development
strategies regarding SME sector in Romania and the Republic of Moldova. In: Economie şi Sociologie =
Economy and Sociology. 2016, nr. 1, pp. 71-77 [accesat 10 mai 2016]. Disponibil:
https://ince.md/uploads/files/1467986055_economie-si-sociologie-nr-1-2016.pdf

96
 POLAND-UKRAINE

Yuri Kozak
Prof. Dr
University of Economics,
Odessa
Slawomir Smyczek
Prof. Dr
University of Economics,
Katowice
Olga Sukach
PhD.
University of Economics, Odessa

Models of protection consumers on financial services market –

European perspective

Annotation. The system of consumer protection in the European financial services was
considered in the thesis. It was noted that the European Union has introduced a number of
legislative changes that regulate the financial services market, whereas various member states
have established various consumer protection institutions. The best model of consumer
protection in the European financial services markets is located in Germany was researched.
Also Polish system which represent mixed model, but with very strong Scandinavian influence is
evaluated very high.
Keywords: consumer protection, financial services, consumer rights, models of consumer
protection, European markets.

Introduction. Financial services have become one of the most interesting

subjects of the consumer law. They constitute a driving force of the modern
economy and form its economic basis. Their significance is constantly growing
along with the ongoing commercialization of economies of states and international
communities. Together with consumer selling, financial services (especially credit
facilities) have paved the way for legal regulation of relations between
professionals and individual clients.
Compared to other products, financial services are characterized by higher
economic risk to be borne by consumers, and as such are extremely difficult to
measure in terms of their transparency. Moreover, consumers of the financial
services market lack proper knowledge about the stage preceding the contract
conclusion (when the consumer must decide if he or she will use a financial
service), about duration of the contractual obligation (whereby the consumer can
react to events in due time and in a proper way), and even about the period after
service consumption (deferred-in-time effects, concerning e.g. reaction to
automatic extension of the contract). Even more so, these transactions bear higher
economic risk for the consumer than other purchases on the market. At the same
time, this risk is not proportionately spread between the contract parties, as one
unsuccessful transaction for the customer may gravely destabilize his or her
97
household budget, whereas the same failed transaction for the financial institution
may result in a marginal decrease of its economic indices. An additional and a
relatively new (or rather recently recognized) danger of financial services is
connected with a possibility of accessing the services by means of electronic
media. Hence, the problem arises about protection of consumer privacy and
transaction security.
Consumer protection on financial market is particularly significant when
matters get tough financial crisis triggered by financial institutions affected not
only financial sector, but most of all consumers. Main objectives of paper are: 1)
identification and evaluation protecting consumer rights models existing in
European market and 2) determine level of knowledge of rights by consumer. In
paper authors presents results of empirical research that took place in selected
European markets.
1. Consumer protection on market - historical background.
In market economy the consumer should have the possibility of selecting the
right product, as well as the form, place, and time of its purchase, and should have
proper conditions for making the right decision (Schiffman and Kanuk, 2010).
Such goals are achieved by means of various methods. This is why the importance
of marketing for consumers should be considered in terms of both advantages and
threats. The threats to consumer interests are usually connected with the following:
Reasons of threats to consumer interests:
■ lack of transparency in the market (many diverse products, introduction
of new products, etc.);
■ depersonalization of the market;
■ selling products in large shopping facilities;
■ using sophisticated methods to seduce buyers, e.g., by arousing
emotional motives to purchase a product;
■ artificially provoked needs, e.g., through promotional activity of
enterprises;
■ increasing prices through manipulating the assortment of goods and by
means of a well-developed brokering network; and
■ over-function of packing, which often causes an increase in prices and
hasam ecological consequences, etc. (Niepokulczycka, 1998).
Highly developed countries have to face problems connected with the
standard and quality of living of the whole society, limiting of competition, threats
to the natural environment, and overly careless use of non-renewable sources of
raw materials and energy. These are associated with marketing activities perceived
as contradicting the original philosophy (Davies and Pardey, 1994). The
complaints usually refer to quality, price, or consumer service; and they may, for
instance, be related to the abuse of certain techniques and marketing instruments
(Kaleta, 2006). Since most of the time the decisions related to buying goods
are subconscious, it is both advisable and necessary to protect consumer interests.
Consumers do not have the possibility of carefully analyzing every purchase, and
so there are many ways of provoking consumer behavior based on subconscious

98
reflexes (Bishop, 2010).
Spheres of threats operation.
Consumer interests are threatened in many ways. Four spheres of operation
of such threats are axiological, economic, qualitative, and commercial. The
axiological sphere involves such activities of the producers as creating excessive
needs, wrong needs, and the need for restitution. The economic sphere refers to
threats caused by the purchase of goods of reduced mass and/or at an increased
price. The qualitative sphere refers to latent defects of goods, legal defects, and
contents that are harmful substances and components. In the commercial sphere,
the consumer may suffer losses due to mismanagement arising from style of living,
habits, lack of planning, and so on (Vizer, 2010).
Reasons of countrywide interest threats.
Reasons of social groups interest threats.
Some of the threats to consumer interests are observed throughout the whole
country, while others refer only to certain social groups. The countrywide threats
are caused by civilization processes, industrial and technological processes as well
as organizational processes in the economy, and lack of appropriate laws for
consumer protection. Threats to the interests of social groups are usually connected
with solutions adopted in the economy to settle certain problems. The premises for
consumer interest protection as well as the number of various types of threats
justify the need for those interests to be protected.
Consumer interest protection.
The term consumer interest protection is a descriptive term and is used to
characterize a set of activities directed at the protection of consumers when their
rights and interests are being threatened (Blackwell, Miniard and Engel, 2001).
The descriptive nature of the term has, however, some significant consequences.
The manner of perceiving that set of activities, which is crucial for consumer
interests, varies depending on the field the author specializes in, on the perspective
taken to observe phenomena, and on the current socio-economic situation. The
idea of consumer protection emerged in the 19th century when the market
economy was born. The first activities aimed at the protection of buyers against
exploitation and unfair trade practices were undertaken by the developing
cooperative movement (Maliszewska-Nienartowicz, 2004). The consumer
movement, as well as other social movements originated in the period of rapid
industrialization in the second part of the 19th century, mainly in the U.S. The key
event for the process was John F. Kennedy's address to the Congress on March 15,
1962, when four basic consumer rights were pronounced, the right to safety, the
right to be informed, the right to choose, and the right to be heard. These rights
were later developed.
Four basic consumer rights according to J.F.Kennedy.
Consumers International until they became the basis for the Guidelines of
the General Assembly of the UNO on consumer protection (adopted in 1985). The
issue of consumer protection was also discussed in European Communities. The
formation of community consumer protection was a multi-stage process (Kiezel,
99
2007).
What ought to be considered, then, is the scope of consumer interest
protection. This protection covers the most precious things, such as life, health,
material interest, and position in the market. The subjects of protection are the
consumer and the institutions organizing activities in the area of consumer interest
protection. The latter include the state, self-governing bodies, social organizations,
and consumers themselves. The activity of all those groups of subjects acting in
favor of consumer interest protection should form an overall system of protection.
Consumerism.
An important term related to consumer protection is consumerism. It is an
umbrella term for all the activities undertaken by state, social, and private
institutions for the benefit of consumers. In a broader sense, consumerism is a
movement designed to increase the rights of consumers in their relation with
producers and providers of goods and services (Raymond, 2003). It is a mixture of
people, ideas, and organizations representing groups and needs that were not
represented before, trying to induce some changes or a reform of the existing rules.
The movement defends basic consumer rights and these include (Doole, Lancaster
and Lowe, 2005) the following:
Consumer rights defended by consumerism movement.
■ The right to protection against products and services that are dangerous
for health and life. No such products and services should be present on the market.
For this purpose safety requirements need to be stipulated, and consumers need to
be informed of the possible risks connected with the use of particular products or
services. Consumers also need to be protected against accidents.
■ The right to protection of economic interests. This ought to provide
consumer protection against the producers, brokers, or retailers abusing their
position. It involves a ban on unfair competition and on imposing unfavorable
terms of contracts, the idea of improving the quality of goods and services and
caring for environmental protection.
■ The right to information and to consumer education. The consumer
should have the actual possibility of making a conscious choice in the market. This
requires reliable information on the characteristics of products and information on
the prices of goods and the methods of their use. Another important issue is
information on procedures of executing consumer rights.
■ The right to an effective system of pursuing claims. In the case of a
complaint, the consumer should have access to professional aid.
■ The right to representation. Consumers have the right to present their
opinion on all matters concerning their individual as well as collective interests,
i.e., the interests of a consumer community. Voluntary consumer associations
constitute such representation.
The basic objective of consumerism is to extend the rights and powers of
buyers in their relationship with sellers of goods and service providers. Thus,
consumerism motivates all subjects participating in economic life to be active in
educating and informing consumer as well as in protecting consumer rights
100
(Harris, 2010). What needs to be considered are the forms of protection and their
instruments. The multiplicity of threats to consumer interests makes it difficult to
apply a single method of protection. The forms of consumer protection include
pro-consumer legislation and institutional forms. Those legal and extra-legal forms
of protection are closely related and they intermingle. In the countries where a
market economy is well developed, the governments create a system of laws and
institutions to protect consumer interests. These nicely supplement the basic and
effective protection provided by the market mechanisms, competition, and
business ethics.
Instruments of consumer protection.
The instruments of consumer protection can be divided into three
groups: state instruments, individual instruments, and mixed (Sawyer, 2010). The
state instruments are activities of the state that, either directly or indirectly, protect
the consumer without his/her active participation, e.g., obligatory standards of
quality and safety, labelling food, anti-trust law, etc. The state acts on behalf of the
consumer. Individual instruments are types of consumer behavior that protect
him/her. Whether a consumer uses them or not depends entirely on him/her. They
include all kinds of decisions made by the consumers, such as where to buy, for
what price, how to use the product, how to treat a trademark, etc. Mixed
instruments are the laws that vest in consumers the right to protect their interests,
such as the part of the Civil Code that refers to warranty and others.
Consumers’ responsibility for their own protection.
It is worth noting that it is the consumers who bear the greatest responsibility
for their own protection. The state, on the other hand, should provide proper
conditions by providing legal norms and regulations, education, and broad access
to information. Economic processes undergo globalization and thus become more
and more complex, technology changes rapidly, and economic pathology spreads.
All these factors make state intervention on behalf of a consumer practically
indispensable (Keay, 2010). Thus, consumer actions to protect their interests ought
to be supported by the state.
Group of instruments of consumer protection.
The protection instruments may also be divided into the following groups:
legal, economic, psychological, and ethical. Legal instruments are the laws that
objectively concern consumers, the goods they buy, or the entities offering those
goods, and such enactments that do not directly refer to the consumer, but that
provide the conditions for the proper functioning of the market (packages of laws
protecting fair competition and anti-trust laws). Economic instruments are those
that are used by the consumers themselves as well as those that are used by the
producers and vendors. This group of instruments includes some that are related to
quality protection, such as trade-marks, quality standards, certificates, etc.
Psychological and ethical instruments may also be of considerable importance,
though their practical significance in present conditions is rather small (Wells and
Prensky, 1996).
2. Models of consumer protection on European financial services
101
market.
Forming consumer rights sealed the development of institutional forms of
consumer interest protection. Activities in this matter on financial services market
are conducted, apart from consumer organizations, by specialized state bodies,
self- governing bodies, social organizations, and others. Consumer rights on
financial services market ought to be represented in every country by all economic
entities and organizations. Institutional forms of consumer interest protection in
European countries create a complex and coherent organizational system, which is
gradually evolving along with economic development. What is characteristic of
this system is the functioning of specialized institutions, situated high in the
governmental hierarchy, that shape and execute consumer policy. The activities of
such entities supplement those of regional and local governments; civil
organizations, including consumer organizations; and cooperative organizations
(Groom, 2010).
Models of institutional consumer protection systems in EU.
Four models of institutional consumer protection systems are present in the
European Union:
■ Ombudsman model - in which, the crucial role in consumer protection is
that of a single-person institution, a consumer advocate or ombudsman. He/she is
administration-independent, appointed for a fixed term, usually by the Parliament.
A consumer advocate is usually vested with specified powers.
■ Administrative model - in which it is the administration that exercises the
consumer policy. Consumer protection is usually performed by a single,
specialized administrative body (usually situated in economic ministries), which
usually has a well- developed structure throughout the country.
■ Court model - based on a highly advanced operation of courts, where
common access and short procedures (the so called courts of petty matters, courts
of small claims) guarantee quick compensation. This model also assumes the
functioning of various public institutions executing and coordinating the consumer
protection policy. The most characteristic feature for this model, however, is the
presence of fast-operating courts, which only deal with deciding consumer
litigation.
■ German model - in this model the consumer policy is executed by means
of strong consumer organizations. Consumer organizations are state-independent
citizen associations that deal with the protection of buyer rights. They are present
on the local and national level, and they have a joint representation in community
institutions, which allows them to act on particular issues arising between buyers
and vendors. They also fight to bring about changes in legal regulations that favor
producers and traders (Kiezel, 2007).
There are many countries in the European Union where institutional systems
of consumer protection on financial services market are usually mixed, like
Poland, Czech Republic or Hungary. However, the ombudsman model is dominant
in Scandinavia; the administrative model, in France; and the court model is
common in Anglo-Saxon countries.
102
 3. Legal system of consumer protection on the EU financial services
market
Consumer protection on the financial services market of European Union
countries share considerable similarities, although these similarities mainly refer to
general assumptions rather than to concrete institutional legal and judicial
constructions. With respect to the latter, the differences are more visible, which is a
result of differentiation of definite consumer legislations, as well as legal and
traditional "culture" of particular countries. Some of them have directly
implemented the Directive about unlawful contractual clauses in consumer
contracts (Directive 13, 1993), into special laws and have extended its resolutions
by various legal acts (e.g. Germany, Austria, France, Belgium). Other states have
failed to develop laws which could ensure their consumers special protection,
whereas courts base their consumer jurisdiction mainly on regulations governing
the whole civil law - civil code, etc. (e.g. Greece, Italy). In some other cases, one
can observe a process of transition -often under influence of jurisdiction of
domestic courts - from the first solution to the second one (Dziemaszkiewicz et al.,
2005, p. 248). Quite logically, courts of countries with separate and well-
developed consumer legislation have provided their individual consumers with
wider protection on the financial services market than courts of countries which
lack such legislation. This state of affairs results from the fact that separate acts of
the consumer law were elaborated when the problem of consumer protection was
recognized in the European law and when it was necessary to transfer this law into
the domestic one. The traditional civil law in countries such as Italy or Spain have
not guaranteed their consumer sufficient protection, and big financial institutions
have won cases which, in the light of the Scandinavian or German law, would be
considered grave breach of justice and fair trading committed by professionals.
Financial services
The jurisdiction of the European courts concerning contracts of consumer
financial services is characterized by great abundance. In the light of the basic
relevant legislation and Directive 13 (1993), financial services comprise all
services of capital turnover or services connected therewith which are provided to
individual customers. Basically, these contracts do not include services of
"material" character or of goods provision, with an exception of contracts of safe
deposit box rental services. Financial services comprise mainly services which are
rendered by financial institutions and which mainly consist in managing capital
turnover on behalf of customers, ensuring safety of customers' money, granting all
kinds of credit facilities, etc. A similar activity conducted by other professional
entities should be also regarded as a financial service. It should be emphasized that
in the European law the approach to consumer credit facilities is very broad
(economic approach), which means that the range of financial services reach far
beyond banking services (in Poland there is a tendency for referring to the
concepts as equivalents).
Consumer protection in Austrian law.
Consequently, the Austrian law has a distinctively pro-consumer character

103
with respect to financial services. Interestingly, already in 1970s, when the
consumer legislation was only in its infancy, Austrian courts tried to provide
additional protection for individual customers by passing verdicts condemning
"immoral" conduct of professionals. There is no doubt that their work influenced
nature of the contemporary Austrian consumer law. Also, after elaboration of
relevant laws, Austrian courts have fought the most frequent cases of abuse of
positions held by financial institutions, such as exclusion or considerable limitation
of their liability towards the customer, inclusion of the so-called clauses which are
quite surprising and unexpected to he customer, imposing "constraints" on the
customer by adding numerous and additional clauses to contracts. A similar scope
of consumer protection on the financial services market can be observed in
Belgium. However, in this country
Consumer protection in Belgium law.
Many lawsuits relating to violation of consumer rights concern disputes
between customers and professionals over validity of various penalty clauses
which, in case of contract breach, specify contractual fines and duties of the
parties. Belgian courts have confirmed the principle that this type of contractual
resolutions cannot constitute an excessive burden for the consumer. Interestingly,
the courts have set forth rules of monitoring a permissible limit of a contractual
penalty independently of the statutory interest amount. Such an approach is hardly
flexible and confines consumer protection within one level, whilst determination of
a permissible contractual penalty limit should be adapted to a definite situation.
The Danish law, in turn, sets the consumer protection on a relatively high.
Consumer protection in Danish law.
level, thus preventing banks and other financial institutions from abusing
their rights. The limitation of consumer rights is allowed only in exceptional
situations which are clearly stipulated in a contract. Danish courts emphasize
significance of trust placed by the consumer in a financial institution (Letowska,
2006).
Consumer protection in Finnish law.
Whilst analyzing the Finnish legislation on consumer protection on the
financial services market, one can observe that a great role in settling consumer
matters has been assigned to the Consumer Spokesperson, an institution which
is characteristic of all Scandinavian countries. The spokesperson has wide
competencies with respect to making preventive appeals of contractual clauses
used in general contractual terms and conditions. In such cases the spokesperson
can exercise his or her rights if a given clause is found out of compliance with the
law or with the principle of honesty and fair trading. The Finnish jurisdiction itself
deals mainly with disputes between customers and financial institutions over
validity of guarantee clauses which put an unlimited burden on a guarantor for
other people's financial commitments. The courts can adjudicate that, due to broad
and common employment of the institution of spokesperson, consumers cannot be
excused on account of a "surprising and unexpected" character of claims of
financial institutions for customer default on guarantee obligations. However,

104
judicial authorities strictly prohibit professionals to abuse their position while
concluding multilateral financial transactions such as lease-sale contracts (ADNS,
2010).
Consumer protection in French law.
The French legislation, on the one hand, strongly prohibits typical abuse,
such as imposing an exclusive interpretation of contractual resolutions or depriving
the customer of possibilities of defending his or her rights; on the other hand it
emphasizes that consumer contracts come under rules of the civil code and, as such
are governed by the principle of free establishment of rights and duties by both
parties. Consequently, financial institutions cannot be imposed with additional
contract-irrelevant obligations under the pretext of consumer protection. A similar
concern for balance between the interest of consumers and that of financial
institutions can be observed in the Greek legislation. Yet, it is noteworthy that in
some verdicts Greek courts are lenient with big financial institutions. In case of
any dispute, the most important are these verdicts which relate to matters
concerning force of evidence of all kinds of bank accounts or issues connected
with the proper informing of customers about their obligations (Letowska, 2005).
Consumer protection in Spanish law.
The Spanish law presents a very complicated system, comprising numerous
judicial decisions. The basic issues addressed by Spanish courts concern the
possibility of exclusion and limitation of liability borne by a financial institution,
as well as introduction of secondary modifications to contractual resolutions.
The first type of clauses is especially numerous, with Spanish financial
institutions trying, on a mass scale, to exclude their liability for any damage
suffered by the consumer. The courts strongly protest against this procedure. They
also forcefully oppose the practice of including contractual clauses which enable
financial institutions to make secondary modifications to contractual terms and
resolutions. The courts are, however, very strict with customers who default on
fulfilling contractual terms. Penalty clauses which burden customers with big fines
are considered fair and are broadly used. The courts have even gone as far as to
criticize the law - the Law on Consumer and User Protection - for being too
general and allowing for infringement of professionals' interests. It is valuable in
adding that, unlike the Belgian courts, the Spanish ones have come up with a
different solution to the problem of penalty interest, according to which the
permissible amount of penalty interest depends on a definite situation and is not
limited in any way whatsoever (Federacja Konsumentow, 2010).
Consumer protection in Dutch law.
With respect to consumer protection on the financial services market, the
Dutch legislation is relatively liberal. Here, a great role is played by common
courts whose responsibility is to investigate if a consumer right has been infringed
or if a given clause is permissible or not. In this respect the court must examine
the type and weight of guilt by analyzing the amount and type of money involved,
the nature and content of the contract which contains the examined clause, the
social status and mutual relations of contract parties, the position of the clause in

105
the contract, and if, or to what extent, the parry bound by the clause was aware of
its content and significance for itself (ADNS, 2010).
Consumer protection in Icelandic law.
Consumer protection in Luxebourgian law.
In Iceland the legal system of consumer protection is very rigorous. As a
result, there is only one case of a judicial decision relating to infringement of
consumer rights on the financial services market. This decision may exemplify
how jurisdiction of a particular country can affect the practice of legal turnover. In
order to avoid disputes connected with certain ambiguities in standard contract
forms, Icelandic financial institutions have changed the manner of contract
formulation - exactly in items which were found unclear or disputable by the
court (Letkowska, 2006).
In the Luxembourgian jurisdiction, two elements are worth special attention.
First, courts of this country have provided a clear answer to the question whether,
in the light of the consumer law, a given institution is professional if it concludes a
contract for services with a definite employee - in such a situation the employee is
fully protected by the consumer law. Second, Luxembourgian courts have formed
a conclusion that contractual penalties stipulated in consumer contracts cannot be
irreducible - contract parties are obliged to predict certain situations where
claiming the contractual penalty can be unfair. This, of course, mainly refers to
professionals (Federacja Konsumentow, 2010).
Consumer protection in German law.
The German legislation attaches great significance to consumer protection
on the financial services market.
It should be emphasized that the German court jurisdiction also assumes a
pro- consumer attitude endeavoring to implement all assumptions of Directive 13
(1993). However- following justifications of the financial services market - the
excessive claims for consumer protection may disturb the stability of turnover and
"stifle the business activity". Some issues are especially interesting. First, German
courts have considerably extended the range of protection over individual
consumers who act as a third party in consumer contracts, and who are bound with
the professional by a certain accessory or similar obligation (this refers mainly to
guarantors). Their rights must be protected in, at least, the same way as in the case
of consumer rights, as it is easier to burden such consumers with additional
obligations which are beyond their control. Besides, it is noteworthy that
preparation of contract forms is very rigorous, especially with respect to their
clarity and intelligibility, as well as to the duty of informing the customer about his
or her contractual obligations, etc. The German jurisdiction has a tendency for
checking on the accuracy of clause incorporation into contracts and for making the
most adverse interpretation of standard clauses contained in contract specimens
elaborated by financial institutions. Thanks to this technique, German courts can
declare a given clause abusive with respect to consumer rights (their abusiveness
being a result of the aforementioned interpretation), and consequently prevent
its use by relevant laws (ADNS, 2010).

106
 Consumer protection in Polish law.
In Poland, the legislation on consumer protection is subject to a specific
consumer legal regime of financial services for banking activities, including bank
accounts and consumer credit facilities, electronic payment instruments and
insurance services. The development of an effective consumer protection system
is strongly supported by state institutions, consumer organizations and industry
sector institutions. Main organizations responsible for consumer protection are
represented by The Office of Fair Trading and Consumer Protection, the Trade
Inspection and regional (municipal) Consumer Spokespersons. The role of the
latter is particularly significant, with almost 8% of cases of consumer rights
infringement on the market of financial services, especially banking and insurance
service (UOKiK, 2006). In Poland, apart from state institutions, the protection of
consumer rights is provided by social organizations, including Consumer
Federation, Society of Polish Consumers and Polish Society of Household
Economics. These organizations provide support to consumers on the financial
services market mainly through representing them in writing before financial
institutions, providing written, direct, as well as phone counseling services, making
phone interventions, preparing suits and directing cases to conciliatory courts.
Special attention should be also paid to the activity of arbitration of industry
sectors on the financial services market, as well as that of the Spokesperson for the
Insured.
Bearing in mind the above-presented considerations, it should be underlined
that according to EU standards contained in Directive 13 (1993), the consumer
protection in particular EU Member States has been guaranteed on a high level.
However, market specificity and market traditions of each country give rise to
many differences in jurisdiction and in some institutional solutions. Nevertheless,
it is worth emphasizing the fact that much is being done by EU officials to
introduce new, more favorable and more consumer-friendly solutions into various
areas of financial services, and Poland, as a full EU Member, is actively
participating in elaboration and implementation thereof.
a. Level of consumer knowledge about rights on financial services
market.
In order to identify level of consumer knowledge about rights on financial
services market in Europe as well as level of consumer satisfaction with protection
system in their countries a survey was conducted with the use of a structured
questionnaire. The questionnaire was designed with the use of a 5 degree scale
which referred to level of knowledge and level of satisfaction of consumers, where
5 was the highest level of knowledge and the most satisfied consumer. After the
questionnaire preparation, the measurements were submitted for evaluation by
three experts - marketing and statistic professors - in terms of wording/meaning
and consistency. The survey was conducted in period between October and
December 2012 in five European countries, which represent different model of
consumer protection: France, which represent administrative model, England -
count model, Germany, Poland which represent mixed system based on

107
ombudsman model, and finally Ukraine – non member state country. Research were
carried out on a sample of respondents selected by means of a quota- sample
method - assumed quotas included age and education (Smyczek, 2007) in all
countries. A total of 600 questionnaires were distributed to respondents in each
country. The usable response rate was between 64-78 per cent.
Results of research shows that in all tested countries level of knowledge
about consumer rights is smaller that level of satisfaction from protecting system
on this market. However, consumers represent court model declared very low
knowledge about protecting system in their country. It is worth to mention also
about administrative model which, in consumer opinion is the worst in Europe.
The best model in consumer opinion is based on special organizations. This model
also provide consumer higher level of knowledge about their rights on market.
Mixed system, but based on ombudsman model, also was evaluate by consumer
positively.
Table 1.
Evaluation of consumer protection models on the European markets

Country / model of Level of knowledge Level of satisfaction

consumer protection
England J court 1.4 3-2
France / administrative 2-3 2.7
Germany / 3-5 3-9
Poland / mixed- 3.0 4.1
Ukraine / non defined 1.8 2.4

b. Principle of good practices on the financial services market - case

study of Poland.
The Principle of Good Practices.
The Principle of Good Practices constitutes the ethical code which came
into force in 2005 and was developed by the Conference of Finance Companies in
Poland. The Conference is an organization of employers from miscellaneous
economic sectors, including banking, financial and credit brokerage, economic
information management, receivables management, insurance, etc. The aim of the
organization is to advocate competitiveness on the financial services market with
simultaneous observance of consumer rights (Roter, 2006), as it is the consumer
who is the main causative subject accepting and verifying the whole system of the
market demand, especially its forms, prices, information, promotion, availability
and offer complexity (Struzycki, 2005). By introducing the code - the Principles of
Good
Goals of introduction of the Principles of Good Practice.
Practice, the Conference wanted to achieve two goals. First, it intended to
develop a code which, as an integral part of modern management, could contribute to
fulfillment of European ethical standards, as well as to development of social
responsibility, and could foster the perception of Poland as a reliable partner. Second,
108
members of the Conference wanted to raise the awareness that each business
association operating in Poland and following principles of the code of ethics acts as a
lodestar leading other associations and companies towards a good economic practice.
These intentions were significantly reinforced by the fact that members of the
Conference represent a big share of the financial services market. The members
concluded that the best code of ethics constitutes a combination of codes which
include the code of values, of conduct and norms to be observed by companies
(Gasparski, 2004). It represents some kind of met-code which can apply to
members of the Conference, as well as to consumers. This code, in some way
strikes a balance between different parties involved in the competitive processes.
The Principles of Good Practice is focused on the mission adopted by the
Conference and its members. The aim of the mission is to set high standards of
conduct in economic operations and in all relations with customers and trading
partners, as well as to supervise financial institutions in terms of their compliance
with the standards, so as to create and confirm that they deserve the opinion of
public trust institutions.
Obligations of institutions belonging to the conference.
With respect to customer service, these institutions commit themselves to
conduct their business activity not only in conformity with relevant laws, but also
with due care and diligence, putting great emphasis on consumer protection at each
stage of the relation with the customer. Even more so, the institutions are obliged to
cooperate with one another in order to reduce risk connected with activities of
unfair and unreliable entities on the market (Roter, 2006).
Principles of Good Practice provisions.
It is noteworthy that the Principle of Good Practice includes information
concerning sales of credit services, credit service complaints, customers' defaults
on contract terms and customer complaints. With respect to activities
accompanying credit services, the Code of Good Practice stipulates, among others,
that a financial institution does not sell a credit facility upon determining that the
customer will be unable to meet his or her commitments. Moreover, in the case of
an inculpable customer's default on timely fulfillment of financial commitments,
and upon the customer's application, a financial institution offers a new schedule of
debt repayment with respect to the customer's current financial condition. In
addition, the code of ethics comprises such issues as rules of communication with
debtors, debtor complaints, information and data protection, as well as unlawful
and banned activities. With regard to rules of communication, there is an
obligation to conduct all activities related to debtors in a manner that protects
consumer rights and respects the law, good manners and debtors’ relevant
rights.
Communication with the debtor involves three communicative channels,
including correspondence, phone contact and field vindication, each of which is
supplied with thorough description of practices to follow. Also, a detailed catalog of
banned and unlawful activities leaves no room for doubts about proper and lawful
business practices in contacts with customers on the financial services market (Roter,

109
2006). In 2006 the Principles were amended and extended by other issues which
previously, were not taken into consideration, including decent relations between
employees, and between financial institutions and local, as well as natural
environments.
It should be underlined that the Conference of Finance Companies is
actively involved in promoting ethical behaviors inside financial institutions. To this
end, it has organized an in-company program to certify internal audits, since each
institution belonging to the Conference is committed to carry out the ethical audit
once a year. A positive opinion about the audit is rewarded with a one-year-
validity certificate. Another element of the program refers to constant monitoring
of corporate compliance with relevant principles and rules. Within this element,
directors of the Conference branches throughout Poland are involved in monitoring
all issues related to respecting or violating ethical commitments under the code of
ethics.
External popularization of the Principles of Good Practice.
Another significant component of the ethical program refers to external
popularization of the Principles of Good Practice, which is effected through
meetings and presentations organized in e.g. the Polish Vindication Association,
the Polish Association of Exchange Offices and Pawnshops and through electronic
document presentations disseminated to all Consumer Spokespersons in Poland.
The Conference is also an organizer of competitions for the best, doctoral, master
or bachelor dissertations on business ethics.
Conclusions. To sum up, it should be emphasized that the system of
consumer protection on the European financial services market is organized in a
relatively decent way. Within the last few years, the European Union has
introduced many legislative changes which regulate the financial services market,
whereas particular EU Member States have created various institutions of consumer
protection. However, observing the dynamic development of the financial markets
across Europe, and taking into consideration the phenomenon of inter-penetration
of various European financial submarkets, it would be worth considering the
possibility of setting up one institution responsible for complex consumer
protection and consumer education on a broadly understood financial services
market. It should be borne in mind, however, that any legal and institutional
solutions can be applied to the extent determined by consumer awareness of their
existence on the market.
Results of research shows that the best model of consumer protection on
European financial services markets is in Germany. This model based on consumer
organizations. Also Polish system which represent mixed model, but with very
strong Scandinavian influence is evaluated very high. Those systems stimulate also
consumers to increase knowledge about their rights on market and make more
rational decisions.

References:
1. ADNS (2010). https://adns.cec.eu.int/CLAB [cited 4.12.2010].
2. Bishop G. (2010): EU Waves Flag for Consumers. "Financial Word", No. 9, pp. 24-49.
110
Blackwell R.D., Miniard P.W., Engel J.F. (2001): Consumer Behavior. Hardcourt College
Publishers, Fort Worth.
3. Davies P., Pardey D. (199O: Marketing w praktyce. Kamsoft, Warszawa.
4. Directive 13 (1993). Directive about Unlawful Contractual Clauses in Consumer
Contracts. EU, Brussels.
5. Doole I., Lancaster P., Lowe R. (2005): Understanding and Managing
Customers.Financial Times Press, New York.
6. Dziemaszkiewicz A., Kunkiel A., Kwieciński K. (2005): Orzecznictwo dotyczące
usług finansowych. In: Nieuczciwe klauzule w prawie umów konsumenckich. Ed. by E.
Letowska. C.H. Beck, Warszawa.
7. Federacja Konsumentow (2010): www.federacja-konsumentów.org.pl [cited 16.12.2010].
8. Gacparski W. (2010): Wykłady z etyki biznesu. WSPiZ, Warszawa.
9. Groom S. (2010): New Unfair Commercial Practice "Guidance". "Journal of Direct, Data
and Digital Marketing Practice", Vol. 11, Iss. 4, pp. 345~3W.
10. Harris E.K. (2010): Customer Service: A Practical Approach: International Edition.
Pearson Higher Education, London.
11. Kaleta K. (2006): Czy konsument myśli racjonalnie. "Marketing i Rynek", No. 3, pp. 9-13. Keay
J. (2010): The Price of Stability. "Global Finance", Vol. 24, Iss. 8, pp. 18-22.
12. Kieżel E. (ed.) (2007): Ochrona interesów konsumentów w Polsce w aspekcie
integracji europejskiej. Difin, Warszwa.
13. Letowska E. (2006): Prawo konsumenckie. C.H. Beck, Warszawa.
14. Letowska E. (2005): Nieuczciwe klauzule w prawie umów konsumenckich. C.H.
Beck, Warszawa.
15. Maliszewska-Nienartowicz J. (2004):Ewolucja ochrony konsumenta
w europejskim prawie wspólnotowym. Tonik, Torun.
16. Niepokulczycka M. (1998): Polityka konsumencka a ochrona konsumentów. The
Polish Consumer Federation, Warszawa.
17. Raymond M. (2003): Tomorrow People: Future Consumers and How to Read Them.
Financial Times Press, New York.
18. Roter A. (2006): Zasady dobrych praktyk na rynku Consumer finance w Polsce. In: Edu-
kacja konsumencka - cele, instrumenty, dobre praktyki. Ed. by A. Lewicka- Strzałecka.
Wydawnictwo Akademii Leona Koźmińskiego, Warszawa.
19. Sawyer N. (2010): A Clear Choice? "Risk", Vol. 23, Iss. 8, pp. 28-30.
20. Schiffman L., Kanuk L. (2010): Consumer Behavior: Global Edition. Pearson Higher
Education, London.
21. Smyczek S. (2007):Modele zachowań konsumentów na rynku
usług finansowych. Wydawnictwo Akademiii Ekonomicznej, Katowice.
22. Strużycki M. (2005): Ochrona konkurencji i konsumentów - konteksty ekonom In: Ochrona
konkurencji i konsumentów w Polsce i Unii Europejskie. C. Balasiński. UOKiK, Warszawa.
23. Vizer A. (2010): Legal Protection. "Canadian Insurance", Vol. 115, Iss. 7, pp. 50-89. Wells
W.D, Prensky D. (1996): Consumer Behavior. John Wiley & Sons, New Yon.

111
 Maksym Matskul,
PhD Student,
Odessa National Economic University

A Multivariate Factor Analysis: application for evaluating the

competitiveness of enterprises
Annotation. The article suggests the use of modern methods of Multivariate Statistical
Analysis namely Cluster Analysis and Batch Analysis of Principal Component / Regression
(Projection) on latent structure (Batch PCA / PLSR Method) to evaluate the competitiveness of
enterprises. As an example, we take the calculations of the competitiveness for 24 enterprises of
the food industry of Odessa region.
Keywords: Multivariate Statistical Analysis, Cluster Analysis, Principal Component /
Regression (Projection) on latent structure, competitiveness.

Introduction. Activity any enterprises is characterized by the lot of

indicators (indications) that influence various aspects of this activity. Some of
these indications cannot be measured directly (so-called latent indications) but
there are manifested as the result of acquisition of specific numerical values for
several interrelated indication-symptoms. One of these latent indications is level of
competitiveness of economic entities: regions, enterprises and others. The concept
of competitiveness is obviously relative integral characteristic. It envisages the
comparison of the enterprise with its competitors through the lot of indicators their
activities.
Current situation. Therefore, necessary to apply methods and models of
multivariate statistical analysis to quantitative investigation these of integral
indicators. The lot of works have dedicated to Research competitiveness of
enterprises, among which we note only those in which to quantify competitiveness
applied the usual methods of multivariate statistical analysis: monograph [1] and
the paper [2]. An Application of Batch PCA / PLSR method to investigate the
competitiveness relations of supplier-buyer in multinational companies was
published in [3].
The description of the concept. PCA is mathematical procedure that aims
to represent a set of (possibly correlated) multivariate variables with the aid of
smaller number of uncorrelated variables known as principal components. It is a
multivariate projection method designed to extract systematic variation and
relationships among the variables of a data set. This transformation (projection)
often simplifies the analysis at hand while also alleviating the worse symptoms of
high dimensionality, which is present when is the number of variables is large.
This makes PCA an ideal technique for solving problems when we are typically
faced with a large number of predictor variables. Equally important applications of
PCA include data diagnostics, both on observation and variable levels. The
observation level helps us to detect outliers, while the variable level provides us
with insight of how the variables contribute to the observations and relate
(correlate) to one another.
PLS is a popular method for modeling any applications. The PLS technique
is primarily designed for handling regression problems, PLS also enables us to
112
handle classification tasks. We will find this dual capability useful in many
applications of regression or classification, especially when the number of
predictor variables is large, PCA and PLS are implemented using the state-of-the-
art algorithm known as NIPALS – Nonlinear Iterative Partial Least Squares.
Case study. Consider the actual data on the activities 24 enterprises of the
food industry Odessa region during 2008-2012 on the following indicators
(calculated according statgov.ua): x1 - material consumption (%); x2 - coefficient
of the manufacturing cost; x3 - gross income ratio; x4 - capital-labor ratio; x5 -
capital productivity ratio; x6 – coefficient of mobility; x7 - the share of productive
capacity in assets (%); x8 - coefficient of wear and tear; x9 - coefficient of
suitability; x10 - coefficient of renewal; x11 - coefficient of withdraws; x12 -
coefficient of growth fixed assets; x13 - critical point in sales; x14 - operation
leverage; x15 – specific wage; x16 – glut of finished product; x17 - share of long-
term assets in total assets (%); x18 - share of fixed assets in total assets (%); x19 -
share of fixed assets in long-term assets (%); x20 –coefficient of labor
productivity; x21 - coefficient of internal level of competitiveness; x22 -
coefficient of competitiveness margin; x23 - coefficient of financial stability
margin; x24 - turnover ratio of current assets; x25 - inventory turnover ratio; x26 -
asset turnover ratio; x27 - turnover ratio of receivables; x28 - days sales
outstanding; x29 – coefficient of accounting payable turnover ratio; x30 - payable
turnover in day; y31 – return of sales (%); y32 – profitability of production (%);
y33 - operation return on working capital (%); y34 - return on equity (%); y35 -
return on fixed assets (%); y36 - return on assets (%); y37 – maneuverability equity
ratio; y38 - financial stability coefficient; y39 – debt to equity of equity ratio; x40 -
ratio of receivables and payables; x41 - absolute liquidity ratio; x42 - quick ratio;
x43 – current ratio; x44 – equity ratio.
Thus, we use the following data matrix to evaluate of the latent factor -
competitiveness of enterprises C_1 - C_24 during 5 years, (calculated according
www.od.ukrstat.gov.ua):
A) The independent variables are indications xj
X 12038   xij  ; i  1,120; j  1,30;37, 44;
B) The dependent variables are indications yj
Y1206   yij  ; i  1,120; j  31,36.
Considering that competitiveness is primarily determined by the resulting
indicators of activity enterprises we carry out a classification (ranking) for
enterprises-objects by the aggregate values of the dependent variables-indications
y j , j  31,36 for all 24 enterprises behind 2008-2012 years. Hereinafter to
computing we use the program Statistica [4]. Note that the indications are closely
related:

113
 Table 1.
The Correlation Matrix between dependent variables
Correlation (Worksheet.sta)

Marked correlations p-level р<,05000

N=120 (Missing data were casewise deleted)

Variable у31 у32 у33 у34 у35 у36

у31 1,00 0,93 0,73 0,03 0,50 0,70

у32 0,93 1,00 0,82 0,02 0,52 0,69

у33 0,73 0,82 1,00 -0,05 0,64 0,79

у34 0,03 0,02 -0,05 1,00 0,11 0,04

у35 0,50 0,52 0,64 0,11 1,00 0,90

у36 0,70 0,69 0,79 0,04 0,90 1,00

Considering identified relationship between the signs we use the

Mahalanobis Metric (or so called 1-Pirson r) as a measure of similarity of objects
(or distance d ps between p -th and s - th enterprises - objects):

d ps   z p  zs  r 1  z p  zs  , where z p , zs are row vectors p and s in the space of

T

 yk  y j 
standardized indications  zk  , j  31, 36  , y j are averages,  j are
 j 
 
standard deviations by all objects from aggregate for j -th indications, and r 1 is
inverse matrix to matrix of paired coefficients between the indications.
Applying a hierarchical - agglomerative procedure by criterion of Ward
(Ward's Method) we'll perform the distribution of our aggregate of 24 enterprises
on groups as dynamic clusters. The analysis by the Ward's method is based on
study increment of the intragroup variances of indicators for all possible variants
union of the clusters (we get the clusters of about the same size).

Tree Diagram f or 24 Cases

Ward's Method
1-Pearson r

12
Distance
Linkage

8
4
0
C_21 C_17 C_7 C_4 C_24 C_3 C_19 C_12 C_11 C_13 C_6 C_15
C_5 C_8 C_14 C_22 C_23 C_2 C_16 C_18 C_10 C_9 C_20 C_1

Fig. 1. Dendrogram of distribution the aggregate of enterprises into clusters

based on the results of 2012.

114
 Then, using the method of K-means, we obtain four clusters from our set of
24 enterprises:

Table 2.

Distribution the aggregate of enterprises into clusters based

on the results of 2012
№ Cluster - categorical
The set of enterprises objects that make up a cluster
variable grоup { }

Dolinka PAO (C_11), Odessa Sparkling Wine Company PAO (C_9), Yuzhnyi
PAO (C_12), Artsyzkyy Zavod prodtovariv PAO (C_16), Plant" Illichivsk" PAO
grоup {1}
"(C_18), Odessa Baby Food Cannery PAO (C_19), Leather Goods Factory
PAO(C_20)

Odesskiy Karovay PAT (C_1), Dniestrovskiy PAT (C_10), Vinogradar PAT

grоup {2} (C_13), Odesavinprom PAT (C_15), Belgorod-Dniestrovskiy Kombinat
Hliboproductiv PAT (C_6)

Lyubashivskiy Elevator PAT (C_2), Odessa Cannery VO (C_17), Reni Meat

grоup {3} PAT(C_21), Odessa Meat PAT(C_22), Combinat ATZT(C_23) Razdel'nyanskiy
Elevator PAT (C_5), Zaplazke Cereal PAT (C_7)

Balta Cereal PAT (C_3), Odessa Cognac Factory PAT (C_8), Harchovyk PAT
grоup {4}
(C_14), Yantar PAT (C_24), Aliyahske Cereal PAT (C_4)

Next we consider all the activity indicators for all 24 enterprises in 2008-
2012 (120 cases). Also, we treat the categorial indication "group" that takes four
values (group {1}, group {2}, group {3}, and group {4}) and defines enterprise is
belonging to a particular Cluster). As was noted, there are fairly close the
correlation’s relationships among all variables (indications). In such special cases,
the correlation matrix is indeterminate (its eigenvalues of little different by value)
and is essentially disturb to pick principal components (factors) out using ordinary
methods. Therefore, we apply algorithm NIPALS of principal components method
(PLSR, PCA) of program Statistica to determine the structure of variables. Before
the analysis, we assume that four groups of indications can select in the space of all
indications (factors, principal components):
F1 is level of competitiveness (previously, as resultative indications y j , j  31,36 );

F2 is production potential (previously, as indications x j , j  1, 23 );

F3 is business activity (previously, as indications x j , j  24,30 );

F4 is financial condition (previously, as indications x j , j  37, 44 ).

115
 The following result of Batch method of principal components shows that
the factors identified above are really the principal components, since it explains
more than 90% of the total variance

Table 3.

Characteristic numbers (eigenvalues) and percentage contribution of

Principal component at the total variation of all indications.
PCA – Eigenvalue (Table)

Number of components =4

PCA – Sum of variance 7,0000

% Total Cumul.
Eigenvalues Cumul. %
Components variance Eigenvalue

1 2,678720 39,76355 2,678720 39,76355

2 1,499577 26,66196 4,178296 66,42552

3 1,303247 14,48052 5,481544 80,90604

4 0,873215 9,70239 6,354759 90,60843

More one of the results of the analysis shows the importance of indications:

Table 4.

The importance of indications is regard to the allocated principal components

(fragment).
Importance of variable

Number of components = 4

Score of
No variable Power Importance
Variable category

group {2} 45 2 0,995723 1

group {4} 45 4 0,989380 2

group {1} 45 1 0,981636 3

group {3} 45 3 0,978979 4

y36 44 0,737372 5

y33 41 0,600278 6

116
 x42 36 0,590040 7

y31 39 0,586155 8

x43 37 0,571269 9

y35 43 0,560632 10

y32 40 0,555401 11

x21 21 0,547783 13

Analysis of the results leads to the conclusion that the partition of aggregate
of enterprises to four groups - clusters that we performed above, it confirms the
high significance for as of categorial variable "group" so and for the resultative
indications y j , j  31,36 , except of the indication y34 .

To find the final factor solution farther we make use the Method "Equamax
normalized" of Factor rotation. The results of this method are presented in the
following table:
Table 5.

The factor loadings (fragment).

Faktor loadings (Equamax normalized)

Extraction: Principal components

(Marked loading are >0,500000)

Variable Faktor 1 Faktor 2 Faktor 3 Faktor 4

x1 -0,050176 -0,550176 -0,076872 0,129953

x2 -0,068090 -0,606809 0,007235 0,399105

x3 0,065828 0,658275 -0,041053 -0,401433

x4 -0,073043 0,893688 -0,010557 -0,089369

x5 0,174232 0,710635 0,165346 0,224225

x6 0,055448 0,856477 -0,014518 0,114201

x8 -0,001289 -0,661348 -0,061348 -0,130897

x13 -0,061189 -0,510370 -0,001750 -0,099139

x14 -0,202389 0,763932 -0,164336 0,106505

x15 -0,196449 -0,539281 -0,485689 0,080605

x17 -0,133028 0,878299 0,096709 -0,210962

117
 x18 -0,272515 0,643590 0,480535 -0,358268

x20 0,018074 0,787981 0,232835 -0,120776

x21 0,858389 0,118978 0,086623 0,045770

x22 0,858389 0,118978 0,086623 0,045770

x24 0,106633 -0,328232 0,675252 -0,170554

x28 0,062133 0,196467 -0,593270 0,078785

x29 0,261346 -0,204152 0,613462 -0,154382

x30 -0,168962 -0,108843 -0,689617 0,145087

x38 0,286478 -0,230255 0,069763 0,741679

x40 -0,256542 -0,123647 -0,457214 -0,565425

x42 0,357350 0,088261 -0,133270 0,573499

x43 0,223589 0,102925 -0,171811 0,523589

y31 0,784943 0,043039 0,170138 0,338086

y32 0,800242 -0,000651 0,144431 0,564303

y33 0,641017 0,035728 0,142188 0,632655

y35 0,656406 0,001401 0,061183 0,223350

y36 0,702674 0,002066 0,147798 0,242046

Total variance 7,107102 4,773123 4,384467 4,087629

Ratio of total 0,384252 0,208480 0,199647 0,192901

Thereby we obtained :
- As expected, the resultative indications y j , j  31,36 (except of the
indication y34 ), and also the indications - symptoms (predictors) x21 , x22 pretty much
carry the loading on latent resultative factor F1 (level of competitiveness). At that,
we have the approximate equality:
F1  0, 78 y31  0,80 y32  0, 64 y33  0, 65 y35  0, 70 y36  0,85 x21  0,85 x22 ;
- Indications - symptoms x j , j  1, 6,8,13,14,15,17,18, 20 carry a significant the
loading on the latent factor F2 (production potential). Moreover, the signs of factor
loadings are agreed with the meanings of the corresponding economic indications:
F2  0,55 x1  0, 60 x2  0, 65 x3  0,89 x4  0, 71x5  0,85 x6  0, 66 x8  0,51x13 
0, 76 x14  0,53 x15  0,87 x17  0, 64 x18  0, 78 x20
It should be noted that the indications x j , j  4,5, 6,14,17, 20 have the greatest
positive influence on the factor F2 from the signs - symptoms x j , j  1, 2,8,13,15 ;

118
 - There is a significant stimulating influence of the indications: turnover
ratio of current assets( x24 ), assets( x26 ) and accounts payable( x29 ), and de-
stimulating influence of days sales outstanding ( x28 ) and payable turnover in day
( x30 ) for the third factor F3 ( business activity):
F3  0, 67 x24  0,59 x28  0, 61x29  0, 70 x30 ;
- The fourth factor F4 (financial condition) is appreciably loaded under
influence the indications x38,40,42,43 among which we note de-stimulating influence
of the ratio of receivables and payables( x40 ) and of the financial stability
coefficient( x38 ) as most stimulating indication:
F4  0, 74 x38  0,56 x40  0,57 x42  0,52 x43 .
Independent latent factors by according the significance influence on the
level of competitiveness (resulting latent factor F1 ) are put as following order: F4 ,
F3 , F2 .

The analyzed aggregate of enterprises in terms of competitiveness the

divided into four clusters: "leaders" as group {2}; "above average" as group {4};
"below average" as group {1}; and "outsiders" as group {3}. Since the factor
analysis (and virtually any the multidimensional analysis) is implemented at
preliminary standardization of all data (which leads to the zero mean and the unit
standard deviation), then further research and economic analysis are carried
through the transition to values of the indications – symptoms ( x j ) by each of the
previously obtained clusters (groups of enterprises).
Conclusions. We developed and mathematically proved a new method for
evaluating the competitiveness of enterprises that based on of Batch PCA / PLS-R
method, which does not contain the subjective estimations and it takes into account
many different indicators of activity of enterprises as possible. Application of the
developed method for predicting the competitiveness of enterprises and other
economic entities.

References:
1. Competitiveness: assessment of the level and directions increase: under the general
editorship of O.G. Yankovoy [ukr] – Odessa Atlanta, 2013.- 470 p.
2. Kendyuhov O.V. Application of the principal component analysis to evaluate the
competitiveness of engineering companies / O.V. Kendyuhov, D.O. Tolkachev // Marketing and
management innovation [rus]- 2013.- № 4.- pp 219-227.
3. Raskovic M. Determinants of supplier-buyer relationship competitiveness in
transnational companies / M. Raskovic, B. Morec // Economic and business review.-2013.- Vol.
15, No. 1.- P. 5-31.
4. Statistica. A systematic approach to data analysis [electronic resource] .- StatSoft
Russia.[rus]- Access: http: //www.statsoft.ru.

119
 Tabeusz Sporek,
Prof. Dr
University of Economics, Katowice
Yuriy Kozak ,
Prof. Dr.
Oleg Zakharchenko,
PhD., Ass. prof.,
Odessa National Economic University

Regional innovative systems:

methodological problems of analysis

Annotation. Two terms of the modern globalizing economy (“learning economy” and
“knowledge economy”)are described. Three types of innovative systems (“territorial engrained
innovative system”, “regional network system”, “regionalized national system”) are shown. The
idea of different types of knowledge "dichotomy" was highlighted within the methods analysing
RIS and clusters appraisal like the most fruitful in theoretical aspect.
Keywords: regional innovative systems, regional cluster, “learning economy”,
“knowledge economy”.

Unconventional directions in economic regionalistics, folded in 70-80th of

ХХ century (, have opened new direction in development of spatial development.
Generalizing and investigating vast empiric material, regionalists, is
"evolutionists" [2] gave the realistic explaining to the economic phenomenon of
appearance in the separate regions of Italy, France and Switzerland of "oases" of
economic prosperity in the situation of deep cutback of economic activity of
1979th. Giving up the traditional theory of allocation of production factors,
evolutionists based on the approach pawned the idea of technical progress
evolution. Its meaning is in confession of innovations as a result of difficult co-
operation of managing subjects, its mutual educating, gradual accumulation of
preparation and doing business. Firstly in economic science this process was
noticed and described by Adam Smith, and later by Alfred Marshall in the
categories of "industrial district" [2]. It flows within the framework of theory that
is not necessarily coincided with the borders of economic – or policy-economic
education. Sometimes such an association is formed by centuries, and now days
this process in the separate corners of planet accumulated new maintenance, as
managing subjects within its limits of the geographical environment create
relations, combining a competition with a mutual collaboration, expressed by
formulas of learning lei doing, learning lei using, learning lei interacting.
Such an association has got dissemination for the evolutionists of the
"territorial-production system".
Idea of evolutionists got wide confession among the regionalists. It were
noticed by Group of European researches of innovative environment functioning
by European Union aegis [3].
Supporters of neoclassical school, accepted conclusions of evolutionists in
relation to meaningfulness of internal institutional factors in regional development,

120
and at the same time they specified on an underestimation by evolutionists of
exogenous factors being outside of the regions.
Alluding to the experience of creation and functioning of technopolicies
(Silicon valley in the USA etc.), they assert that without permanent and massed
support from outsourcing development of innovative environment of regions is
impossible. These sources within the framework of "global corporate network, are
under control of Transnational Corporations. Region can not attract external
investments and public in a necessary volume of innovative production distribution
without participating in this network. Therefore, it consider "plugged the basic sign
of regional cluster in the global corporate network"[4].
The presence of this sign presents possibility to managing region becoming a
full-fledged member and network society and to participate in creation and
appropriation of highly "technological cost" during great while. On the contrary,
M. Castels considers, "firms and organizations without accepting of network rules
of game (in the field of business, mass-media or policy), leave a competition,
‘cause it is not ready to application of new model of management"[5]. Decisions
about accepting (or not accepting) these "rules", dart out in financial centres and
headquarters of corporations [5].
In Castels opinion strengthens a tendency to polarization of social structures
both into countries (including the most developed) and in an international scale.
However, not all regionalists accede to such a pessimistic interpretation of spatial
development. Swedish regionalists B. Asheim and L. Coenen within the
investigating European experience offer the vision of scenarios of revivifying of
innovative development, creating and grounding its own typology.
They are work out methodology of clusters identification based on
differentiation (distinction) of separate types of the regional innovative systems
depending on the types of the knowledge applied in the concrete areas of economic
activity [5]. Two terms are used today in economic regionalistics to denote the
modern globalizing economy.
First one has been offered by Lundvall in 1992d "learning economy"[7], and
second one is a “knowledge economy” usually applied by the officials of
Organization of Economic Collaboration and Development (OECD). Swedish
economists take up these distinctions as not semantic and rich in content. Its follow
from taxonomy i.e. differentiations (confessed OECD) between the types of
knowledge finding application in industries of production of low, medium and
high-tech industries.
Really the "charmed" results contemplation of higher level of technologies
(for example, an informatics or pharmaceutics sphere) is becoming to ignore an
exclusive character of application and wont be able to be equated (as it is
sometimes done by some regionalists) to distribution of "learning economy".
That is not the only difference of the first kind from the second one. The first
type ("learning economy") means the continuous process of introduction in the
production of the technologies based on the already before knowledge gained. It is
the dynamic process of the mutual educating and collaboration of suppliers and

121
consumers, based on the new combinations of this knowledge. This process
engrained in an environment socially and territorial and accompanied by the
receipt of income during a process. Its participants do not ignore wide distribution
of ordinary (conservative) skills and "informal" (not "coded") knowledge.
Such type of knowledge finds application in industries and regions with the
middle and subzero level of "closeness" of satiation regional research centres
supplying with the newest ("radical") innovations. Distinctive quality of "learning
economy" is a "shocking capacity for application of profitable innovations by the
presence of the "grabbing educating" [3].
The national economy of Denmark and other North European countries can
exemplify such economies. They are distinguished by high capacity for absorption
and distribution of knowledge, although potencies of radical (ultramodern)
innovations creation and their application are expressed much weaker for them [1].
In a long-term prospect, certainly, increasing difficulties influencing on
reproduction and height of “learning economy” can appear, because innovations in
imitation form will not be able to provide convincing competitive edges in
globalization economic system.
Addition of such type of knowledge the process by the "learning economy"
becomes to inevitable. However, quickness and efficiency of such educating
determined by efficiency of "learning economy". There is a permanent necessity to
pay an attention to both the process of creation of fundamentally new knowledge
and in an equal degree to the process of educating and competence to those, who
uses it in a dynamically developing and quickly changing modern globalization
economy.
The second type of knowledge mainly consists of the newest achievements
of scientific thought, opening new ways in technology, carries more static
character. This knowledge exist as the "supply" accumulated, mainly by scientific
centres, and these supplies can not always find quick and wide application. The
level of such knowledge is usually formally measured by the amount of university
centres, research institutes in a region.
Scientists-professionals ("analysts") are busy there. The results of their
activity are not measured by the amount of the received income. Therefore
B.Asheim and Z.Coenen (after S.Laestadins)[9] determine this type of knowledge
as "analytical" unlike the first, adopted by "synthetic". From the philosophical
point of view of knowledge of the second kind("analytical") obtained on advantage
on the basis of general scientific principles an analytical way while the first kind –
by an accumulation and study of empiric material and on the basis of synthesis of
the conclusions and data received.
Swedish regionalists made a table demonstrating distinctions of these types
of knowledge that facilitates authentication and classification of different types of
the innovative systems (Table 1).

122
 Table 1.
Distinction of types of knowledge
(synthetic from analytical)
Synthetic Analytical
Innovation by application of combination
Innovation
existent knowledge
Large value of distribution, problem of a
connection and combining of knowledge
Large value
(technological), mostly by an inductive
way
Interactive educating with participation
Research
suppliers and clients
Predominance unofficial knowledge,
touching more concrete know-how, Predominance
ability and practical art
In advantage there are innovations that
More radical innovations
bringing return

Source: Asheim and Gertler, 2005 [1].

Thus, the analytical type of knowledge more corresponds to the necessities

of those industries where the newest achievements of science have an especially
important value, where the knowledge "production" on advantage is based on
"cleanly" research processes informally institualising establishments. Genetics,
biotechnology and informatics can exemplify it.
Both of knowledge types break through a road in spheres most receptive to
one or another type of knowledge. Corporations have their own research
subdivisions usually, however, they simultaneously in an innovative process
widely does not draw on scientific accomplishments of universities and other
research centres. A "consumption" and "producible" knowledge of this kind have
"coded" character mostly.
Informal knowledge and skills find application also, however its use is
inferior to the major task: to the process of innovations production. "Coding" of
knowledge takes place for a number of reasons: the consumption of knowledge and
ideas is based mostly on a revision and selection of already conducted kinds of
researches, the process of knowledge receipt and their application is organized
more formally (it is documented in lectures, in the files of computers, envisaged
and protected by patent bureaus). Knowledge using takes form of new products or
processes. Here are produced more radical innovations than in the conditions of
predominance of the first kind of skills.
Unlike analytical, the synthetic type of knowledge takes greater application
in those sectors of production, where innovations come forward as an application
of already existent knowledge or as a new combination of such knowledge. Often
it takes place when a necessity to decide specific production-technique problem

123
exists. A machine-tool construction, special engineer and shipbuilding can
exemplify that. Such cases products carry piece’s character or produced by
maximal series.
Research subdivisions play a less considerable role here then the first kind.
The collaboration of enterprises takes place with universities, but it takes place
mainly as drawing on the separate results of scientific researches, however here
goes about the results of not basic researches, but back side. The process of
knowledge production flows by induction, but not deduction, i.e. as testing,
experimentation, computer images or verification of conclusions a practical way.
Sometimes knowledge find application as a decision of complete technical
problems and confirmed by patents often. Certainly, skills, ability and informal
knowledge have more considerable role to this kind, than to analytical one. In a
number of cases synthetic knowledge is the result of the experience purchased in
the workplace in the process of the interactive educating. This kind by comparison
to the first one contains more concrete know-how that are necessary to production
and transmission of knowledge.
Such transmission comes true by professional and technical schools and
training on workplaces. This type of innovative process is orientated on the
increase of efficiency and search of new production-technique decisions or on the
improvement of consumer properties of products. All of this is accompanied by the
receipt of additional income from the innovations directed to modification of
existent foods and processes in advantage.
In the real life this type of knowledge exists in the regional innovative
systems (RIS) that consisting on institutional infrastructure supporting innovation
and productive structure of region. Putting "dichotomy" of knowledge in basis,
B.Asheim classified the innovative systems dividing them into three types.
First type on a name of the "territorial engrained innovative system" is used by
synthetic type of knowledge mainly.
Innovations arise up on the limited space by the process of experience
exchange and professional knowledge with nearby firms on the basis of
geographical closeness and productive "likeness" mostly without the direct co-
operating with knowledge generating establishments. On the properties this type is
nearest to the "path to RIS" named by Cooke[5]. The networks of small enterprises
of the Italian area as Amelia-Romania can serve the most prime example of such
system.
Second RIS type is adopted by the "regional network system". Firms and
organizations here are also engrained in the region specific and differ in capacities
for the mutual educating and collaboration on the basis of geographical and
productively-sale closeness. But all of it is complemented by the institutional
infrastructure specially created in a region including research centres, training-
centres and other local institutes engaging in introduction in the firms of
innovations, and also designing and stimulant a collaboration between firms and
public organizations (for example, with the chambers of commerce, business-
centres).

124
 Network-making system is often named on "RIS ideal type": it is the
regional cluster of firms, surrounded by regional "supporting" institutional
infrastructure. Network approach is typical for Germany, Austria and Scandinavian
countries.
Third type of RIS is named on "regionalized national system". It has a low
of differences from two enumerated types.
Firstly, considerable part of industrial production and institutional
infrastructure is functionally integrated in the national and international innovative
systems, i.e. innovative activity flows in advantage with participation factors being
outside a region. Exogenous factors play a considerable role of this model of
development. This type could be named like "guided RIS".
The "closeness" of scientific centres of large universities, another scientific
establishments and research subdivisions of corporations is very high here. These
are base for generating of more radical (advanced) innovations based on the
scientifically-analytical method of researches with scientists-regionalists engaging
in this process from different countries and world regions.
"Clusterization" of laboratories and research departments of large firms
and/or state research institutes in the created "scientific parks" and technopolicies
placed usually in "family" universities and technical colleges is the evident
example of the national innovative system regionalizing.
However, as experience testifies, all of them have the limited connections
with local industry. Scientific parks exemplify the specially created innovative
institutes including firms with the high level of providing the resources of
knowledge and competent skilled composition, but these firms are deprived
capacity for a fruitful collaboration with the environment.
Technopolicies of the developed countries (France, Japan, Taiwan) is
characterized by the low level of innovative collaboration between local firms and
"knowledge generators". In those rare cases, when scientific parks "become"
overgrown with the innovative systems, that is the result of purposeful activity of
public institutes at national level.
This circumstance specifies on importance of endogenous factors, reflecting
the socially engrained capacity for self-realization and to plugging in the process of
borrowing and application in economic activity of useful knowledge once again.
First results to the stated we mark following "Dichotomy" of different types
of knowledge allows more clearly and pragmatic description of the clusters type. It
opens possibility not only to the scientific classification of functioning clusters but
also can serve as an instrument of the strategic regional planning with the
acceptance of the weighed decisions that is able to define ways of spatial
development. Methodology of the innovative systems using is versified by
application to the study of the North European clusters specific.
Summing up to the stated, we will mark the following.
The idea of different types of knowledge "dichotomy" is fruitful in
theoretical aspect. It allowed to describe the types of the innovative systems and
corresponding to them types of clusters more relief and pragmatic. It is set that the

125
most successful is the "regional network system", leaning on advantages of the
"synthetic" type of knowledge, organically related to the endogenous factors of
development.
Application of "analytical" type of knowledge on the region level brings
success only with the active position of the state based on realization of the
national science-innovative programs. The role of international financial centres
and Transnational Corporations in realization of these programs European
regionalists can not find.
At the same time these researches on the examples of the Scandinavian
clusters demonstrate the value of the use of ordinary ("conservative") knowledge
potency in the interactive educating and business collaboration process, support its
role in a conquest and maintenance of competitive edges. This way judgments that
"full-fledged" members of network society opens application only of "exclusive"
(radical) innovations is refute.

References:
1. An Introduction to International Economics. - Edited by Y. Kozak, A Gribincea –
Chisinau: ULIM, 2012
2. 2. Воронова Е.В. Европейский выбор и формирование региональной политики
Украины. Oдессаessa: Astroprint, 2002
3. Economia mondială: Suport de currs /Iurie Kozak, Alexandru Gribincea - Chişinău:
ULI, 2011
4. Kamecki Z. Notion and Types of Economic integration in Theoretical Basis of
Regional Economic Integration.- Chosen texts by J. Misala. Radom Technical University, 2004.
5. .Kozak Y. , Smyczek S . Models of protection consumers on financial services
market – European perspective / Modern marketing for profit and non-profit organizations. -
Katowice: Wydawnictwo Uniwersytetu Ekonomicznego w Katowicach, 2013.

Оlexander Kovalenko
Doctor of Economics, Professor
Odessa National Polytechnic University
Мikola Zaets
Candidate of Economics, Docent
Odessa National University named after I.I. Mechnikovа

Reorientation foreign economic activity of Ukraine to

European direction

Annotation. The article deals with directions of reorientation of foreign economic

activity of the country within the economic part of the Association Agreement between Ukraine
and the EU. The structure of export and import of Ukraine with the countries of the European
Community is analyzed. The prospective directions of development of foreign trade relations are
determined with the use of domestic producers of the European market, as well as the opening of
EU companies in Ukraine.

126
 Keywords: foreign economic activity of Ukraine, structure of export and import of
Ukraine, foreign trade relations, volume of trade, European direction

Formulation of the problem. Achieving Ukraine's sovereignty in the

context of the development of globalization and integration processes necessitates
the inclusion of the state in active foreign economic activity. The legal basis for
cooperation with the countries of the European Union is the Association
Agreement between Ukraine and the EU ratified by the Verkhovna Rada of
Ukraine. In the structure of foreign trade turnover, cooperation with EU countries
exceeds one third, and has all grounds to increase to 40-45% in imports, which
confirms the positive dynamics of exports of goods from Ukraine to the EU in
2016-2017 years. The main disadvantage of Ukraine's export activity is its raw and
semi-raw material. Production cooperation, albeit in the form of the processing of
customer-supplied raw materials for European enterprises, is still underdeveloped,
and this form of cooperation has been a catalyst for economic integration into the
Union of the most successful post-socialist countries.
Analysis of recent research. The study of problems of reorientation of
Ukraine's foreign economic activity in the direction of expanding cooperation with
EU countries is being addressed by a very narrow circle of scientists, among which
the following should be noted: Vdovenko S.М. , Gonta O.V., Kozak Yu.G.,
Okhrimenko Ya.V., Rogova O.V., Yakubovsky S.O., however, they have not
clearly defined concrete directions of further development of economic
cooperation between Ukraine and the European Union.
On January 1, 2016 the economic part of the Association Agreement
between Ukraine and the EU came into force, simultaneously terminated the
Agreement on CIS FTA with Russia. In addition, early January, Kyiv and
Moscow interchanged a trade embargo on a number of goods, mainly foodstuffs.
Thus, our country has entered the final phase of trade and economic reorientation
of the former metropolis on the European Union market.
The European market is and will remain for a long time one of the most
solvent and capacious in the world. The volume of total import of goods of all
members of the EU (€ 4,45 billion in 2014) exceed several hundred times the
current indices of export of Ukrainian goods to them (€ 6 billion in 2015).
Although most of this amount falls on an internal trade between the countries of
the Union, it does not save an opportunity of Ukrainian producers to replace at
least a few percent of relevant supplies, but the more take new niches.
Moreover, despite the widespread skepticism regarding the competitiveness
of domestic products in the European market, tendencies that have become
apparent recent years, show us that Ukraine has every reason to expect a success.
First, pay attention to the recent widespread attempts to discredit the
economic efficiency of European integration of our country. This discredit is
based on superficial appraisal change of the Ukrainian exports’ volume to the EU
by the conditions of the autonomous preferences when our manufacturers worked
under the regime of free trade area (FTA) from May 2014 before its entry into
force. They are estimated in US dollars and the currency exchange rate is growing
127
rapidly the last year and a half. Instead, the major trading partners of Ukraine from
the EU, prices are determined either in euros or more or less closely tied to its
monetary units in Central Europe. The dynamics of foreign trade measured
primarily in euro in EU countries and its depreciation or appreciation concerning
dollar or other world currencies is not a reason to talk about the growth or collapse
in this area.
Therefore, it is time for Ukraine to change approaches to measure export in
dollars and in euros or at least, in both currencies at a transitional period in the
context of the entry into force of the Association Agreement and a reorientation of
almost half of foreign trade in the EU. A closer analysis shows that the negative
dynamics of 2015 in trade with the EU was a result of the failure only of the first
half. Last stipulated by the comparison with the figures of the first six months of
2014, when the active phase of military operations has not begun in the Donbass,
and related reduction in production and exports. The cost of the Ukrainian exports
to the EU decreased from US $ 8,243,600,000 to $ 6,062,800,000, etc. 35,6% in
the first half of 2015 on the background of the same period of 2014. This growth
exceeded dollar against euro in (at an average 22,7%) for the same period. Thus,
even in euro our exports decreased by 9,7% to the EU. First of all, the question is
about chemical products, rubber, steel, ore. However, in the IV quarter of 2015 a
tendency has been evident toward an increasing active export from Ukraine to the
EU. In October, a growth, measured in euro, amounted to 6,8% against the
background of the same month in 2014, in November in comparison with
November 2014, it has reached 19%. Dynamics is quite convincing. And there are
reasons to expect a continuation of a positive trend providing the measurement will
be in euros rather than in dollars in 2016.
As a result, if the first half of 2015 the part of the EU countries had
amounted to only 32,7% in Ukrainian exports, in November it reached 38,3%.
Instead, the export to Russia in the same month amounted to only $ 368,56
millions against $ 587,58 millions on November 2014, as well as the calculation of
the euro, it fell by 27,1% and its share decreased to 8% versus 14,7% in total
export of goods from Ukraine. Thus, the share of the EU increased not only by
reducing the share of Russia, which only declined from 12,5% in the first half –
year to 8% in November, and even at the expense of Asia and Africa.
In Ukrainian import the index of the EU reached 44% in November, while
Russia, on the contrary, it decreased from 16,6% in the first half – year to 14,8% in
November. Now, the volume of goods to Ukraine from Russia exceeds the import
only a one third to our country from the most powerful EU economy – Germany.
However, many – sided dynamics in domestic trade with these two
countries, which only increases after the acquisition the first of January 2016 the
Agreement of FTA with the EU and strengthening a trade war with Russia, has
soon able to bring Germany into the first place on the volume of goods’ supply to
Ukraine.
In general, the share of the European Union has every reason to rise to 40 –
45% in exports and to 45 – 50% - in import in Ukrainian foreign trade this year.

128
Accordingly, the share of Russia against a background of fall of its economy and
the deployment of a trade war, will probably rather fall to 7 – 8% in export and 10
– 12% in import, and it will record a complete reorientation of the economy of
Ukraine in the EU and a transformation of Russia to an ordinary trading partner.

Table 1.
The volume of trade in basic commodities between Ukraine and the EU
(January – October 2015), mln. USD
Import to Export to the
Name of goods Ukraine from EU from
the EU Ukraine
Ferrous metals 2264,5 189,2
Electro – technical goods 1191,1 896,3
Grain 1144,2 101,2
Ore 828,8 3,0
Wood and wood products,
595,7 76,4
except furniture
Seed and fruits of olive plants 538,6 76,0
Production of oil and fat industry 451,8 38,7
Food industry waste products 378,7 102,0
Food industry outputs 329,7 34,1
Ready – made clothes and
212,9 195,7
accessories
Products from ferrous metals 145,3 51,8
Furniture 122,7 36,3
Fertilizers 99,4 30,8
Shoes 94,6 55,7
Products of vegetable preserving
58,4 55,3
industry
Dairy produce, eggs; natural
56,6 45,7
honey
Glasswork 45,2 8,5
Railway locomotives 39,6 12,0
Source: [http://ukraine-eu.mfa.gov.ua/].

Within reasonable limits of the use of our producers of production

potentialities of the European market and the opening of EU companies, Ukraine,
dependence of a national economy on the EU will be growing further to the indices
of countries of Central Europe. The export outside confines of Europe is usually
only about 15 – 25% (12,5% - in Slovakia and 13,5% - in Croatia, 14,4% - in the
Czech Republic, 16,2% - in Hungary, 16,9 % - in Poland, 2,7% - in Romania,
30,9% - in Bulgaria). While in the case of Ukraine, it will be recalled that, it is still
talking about more than 60%.

129
 But the current market share is much higher in Asia and Africa for Ukrainian
suppliers compared with observed in post – socialist countries of Central Europe, is
only a consequence of the small volume of domestic exports to the EU and
particularly its economic core. But absolute volumes of supplies of goods from
central european countries in per capita to countries of Asia and Africa not only
yield to Ukrainian, but in most cases far exceed them. For example, the export of
goods to Asian countries (except Turkey, which is in a customs union with the EU)
and Africa from Poland was amounted to $13,8 billion, from the Czech Republic -
$11,17 billion, from Romania - $ 8,18 billion, from Hungary - $7,35 billion, from
Slovakia - $4,28 billion in 2014. From Ukraine, by comparison, it is $12 billion for
its months of 2015. The reasons for these are the lack of an adequate potential of
our cooperation with European companies and passivity of the Ukrainian business
to enter the EU market.
Although the EU has long been a major trade partner of our country, whose
share is slowly approaching half of its external trade, the use of the potential of
trade and industrial cooperation particularly with companies in most European
countries is still in its rudimentary stage. Absolute volumes of sale of Ukrainian
goods to such large and prosperous European countries like France or United
Kingdom, do not yield to our export to the order of magnitude smaller and poorer
as Moldova and Georgia. Ukrainian exports to the economic core of the European
Union (Germany, France, countries of Benelux and the UK), which concentrates
more than half of its economic capacity and import, as well as over 45% of the
community over the months of 2015 amounted only a quarter of our sales to the
EU, or 8,75% of total Ukrainian exports ($3,025,700,000 and $276,300,000 for
November). In comparison, it only slightly exceeds domestic supply to Turkey or
China.
And the thing is not in distance, but in the commodity composition of
Ukrainian exports, which in its present form was requested in the markets of
mentioned economic core. It is a small supply of Ukrainian goods to Finland,
Sweden and Ireland. Instead, the bulk of our sales to the EU aimed at the
periphery of Central Europe (14,25% or $4,927,2 millions, for the first months of
2015 and $452,7 millions for November) and countries PIC (8,94% or
$3,087,400,000, for the same months and its $400,2 millions in November) absorb
70% of our exports to the EU.
Deliveries to the several major European countries are still very mono
specialized. Over 50% of our exports are cereals to Spain, crude of ferrous metals
to Italy or Greece, and ore to Austria. Deliveries to France nearly three – quarters
consist of oilseeds and products of their processing, these products are almost the
half of the country's exports to Belgium. The Ukrainian exporting to Finland is the
same share of ferrous metallurgy. Our sales consist of grain over 80% to Ireland
and geographically close to Bulgaria are almost as much as with raw ferrous metals
(78,5%). Therefore, an important task is to bring more Ukrainian goods to the EU
market.

130
 Industrial cooperation, even in the form of processing of tolling raw
materials for European companies still extremely underdeveloped. And it is this
form of cooperation defines the lion's share of mutual trade turnover within the
EU, and it was as a catalyst of the economic integration to the Union of most
successful post – socialist countries. In Ukraine, it is fallen down weighty share of
trade with Germany and the Visegrad countries. It is in the structure of supply to
these five countries are the largest proportion of electrical products produced
mainly tolling schemes in cooperation with internationally renowned transnational
companies (TNCs); its indices in our sales for 10 months of 2015 to Hungary
amounted to 51,7% ($ 379,300,000), to Germany – 32,2% ($ 344.200,000), to
Poland – 14,6% ($ 239, 400,000), to the Czech Republic – 21,4% ($ 98 millions),
to Slovakia – 15,3% ($ 60,5 millions). A share of electro – technical products is
considerable in export to Estonia (over 20% or S $ 5 millions). The relevant
enterprises are located mainly in western Ukraine and to a lesser extent in central
Ukraine. [http://edclub.com.ua/analityka/].
Manufacturers of other industries, especially light, furniture and chemicals
are working a similar scheme with partners in the EU. Thus, due to this light
industrial products in domestic exports for 10 months in 2015 to Germany amounts
to $ 156,200,000, to Poland - $ 72,100,000, to Hungary - $ 41,800,000, to Slovakia
- $ 16,100,000. Light industrial products were taken to Romania for the same time
at $ 62,400,000 , at $ 51,500,000 (mainly footwear and leather products) – to Italy,
at $ 3900,000 – to France, at $ 21,500,000 – to Denmark (34,2% of all deliveries),
at $ 1600,000 – to Belgium. The sales of furniture were valued at $ 61,100,000 to
Poland, to Germany – at $ 22.300,000, to Denmark - at $ 12,600,000. It is clear
that the final consumers buy these products as made in the relevant EU countries
[http://www.nbuviap.gov.ua/].
Fears that the Ukrainian market will be swamped with cheap European
goods, and ours not withstand a competition, seem at least greatly exaggerated.
Competition is certainly become sharp, and this is not a sentence to the domestic
producers and common consumer goods. It is rather the opposite.
Attention is drawn to the fact that against the background of our exports to
the EU in recent years there was a significant improvement in the trade balance for
Ukraine, and the trade deficit gradually tends to zero. In November 2014, export
was totaled $ 1,171,530,000 to the EU, for import was to $ 1,756,280,000, that was
almost half less. In the first half of 2015 the ratio was already $ 6,062,800,000 to $
7,389,900,000, that is our supplies are only yielded 22% to import from the EU. In
November 2015, the European sales to Ukraine exceeded the volume of Ukrainian
exports to the EU only at 12,5% ($1,199,750,000 to $ 1,349,930,000).
[http://ukraine-eu.mfa.gov.ua/]
The trend is obvious, it is clearly positive for Ukraine and hardly changes
even after removal of duties on European goods while importing. Because most of
them considerably more expensive even at the current exchange rate to the euro,
and in the short term domestic currency will devaluate relatively to common
European currency. The quotae restrain ukrainian producers of poultry in the EU

131
market for the supply of their products. The competitiveness of domestic producers
of pork in the last year also was higher than in European competitors. According to
the profile association, pork imports fell by half in physical volume, and mostly
imported offal in 2015. As a result of devaluation of grivna, price on pigs
decreased in Euro by 34% in Ukraine in 2015, while in Poland was only 4,1%, and
now they are lower at least 15%.
Only a certification discrepancy to European standards restrains exports to
the EU of a number of species of Ukrainian dairy products. Only on December 29,
2015 the European Commission published the decision to include our first
milkman to the list of approved exporters in the EU. The question is the producers
of various products from various countries, among them are: Lviv cold – storage
facility "Lustdorf" in Vinnitsa region, "Milk House" in Dnipropetrovsk, "Lacto –
lis – Nikolaev" in the south, a number of companies on the left bank [http:
//www.uapp.kiev.ua/].
To get real benefits from free trade, Ukrainian officials and entrepreneurs
need to work actively. The economic part of the Association Agreement will have
a positive effect if it will be dynamic adaptation of national legislation to
European, and producers to the western requirements and also an exposure
personal activity in promoting their products and opportunities for cooperation
with partners in the EU. It may be only expected the European expansion of
production’s engineering, but, in Ukraine there should be significantly increased
income opportunities of citizens and financial means of employers. Meanwhile,
after the beginning of the work of FTA, the European business will gain additional
motivation to invest in Ukraine. Now it can be predicted the business processes for
a longer term, and materials and components will enter our market with nought
tariff rates. In some areas the cost of production goods will be reduced, making it
more competitive in the Ukraine, and in export markets.
In January 2016, in Lviv region a new factory of Fujikura will work, which
produce electrical equipment for cars: it will create three hundred new working
places in a depressed area of their traditional deficit. It will begin a construction of
the plant of Nexans group – the project is planned to complete in early next year in
Brody. The interest to industrial cooperation with enterprises of Lviv region have
already declared "Hyundai Corporation" and Bombardier; other companies that
make components for Western partners gradually expand the existing production
area. The similar trends are noticed in the neighboring regions of Western Ukraine.
A Production Association "Carpathians" in Ivano – Frankivsk produces wiring for
cars of Porshe, Mercedes, Volkswagen, Skoda. A branch establishment of the
international electronics producer TE Connectivity – wiring and heaters for BMW,
Opel, Mercedes, Skoda and Fiat. Different electronics are produced in Kiev,
Ternopilskiy, Chernivtsi, Volyn regions. [http://zed.ua/news/].
Local authorities and management of engineering enterprises, particularly in
those areas most affected due to the loss of cooperation with Russian producers, it
is important to speed up the setting up of cooperative contacts with companies not
only from the EU but also with third countries, particularly in Asia, which are

132
interested in drawing or revision of their products using the advantages of Ukraine
on labor costs and territorial proximity to customers in the EU. The first step is to
interact with the TNC, aimed at producing products here – components or,
alternatively, the assembly of finished products to supply their parts to the EU. In
particular, it should actively adopted the western regions’ methods, which are
much more advanced in cooperation with European companies. During 10 months
of 2015, it is fallen almost a third (31,9%) of all Ukrainian exports of electrical
products in Transcarpathia, which were exported; to $ 509,300,000 (55,3% of total
region’s export); to $ 126,400,000 (13,8%) – light industry products, for $
41,200,000 (4,5%) – furniture. In Lviv, the share of exports in electrical industry
for the period amounted to 25,7%, and as a result, its indices should reach $
300,000,000. 15,9% of export products there – are the light industry (year on year
to almost $ 180,000,000); 8,5% (annualized calculation of almost $ 100,000,000)
should be export of furniture. Electronics export is 42,2% in Rivne (over $
140,000,000) and 33,3% - in Volyn (over $ 210,000,000 annually). In Bukovina,
19,8% of export now falls on light industry (over $ 20,000,000 in annual
calculation) [http://ukraine-eu.mfa.gov.ua/].
In the first quarter of 2017, there was some recovery in Ukraine's foreign
trade. The export of goods and services for the first quarter increased by 34%
compared to the first quarter of 2016. The main changes are that domestic
producers are not only reoriented to new sales markets, but also change the range
of sales: the first place is held by the agricultural inspector, and not the heavy
industry, as before the share of export of services rises. More than a third or 36.4%
of our supplies now go to the EU, 32% to India, Turkey and Egypt and only 14%
to Russia. Increase in exports is facilitated by rising prices on world markets for
ore, metal and record sales of cereals.
The largest increase in iron ore - $ 352 million, sunflower oil - $ 316
million, soybeans - $ 226 million, sheet hire $ 190 million.
The structure of export goods was 83%, export services 17%. In the value
terms of APS products ($ 4.56 billion 44% + 38.6%), production of MMC ($ 2.43
billion + 42.2%), machinery production ($ 0.95 billion + 4.4%).
Export of services increased by 9%, including tranport services ($ 1.332
billion, 55.4%, + 8.7%), IT services ($ 0.393 billion, 16.3% + 6%), processing of
raw materials $ 0.335 billion 13.9% + 36.4%).
But while talking about the fact that Ukrainian enterprises have rebuilt and
conquered the European market is premature.
The export structure remains low-competitive, semi-raw. The task is not to
export wheat, and not even flour, and spaghetti is not yet implemented. But it's
good that there is a reorientation, not only on the European market, but on the
markets of third countries.

References:
1. The Global Enabling Trade Report 2016 [Electronic resource]. Mode of access; http:
//www3. Weforum.rg/does/WEF_GlobalEnablingTrade_Report_2017.pdf.
133
 2. The International Trade Statistics Yearbook (ITSY) of the United Nations Statistics
Division/ Department of Economic and Social Affairs. 2015-2016. International Trade Statistics
Yearbook. Volume II – Trade by Commodity. [Electronic resource]. Mode of access; http:
//comtrade.un.org/pb/
3. Total Midyear Population. U.S. Census Bureau, International Data Base accessed on
June 2, 2016/ The World factbook – European Union, Central Intelligence Agency, accessed on
June 2, 2016. [Electronic resource]. Mode of access; http://www.cia.gov/library/publications/the-
wold-factbook/geos/ee.html
4. WTO; 2016 Press Releases: [Electronic resource]. Mode of access;
http://www.wto.org/english/news_e/pres12_e/pro658_e.htm//chart2

Yuriy Kozak ,
Prof. Dr.
Odessa national economic university
Natalia Mamontenko
PhD.
Odessa National Polytechnic University

Regional cluster policy in Europe: multidimensional approach

Annotation. The article defines the objective need for a multidimensional approach to
the analysis of regional cluster policy in Europe. Its role in the creation of the combined clusters,
which take into account local traditions and global trends, is shown in the article.
Keywords: modern regional policy , regional cluster policy, multidimensional approach.

The spatial development of the EU in a globalizing world economic system

objectively requires new approaches to the development of regional policy in
Europe. Today, European countries, like before, want to use borrowed "improved"
organization sociodynamic methods to improve the effectiveness of this policy.
However, the direct projection of the world's approach to the specifics of euro
regional development does not give significant results. Accumulated and newly
acquired imbalances, difference in the levels of development in production,
employment and quality of life can lead to disintegration.
Initial differences of global development trends and traditions of the
European continent should be allocated as the fundamental contradiction of
modern regional policy. Preference is given to generalized approach, embodied in
the theory of Michael Porter's clusters. Clusters, according to M. Porter, are "...
geographically closely located groups of enterprises and institutions that have a
common links," [1].The European Commission selects the cluster regional policy
as a panacea, hoping to prolong the success of sophisticated high-tech clusters,
such as in California (USA), Bavaria (Germany), Oulu (Finland).[2, p. 76].
Regional cluster policy based on the creation of high-tech clusters, promotes
increased competitiveness of the EU Member States regions to a certain extent. It
is more favorable to the market, than the traditional policy of "growth poles", but
the possibilities of super modern high-tech clusters are limited:
1. High Technologies require fewer workers;
134
 2. Many regions focused on such activities in the European innovation
race;
3. Orientation on the same technology leads, ultimately, to the loss of
potential competitive advantages of the regions and to the painful regional
destruction of small investors.
However, the "gregarious" race continues: each European region wants to
become the Silicon dam (Netherlands), the Silicon coast (Norway), the Silicon
Saxony in the future. This completely ignores the fact that advantage comes from
the creation of differences, from a multidimensional approach to European regional
policy.
The multidimensional approach to regional cluster policy in the context of
globalization must proceed from the fact that globalization is not a form of organic
integral system like some kind of totalitarian system. it is world economic
development in general, and European one, in particular, like development of the
whole through the unity of the diverse [3, p. 21].
Underestimation of this fact calls into question not only the development of
metasystem of the world economy and its subsystems, but also nature in general.
We believe that the specificity of the region, its uniqueness, as a system that
includes not only economic and technological, but also social and cultural
dimension of the region, ‒ its local traditions should be the basis for a regional
cluster policy in Europe.
Named subsystems must function as elements of the whole organism. The
imbalance of the functioning of any of the subsystems affect the state of
development of the region as a whole. The interaction of economic, technological
and socio-cultural subsystems is equally and interchangeably. In our opinion, the
only multi-dimensional perception of the region can contribute more effective
euroregional policy, in which the social and cultural traditions do not conflict with
global development trends.
1. A multidimensional approach shows that the use of modern high
technology clusters in Europe is limited because it does not take into account the
specificity of European regions and their subsystems.
2. Multi-dimensional approach to regional policy eventually dulls the
tendency to donations of low-tech clusters. Accounting for the specifics of the
region and not the opposition of its global trends accelerates recovery processes of
competition and establishes links of regions with new economic events.
Theoretically, it is hard to imagine, but the practice of euro regional
development suggests otherwise. There are many examples of the revival of the
"old" economy through the creation of new combinations of existing subsystems.
Strategy of new combinations is carried out in the sphere of Danish furniture
production, the system of Swiss watchmaking and the Italian textile industry,
where local traditions encourage the introduction of high technologies.
The dispute regarding the new combinations is only academician one. It
must be resolved through regional revival with the use of old knowledge in new

135
conditions. The state should play no regulatory, but developmental role in the
creation of the combined clusters.
3. Existing local traditions and trends of global development are connected
in a multi-dimensional approach to regional cluster policy
In fact, it is a development of the ideas of Joseph Schumpeter about the necessity
of different combinations of global-local interaction, expressed by him in the work
"The Theory of Economic Development" in 1912. [4, p. 421-422].
The multidimensional approach allows the state to implement the structural
and cultural factors in regional policy and determine the effectiveness of modern
specialization of the region assuming a symbiosis of local traditions and global
trends. Creation of new combinations contributes to the development of the
regional competition. Regions recover their traditional industrial arts and stimulate
the introduction of high technologies in the design, production and marketing.
There are many opportunities, that integrate new methods with old skill in Europe,
for creation clusters. It is illustrated by Table 1. [5, p. 456].

Table 1.
Examples of European countries that combine local traditions and global
trends in the regional cluster policy

European region
Local traditions Global trends Newcombinations
(country)
Jutland (Denmark) Furnituremanufacture Style Furnituredesign
Productionofwatches
JuraArc (Switzerland) Watchmaking Marketingandstyle
«Swatch»
High- Fashion
Emilia-Romagna (Italy) Textileindustry
techmanufacturing "hautecouture"
Manchester Pop music and pop
Heavyindustry Culturalindustry
(UnitedKingdom) art
Baden-Wurttemberg Machineandapparatus
Digitaltechnology Multimediadevices
(Germany) construction
Ruhr (Germany) Heavyindustry Touristservices Tourismindustry
Nord Pas-de-Calais Clothesdeliverybypos
Clothingproduction Theneedforcomfort
(France) t
Dunakanyar (Hungary) Resorts Healthcare Healthcare, recreation
The need for current
Krakow (Poland) Construction, art Restorationservices
repair

Cluster policy gains new meaning in a multidimensional approach. The

regional authority can support, develop, and sort the clusters in which globalization
and local traditions have merged. This regional policy of authorities have
completely meet European Treaty, in the part, where it comes to the need for strict

136
observance of the European Commission's economic and socio-cultural diversity
in all regions of Europe. [1, p. 72].
Theory and practice of regional development indicates that the power can
bridge the gap between high-tech and low-technology clusters not using exogenous
"enhanced" methods, butwiththe "unique" methods. In this case we are not talking
about the uniqueness in the literal sense of the word, but in the understanding that
only the uniqueness of territories, local traditions always bring successin the
conduct of regional cluster policy

References:
1. Porter M.E. Locatіon, Clusters and Company Strategy. The Oxford Handbook of
Economic Geography.-Oxford: Oxford University Press, 2000, p.46
2. Європейський Союз. Консолідовані договори. – К.: Port-royal, 1999. – с. 72-76.
3. Essentials of International Economics: Questions & Answers.-Edited by Yuriy
Kozak,Tadeusz Sporek - Kiev-Katowice: CUL , 2014 , p. 21
4. Й. Шумпетер. Теория экономического развития. - М.: Прогресс, 1982, стр. 421-
422
5. Gert-Jan Hospers. «Best Practices» and the dilemma of regional cluster policy in
Europe. Tijdschrift voor Economischeen Sociale Geografie – 2005, Vol. 96, No. 4, pp. 452-457.

Halyna Ponomarova,
PhD., Ass. prof.,
Odessa National Economic University
Olga Sukach
PhD.
Odessa National Economic University

Analysis of features of migration policy in the context of

globalization of the world economy

Annotation. With the development and acceleration of globalization processes and their
spread almost all over the countries and regions of the world, international migration processes
are enhanced and take a new scale. Issues that appeared in the second part of the last century
nowadays have taken a new content and cover almost all the mankind and create a threat to its
existence. Such global issues make influence on the international migration’ scale and proportion
pace. They form new centers of attraction for migrants, create new manpower and highly
qualified specialists marketsthat enhances contest on global labor markets. Its highlighted that
migration processes significantly influence on the directions and paces of the world and domestic
economic development, demographic processes in the most countries of the world, rise and fall
of social standards and other sides of our life. Due to the results of the research, definite
conclusions were done, which will give an opportunity to take into account peculiarities of
migration flows’ formation in conditions of globalization.

137
 Keywords: migration, policy, globalization, world economic, migrant, displacement,
integration, socio-economic development.

Introduction. Under the conditions of acceleration and deepening of

globalization processes in international economic relations, the migration of the
population has acquired a new scale character and qualitatively new characteristics.
Globalization, as a phenomenon and process affecting all aspects of the
economic, social, political, and social life of the global community, has also caused
the emergence of global problems of mankind. One of the main issues, for
example, is a demographic problem, which consists in the rapid increase in the
population and its uneven demographic development. Eventually, it increases the
scale and accelerates the speed of the world integration processes, which today are
characterized by movement of migrants among all continents and parts of the
globe.
Research purposes. This research aims to analyze the contemporary
particulars of the international migration in the terms of world economy
globalization, and to highlight the most perspective direction of the international
migration streams direction.
The research methodology includes an methods of the systemic, structural
analysis, logical analysis, factual analysis and situational approach, induction and
deduction
Results and analysis. The global problems of mankind can be divided into
two parts: problems arising within the human community and problems which
appear in the process of interaction between the human community and the natural
environment (Fig.1). The emergence of such problems is an obvious manifestation
of globalization, which is very uneven, contradictory, but affects all countries and
regions of the world [1, p.43].
The study of the global problems of mankind makes it possible to see that
they are very closely interrelated: the raw materials and the energy problems are
closely intertwined with the ecological issue; the ecological problem is connected
with the demographic one; in its turn, the demographic issue is related to the
problem of food. Subsequently, all these issues determine the economic level of
development of the world's poorest countries.
All the above-mentioned global problems have a direct impact on the pace
and scale of migration processes, which have also acquired a global character.
Furthermore, migration flows generate the problems of world terrorism and crime
not only in historical forms but also new manifestations, which consequently bring
about tougher restrictive measures of migration policies of host countries.
Similarly, the global problems generated by globalization can be divided
into the following groups:
- Intersocial problems;
- Problems of human-nature interaction;
- Problems of human-society interaction [2].

138
 Global problems of mankind

Global problems of the human Global problems of human-nature

community: interaction:
- demographic; - ecological;
- the problem of preserving peace; - raw materials;
- overcoming the economic - power;
backwardness of poor countries;
- food;
- elimination of dangerous diseases;
- the problem of space exploration;
- international terrorism;
- the problem of development of the
- international crime. World Ocean

Fig. 1. Global problems of humanity [2].

The first group of global problems is determined by the relations between
groups of countries which represent similar interests in the modern world: political,
economic, and social ones. Various confrontations, such as ‘West-East’, capitalist
and socialist systems, poor and rich countries, today are represented by the
opposition ‘rich North-poor South’.
At the present time, after the collapse of the socialist camp and the
emergence of independent states on the site of the former USSR, Czechoslovakia
and Yugoslavia, the severity of global problems has not decreased, but their
character has changed. Consequently, the scale and direction of migration flows in
the modern world have changed. Instead of the threat of a world war as a result of
the confrontation of the two capitalist and socialist systems, many local military
conflicts arose and began to lead to local and global migration processes not for
economic reasons.
Recently, the problem of maintaining a fair world economic order has
worsened due to the significant gap between the countries of the world in terms of
the level of socio-economic development and the standard of living of the
population. This circumstance, in turn, along with the development of
communication tools, makes information about the standard of living in the so-
called rich Countries and causes the intensification of migration processes
available [3].
The economy of the poorest countries is based on the exploitation of the
primary sector of the economy-extraction and export of raw materials, which
significantly complicates environmental problems in these countries and generates
new reasons for migration. The population of poor countries and countries with an
average level of development constitute the prevailing majority of the world's
population, about five billion people [4].
139
 In accordance with the above-mentioned information, the solution of the
global demographic problem, as the basis of migration processes, is possible
provided that the efforts of all countries of the world are combined, applying the
century-old experience of leading developed countries that have experience in the
formation and conduct of an effective migration policy.
Exactly this kind of migration policy is aimed at using the intellectual and
physical potential of qualified specialists and labor to enable countries such as the
US, Canada, Germany, France, Australia, and New Zealand to substantially
enhance the potential of national economies.
In fact, such nations as the American and Canadian, New Zealand and
Australian ones were formed owing to global migration flows.
At an early stage of globalization, it is possible to identify certain models of
migration processes:
- involuntary or forced (follows wars, creation, and the collapse of empires,
such as the Roman and Byzantine ones);
- Industrial model;
- Mixed model [5].
An involuntary or forced migration model was illustrative of the
colonization period. The nature of migration flows was in the interests of the
dominion countries of Western Europe. During the period of great geographical
discoveries, when the system of the international economy was developing, new
market outlets were created, and new directions of movement were opened.
Therefore, trade routes of the mass of migrants were forced to move to the
countries of Africa and North America for colonization and management of new
colonies.
New directions of migration were formed: between Western Europe, North
America, and the western coast of Africa. There were flows of movement of goods
and weapons from Europe to Africa and indigenous African peoples, as slaves, to
North America. Accordingly, deliveries of raw cotton and sugar cane were started
from America to Europe. Thus, the transatlantic triangle Western Europe-Africa-
America-Western Europe emerged.
The industrial model of migration is characterized, mainly, by economic
motives of population movement with the purpose of changing the permanent
place of residence, improving the social situation, and raising the standard of
living. This model of migration movements has already determined the gap in the
social and cultural situation of migrants and citizens of host countries, the
beginning of the marginalization of migrants who could not obtain citizenship and
formed ethnic minorities in the labor market.
The last model of migration is a mixed one. It is typical for the end of the
latter half of the twentieth century. The migration processes of this period were
based on structural transformations of the international economy as a result of a
new international division of labour, accelerated development of scientific and
technological progress, and geopolitical changes on the world map; these trends
were accompanied by global processes and resulted from globalization.

140
 In the last decade of the twentieth century, migration processes broadened its
scope considerably and were predominantly determined by global trends in the
development of the service sector and by abstraction from the sphere of material
production. Transnational corporations, utilizing resources of developing countries,
transferred material productions to the countries of South-East Asia; as a
consequence, it determined the rates and proportions of their economic
development and the emergence of new directions of migration flows in the world.
The formation of a new system of the international division of labor
coincided in time with the crisis of the socialist system and the financial crisis in
Latin America, which caused new waves and directions of migration from these
countries and regions.
Currently, according to the UN statistics, the number of migrants who live
outside the country of origin or citizenship is two hundred thirty-two million
people, which is almost 3.2% of the global population. By comparison, in 2010,
the number of migrants increased from one hundred fifty-four million in 1990 to
one hundred seventy-five million people in 2000 [6].
From the middle of the twentieth century, the peculiarity of the economic
development of the countries, which, according to the UN classification, are
developed, was a significant shortage of highly qualified personnel, which
compose the intellectual potential of the national economy.
Today, under the influence of globalization, the main regions and specific
countries are identified as concentration of the largest number of migrants. As it is
stated in the UN statistics, the largest number of immigrants live in Oceania, with
about 18%; North America, with about 9%; and Western Europe, with more than
6%.
Almost 90% of international migrants are now located in fifty-five countries,
and more than 55% of the total number of international migrants reside in the
following ten countries: India, Pakistan, US, France, Germany, Canada, Australia,
Iran, Saudi Arabia, and the United Kingdom [7].
This number of international migrants exerts a strong influence on the
economic, political, social, and cultural development of host countries, where
immigrants compose more than 4.5% of the indigenous population; meanwhile,
this influence is not always positive. By comparison, in the developing countries
the percentage of immigrants does not exceed 1.6%.
With the development of the globalization processes, the mobility of the
population has also increased: migration flows have been not limited to one
continent for a long time, and immigrants cross the oceans. However, it should be
underlined that international migrants in such regions as Africa, Latin America,
and Asia are residents of the same regions.
Migration is becoming increasingly diverse because of the deepening of
global processes. Labor migration is possible within one country, serving as the
country of origin, arrival, and transit for labor migrants. Countries, such as Nigeria,
Malaysia, and Thailand, which traditionally have been donors to international
migration since 1990, have also become host countries.

141
 Under the influence of globalization, not only quantitative but also
qualitative characteristics of international migration are changing. There is a
gradual but stable transformation in the directions of international labor migration;
for example, the region of the Middle East is no less attractive to international
migrants than North America. The skilled labor force is now in demand in the
Middle Eastern states, which, adopting experience of the European countries, use
the physical and intellectual potential of labor migrants for the development of
national economies, providing rather attractive working and living conditions.
The demographic composition of international migration has changed
significantly, too. Since the 1990s, the outflow of labor migrants from China has
increased more than by threefold, and in the Philippines and Mexico the number
has doubled [8].
As a result of research, we can conclude:
1. The result of the development and deepening of globalization processes
has been a significant increase of the number of international migrants and,
accordingly, the emergence of many problems related to the disproportionate and
incomplete use of the potential and skills of migrants.
2. The main obstacle to the most efficient use of potential is the obstacles to
recognition of the education and qualifications obtained in the donor country. In
order to eliminate them, many countries are implementing multilateral and bilateral
agreements, and regional arrangements. The most illustrative example is the
countries of the European Union, which mutually recognize professional
qualifications and academic degrees. The Association of Southeast Asian Nations
is also moving in this direction.
3. The immigration of skilled and highly educated workforce has negative
consequences precisely for the countries of origin of such migrants. Especially
countries with a relatively small population and the poorest countries in the world
suffer from the ‘brain drain’.
4. As early as 2010, the sixty-third session of the World Health Assembly
adopted a global code of conduct, which inhibits the recruitment of medical
personnel from developing countries, which lacks these personnel. The same path
was chosen by the United Kingdom, which voluntarily regulates the employment
of healthcare workers from certain countries. Similarly, Norway has developed a
framework for global solidarity in this direction.
5. Globalization has shifted the emphasis in the formation of new centers of
attraction for international migrants. In the beginning of the twenty-first century,
such centers were the newly industrialized countries and developing countries
which demonstrated significant economic growth rates, and the oil-exporting
countries. There are new regions which are attractive for migration: East and
South-East Asia, South America, and West Africa. As a result of the latest global
financial crisis in 2008, the pace of international migration to these regions has
slightly decreased. Certain countries, which have the largest share of international
migrants in the total population, can be highlighted. These are the countries of the
Middle East, such as Kuwait (77%), Qatar (74%), Jordan (48%), the United Arab

142
Emirates (44%), Israel (40%), Singapore (39%), Oman (30%), Saudi Arabia
(27%), Bahrain (25%), Switzerland (23%), New Zealand (20%), Canada and
Australia (21%) [8, 9].

References:
1. Jagdish N.Bhagwati.In Defense of Globalization / Publisher–Oxford
University,2004.330 p.
2. Michael D. Intriligator Globalization of the World Economy: Potential Benefits and
Costs, and a Net Assessment [http://www.milkeninstitute.org/publications/view/188 [visit
28.07.2017]
3. Von Rema Nagarajan. Fragwürdige Statistiken Wenn arme Länder reich gerechnet
werden. [http://www.spiegel.de/wirtschaft/armut-in-indien-und-anderen-laendern-mittleren-
einkommens-a-1100684.html [visit 28.07.2017]
4. Kolchanova Iuliia. Countries’ Rating on Living Standards, the Richest and the Poorest
Countries of the World: Where is it good to live for a Migrant? (in Russian)
[http://evroportal.ru/immigratsiya/reyting-stran-po-urovnyu-zhizni [visit 28.07.2017]
5. Martin. J. P. Migration and the global Economy.
[http://www.oecd.org/migration/mig/40196342.pdf [visit 28.07.2017]
6. United Nations 2013 [http://un.by/news/world/2013/8d440faf55088.html [visit
28.07.2017]
7. Skeldon 2010 Skeldon R. The current global economic crisis a. migration: Policies a.
practice in origin a. destination // Working paper / University of Sussex. – 2010. – T-32. – Mode
of access:
http://www.migrationdrc.org/publications/working_papers/WP-T32.pdf [visit 28.07.2017]
8. Shcherbakova E.M. Worldwide Trends of International Migration and Migration Policy
/ Demoskop Weekly. 2013. № 555-556. (in Russian)
[URL:http://demoscope.ru/weekly/2013/0555/barometer555.pdf [visit 28.07.2017]
9. United Nations (2013). New trends in migration: demographic aspects / Report of the
Secretary-General.E/CN.9/2013/3.P.5-6.
[http://www.un.org/en/development/desa/population/events/pdf/expert/19/2012_EGM_Report_F
inal.pdf [visit 28.07.2017]

Inna Ukhanova,
PhD, Senior Lecturer,
Odessa National Economic University, Ukraine

State support the creation and operation of technology park:

analysis of experience and modern trends
Annotation. This article states and grounds theoretical basis, and gives some practical
recommendations concerning governmental support of the technopark bodies. The article
analyses peculiarities of the governmental support of technopark creation and functioning in the
developed countries by the example of: the USA, the West Europe countries, the Asian region
countries and the governmental support of Ukrainian technoparks and proves the necessity of the
reinforcement of the governmental technopark support due to their importance for the national
economics and problems of their development which became more acute in the course of the
market transformation.

143
 Keywords: technology park, science park, technopolis, innovation, innovative economy,
American model of technology parks, European model of technology parks, Asian model of
technology parks, Ukrainian model of technology parks, government support of technology
parks, direct and indirect instruments of government support.

Actuality of theme. Growing degree welfare of the country, its economic

development, today, first of all, directly related to the origin, formation,
development and efficient operation of high-tech industries in the industrial
structure, formation and activity of innovative types of production. That is why the
winners are those countries that do not have a scientific and technical potential, but
they use it effectively, that is able to transform new scientific ideas, inventions and
discoveries in the finished commercial innovative products, make it faster than
others, with less expenses realize a series of "science - the production process -
marketing activities".
The crisis that emerged today in Ukraine's economy can be overcome by the
stipulation that current trends in the economy that lead to the establishment and
operation of new forms of innovation sphere, the most effective are integrated
education, which provide effective interaction of scientific and technical and
production potential, that is parks, which, with appropriate state support contribute
to the development of innovative potential.
Analysis of publications on the problem under study. Theoretical
research on the emergence, formation, development and operation of technology
parks dedicated to the works of M. Castells, R. Silmor, G. Sunman, A. Anderson,
A. Tatarkin, A. Suhovey. An important contribution to the development of
innovative economic development problems Ukraine have domestic economists V.
Heyets, E. Lazareva, A. Mazur, V. Soloviev, D. Stechenko, L. Fedulova and
others.
Definition of the problem that is unsolved. Development of the above
scientists serve as scientific and methodical substantiation of necessity the
formation and development of technology parks as modern forms of integration of
science and business. However, poorly understood and proven to improve
scientific and practical issues relating determine prerequisites and tools of public
support for the establishment and operation of parks.
The aim of the study is to develop a theoretical framework and
substantiation, and develop practical recommendations for government support
techno park structures.
The main material. Features of state support for the establishment and
operation of technology parks in developed countries. If we consider the
peculiarities of state support tehnoparks` structures in the United States, there is a
practice of interaction between scientific and industrial areas on the basis of state
orders and contracts to universities and companies that make up the parks,
allocated significant amounts of funding. During its development, the US industrial
parks are various kinds of government support, funding their activities at the
expense of funds established universities and charitable organizations, local
municipalities, federal agencies and ministries, industrial companies, as well as
144
their own. Reconsideration of the role of public institutions in economic
development contains two main elements:
- creation of basic preconditions of increasing business activity and efforts to
improve the business climate. Tax reform has been done: a systematic reduction in
of the tax burden, the new system of tax credits - investments in new businesses,
purchase and leasing of equipment allowed to claim the tax credit. In the 80-ies. In
the United States introduced a special tax break, stimulating initiatives and
increasing efforts in R & D companies, called "tax credit for R & D growth." This
discount (20%) is a deduction from income tax of additional R & D expenditure
compared with the corresponding average annual expenditure for the previous
(baseline) period;
- organizational reform of state cooperation and economic sectors, the main
purpose of which was the maximum orientation of the system of state institutions
to the needs of industries and markets.
Present increasing role of the private sector in making decisions about
investing through extensive use of private-public agency, which brings together
private and public resources on parity basis, a significant number of activities
which oversees the Department of Economic Development. One such agency
manages the so-called Foundation technology developing, based on public
participation (down payment of 15 mln. USD) And focused on providing
guarantees on loans high-tech companies (up to 5 mln. USD for up to 10 years).
State support of technology parks in Western Europe. In Western Europe,
the state supports technology parks in all phases of activities, including the use of
centralized funding and tax incentives. For example, in the UK share of public
spending on building construction, building and infrastructure development of
science parks is about 60% in Germany, France and the Netherlands - about 75%,
and in Belgium - almost 100%. [1; 2].
In the UK, to support of technology parks has the following programs:
- the program guarantees for loans - loans to banks to 10 thousand. Pounds at
70% state guarantees;
- a program of business expanding - tax incentives to investors as
compensation for risk;
- promotion grants program for achieving small firms in Science and
Technology;
- innovation Contest small businesses with up to 50 people employed for a
grant of £ 50,000, which covers 75% of the project;
- supporting the development of new products - firms employing up to 500
people to receive a grant of £ 150 000, which covers 30% of the project [3].
Almost all industrial parks established on the initiative of the German
government land and in most cases their financial participation, although some are
funded by private capital. The main goal of budget funding is to promote small and
medium-sized businesses and create new jobs, especially in the priority areas of
high technologies. So instead of spending that make social unemployment benefits

145
in the state budget come additional income in taxes from new industries and from
employed in the manufacture [2].
France is trying to decentralize its financial system, provides assistance in
the economic development of the regions. amortization policy, legislation provides
a special procedure for accelerated amortization equipment used in technically
advanced areas and equipment used by companies to research and development.
Also used tax incentives, incentive initiatives and increasing efforts of companies
in R&D.
Japan has provided significant benefits for project participants to encourage
the development of knowledge-based industries. Within five years of the adoption
of the program in the fields of high technology the system of accelerated
amortization, which allows companies to write off the first year to 30% of
equipment and 15% of the houses and buildings. Typical sources of funding and
techno parks in Japan the following: 30% - state funding, 30% - municipalities,
30% - companies and individuals, 10% - foreign investors [4; 5].
China. Persevering intervention by national and local governments to create
and increase the number are the hallmark of Chinese policy establishment and
operation of parks. In China, the government carried out primarily by tax
incentives, as newly created innovative firms are exempt from taxes for two years,
firms that use of innovations in pay 15% of the actual value of the income tax,
which led to the creation of around 2,500 innovative enterprises that developed and
commercialized in the market around 4000 species of high-tech products. For
development of technology parks infrastructure government annually allocates
loans and investments, the government aims are development of venture capital
funds (including attracting foreign capital), providing access to scientific
entrepreneurs to bank loans, these sources of funding should gradually replace
budget. It should be noted that gradually parks, operating abroad, moving to a
mixed form of financing, in addition there are a number of tax and customs
preferences under the general coordination of the authorities as at local and at the
state level.
Analysis of state support for technology parks in Ukraine. The first three
industrial parks in Ukraine began to exist when the Parliament of Ukraine adopted
the Law "On Special Investment and innovation of technology parks". It should
distinguish stimulation of technological parks, which was fixed in the relevant
legislation in the form of appropriate incentives and government support for such
activities that took place until 2005, when the Law "On State Budget of Ukraine"
was canceled a preferential activity. On Amendments to the Law of Ukraine "On
State Budget of Ukraine for 2005" from 25.03.2005. № 2505 - IV. On
Amendments to the Law of Ukraine "On Special Investment and innovation
Technology Parks" from 12.01.2006. №3333 - IV.
The law of 2006 deleted the exemptions in the VAT on the sale of
innovative products. This is 2-3 times reduces the amount of state support projects.
On the whole period of the technology parks in Ukraine of state support under the
special regime of innovative activity was 762.0 million USD of which about 90%

146
(697.1 million UAH) Came in the form of indirect support, the volume of
payments to the state trust funds amounted to 943.6 million UAH [7].
It should be noted that the positive results of operation of technology parks
was the result of indirect state aid measures. However, since the beginning of 2006
there was a sharp decline in state support parks, which led to the fall in their work,
so for example, if in 2004 the share of technology parks in the volume of sales of
innovative products was about 10%, in 2009 there was a decrease to 1,1% [7].
Details correlation between reduction of state support and contributions to the
budget of the technopark next chart shows.
The largest amount of tax benefits is provided to technopark in 2003, but a
number of objective reasons gradually decreased and these payments, despite the
legislative recovery in a slightly modified form of tax preferences. The reason for
this can be considered as follows: since the recovery of tax incentives for
technological parks directly connected with the activities of these structures, it is
logical to assume that the reduction of activity will affect the amount of profits that
are parks, and therefore the value of tax benefits. Elimination of tax preferences
dealt a major blow to technopark of structures because of their yearly income
volumes are still low. Tax incentives have effect only if the company operates
relatively well and receives cash, and when it is in pre-bankrupt state, some tax
benefits only tangible effect will not do. In order to now we have not seen a
relentless decline in the dynamics of technology parks, for these entities would
need to provide more public funding and their projects were made.
It should also be noted that government action to tackle corruption in
technical parks, despite their predictable positive effects in the form of increased
revenue as a result of these subjects deprivation of all privileges, and thus the
possibility of their illegitimate use, eventually also had some negative effects: on
the one hand in Ukraine really existed parks, whose members used their preference
for the development of innovation and investment, but in some cases, technology
parks perform tasks that were set when they are created, that is successfully
implemented innovative projects. Cancellation benefits led to a drastic reduction of
performance of parks, reduced the number of projects and, consequently, the
amount of new jobs. In order to resolve this situation the Law of Ukraine on
12.01.2006 № 3333 "On Amendments to the Law of Ukraine" On Special
technological innovation parks "and other laws of Ukraine" was partially restored
tax and customs exemptions for artists of projects
As part of a special regime of innovation must be given targeted state
subsidies in the form:
- exemption from import duties on importation into Ukraine for projects
Technology Parks of new facilities, equipment and components, as well as
materials that are not produced in Ukraine;
- in the form of income tax, resulting in projects of technological parks
charged in the manner prescribed by the Law of Ukraine "On Corporate Income
Tax". The profits of enterprises in 2008 because of the financial crisis were quite
low because the amount of money credited to special accounts also negligible;

147
 - the tax bill on tax liability accrued according to the Law of Ukraine "On
Value Added Tax" when importing new machinery, equipment and supplies,
maturing in 720 calendar days, when imported materials that are not produced in
Ukraine with maturity of 180 calendar days from the date of the bill to the customs
control [7].
However, today these provisions do not apply to volume as it was declared.
The amount received grants in technological parks and executing projects in 2008
was reduced to 3 mln USD and not even reached 1 million USD in 2009. This was
one of the factors that led to the inhibition of further development of structures
technological parks in Ukraine and realized pronounced negative effect on the
relationship between investors and technology parks and executing innovative
projects.
The mechanism of state support technology parks in Ukraine is still in the
initial stage of formation, and the measures taken in this area, not wearing a
systemic nature, so there is need to strengthen support for the development of
technology parks of the state, due to their importance to the economy of Ukraine
during the period of market reforms.
It should be noted that the development of technology parks based on their
total funding from the state budget is not possible, but it is believed that taxes for
technology parks can be reduced, for example by full or partial exemption of these
structures from income tax and from tax VAT. Certainly, it is considered necessary
to establish clear and clear criteria and system restrictions in the implementation of
this kind of benefits. Among the scientists involved in this problem, you can
isolate the opinion B. Golovash proposals which are expressed in the fact that it is
necessary to strengthen and encourage economic, scientific and technical ties
between industry, research institutions and universities by creating a system of
financial and economic incentives [9]. In order to fall under preferential treatment
need to be real cooperation between enterprises, production and technology parks
and universities, as well as the actual implementation of the results of such
cooperation in production. The proof that such results are not available, should be
used tax penalties and fines, and amounts must be returned in the amount of
benefits. Y. Ivanov believes it necessary to develop and establish a system of tax
incentives means business activities, including within technology parks, while it
offers them include: local tax benefits for certain taxes and fees, provided the
taxpayer by legislation under certain conditions; special tax regimes, which are
classified depending on the focus areas or sectors of the economy; alternative tax
system [10].
The need to strengthen public support for technology parks due to their
importance to the national economy and its development problems, which
worsened during the market reforms. The main goal of state support is to create an
effective mechanism for maximum efficiency technology parks and promotes
innovation sector of the national economy.
Conclusions. In Ukraine, the main purpose of government support should
become an effective mechanism to ensure maximum effectiveness of technology

148
parks and promote the development of innovation sector of the national economy.
Based on the goal, the formation mechanism of state support technology parks
must be focused on the integration of science, education and production;
concentration of resources on priority areas of scientific and technological
development; legal protection of intellectual property technology parks; promotion
of creative activity staff, development of international scientific cooperation.
Creating an effective mechanism for state support technology parks suggests
the author's opinion, implementation of the following measures: law specifying the
role of technology parks in the scientific and educational and innovative complex
of Ukraine; specification of financial and economic support (direct budget
financing free parks, expansion of assets that provide competitive grant funding,
exemption from customs duties on imported equipment, providing inventors and
small innovative firms interest-free bank loans, the creation of reserve funds and
innovative insurance risk, tax incentives); support personnel; information Security
(creating a registration system performance technology parks); monitoring of the
parks. In order to ensure effective public support for the establishment and
operation tehnopark structures deemed necessary not only to create a state of
science and technology, but also the manner of drawing budgetary funding
innovative programs and projects.

References:
1. Карцев Д.А. Технополисы и технопарки в мировом хозяйстве и особенности их
развития в России: дисс. к-та. экон. наук: 08.00.14 / Д.А. Карцев. – М.: РГБ, 2002 – 246 с.
2. Driving Regional Innovation and Growth Rthe: Prepared for Association of University
Research Parks (AURP) by Battelle Technology Partnership Practice. [Еlectronic resource] –
August 2013. – Аccess mode: https://aurp.memberclicks.net/assets/documents/
aurp_batelllereportv2. Pdf.
3. Мальцева А.А. Контент-анализ реализации проектов создания технопарков с
использованием механизмов частно-государственного партнерства в мировой и
отечественной практике. [Електронный ресурс] / А.А. Мальцева // Сборник работ Юго-
Западного государственного университета – Курск, 2012. – Режим доступа:
http://www.gosbook.ru/node/63115.
4. Мазур В.С. Технологічні парки. Світовий та український досвід / О.А. Мазур,
В.С. Шовкалюк. – К.: Прок-Бізнес, 2009. – 70 с.
5. Ревуцький С. Основні передумови та загальні риси розвитку технологічних
парків у високорозвинених країнах світу / С. Ревуцький // [Електронний ресурс]. "Теорія і
практика інтелектуальної власності". – № 1, 2009. — Режим доступу:
http://www.ndiiv.org.ua/ua/library/view-osnovni-peredumovy-ta-zahalni-rysy-rozvytku-
tekhnolohichnykh-parkiv-u-vysokorozvynenykh-krajinakh-s.html#ixzz3H0X1I932.
6. Лазарєва Є.В. Систематизація заходів податкового стимулювання інноваційного
розвитку економіки / Є.В. Лазарєва, І.Б. Ясенова // Економічні інновації. Зб. науков.
праць. Вип.49. – Одеса: ІПРЕЕД НАН України. − 2012. – С. 139-147.
7. Єгорова О.О. Щодо державної допомоги діяльності технопарків в Україні.
Аналітична записка. [Електронний ресурс] / О.О. Єгорова – Режим доступу:
http://www.niss.gov.ua/articles/705.
8. Мазур А.А. Технологічні парки України: цифри, факти, проблеми / А.А. Мазур,
С.В. Пустовойт // Наука та інновації. – 2013. – Т.9. – №3. – С.59-72.

149
 9. Головаш Б.Е. Особливості функціонування європейської моделі технопарків
[Електронний ресурс] / Б.Е. Головаш // Проблеми системного підходу в економіці. – 2011.
– № 4. – Режим доступу: http://www.nbuv.gov.ua/e-journals/PSPE/2011_4/ Golovash_411.htm
10. Коссе Д.Д. Особливості правового режиму оподаткування суб’єктів
спеціальних економічних зон в Україні: автореф. дис. … канд. юрид. наук: 12.00.07 / Д.Д.
Коссе. – К. : Інститут законодавства Верховної Ради України, 2007. – 20 с.

1. Kartsev D.A. Tekhnopolysы y tekhnoparky v myrovom khozyaystve y osobennosty

ykh razvytyya v Rossyy: dyss. k-ta. эkon. nauk: 08.00.14 / D.A. Kartsev. – M.: RHB, 2002 – 246
s.
2. Driving Regional Innovation and Growth Rthe: Prepared for Association of University
Research Parks (AURP) by Battelle Technology Partnership Practice. [Electronic resource] –
August 2013. – Access mode: https://aurp.memberclicks.net/assets/documents/
aurp_batelllereportv2. Pdf.
3. Mal'tseva A.A. Kontent-analyz realyzatsyy proektov sozdanyya tekhnoparkov s
yspol'zovanyem mekhanyzmov chastno-hosudarstvennoho partnerstva v myrovoy y
otechestvennoy praktyke. [Elektronnыy resurs] / A.A. Mal'tseva // Sbornyk rabot Yuho-
Zapadnoho hosudarstvennoho unyversyteta – Kursk, 2012. – Rezhym dostupa:
http://www.gosbook.ru/node/63115.
4. Mazur V.S. Tekhnolohichni parky. Svitovyy ta ukrayins'kyy dosvid / O.A. Mazur,
V.S. Shovkalyuk. – K.: Prok-Biznes, 2009. – 70 s.
5. Revuts'kyy S. Osnovni peredumovy ta zahal'ni rysy rozvytku tekhnolohichnykh parkiv
u vysokorozvynenykh krayinakh svitu / S. Revuts'kyy // [Elektronnyy resurs]. "Teoriya i
praktyka intelektual'noyi vlasnosti". – # 1, 2009. — Rezhym dostupu:
http://www.ndiiv.org.ua/ua/library/view-osnovni-peredumovy-ta-zahalni-rysy-rozvytku-
tekhnolohichnykh-parkiv-u-vysokorozvynenykh-krajinakh-s.html#ixzz3H0X1I932.
6. Lazaryeva Ye.V. Systematyzatsiya zakhodiv podatkovoho stymulyuvannya
innovatsiynoho rozvytku ekonomiky / Ye.V. Lazaryeva, I.B. Yasenova // Ekonomichni
innovatsiyi. Zb. naukov. prats'. Vyp.49. – Odesa: IPREED NAN Ukrayiny. − 2012. – S. 139-
147.
7. Yehorova O.O. Shchodo derzhavnoyi dopomohy diyal'nosti tekhnoparkiv v Ukrayini.
Analitychna zapyska. [Elektronnyy resurs] / O.O. Yehorova – Rezhym dostupu:
http://www.niss.gov.ua/articles/705.
8. Mazur A.A. Tekhnolohichni parky Ukrayiny: tsyfry, fakty, problemy / A.A. Mazur,
S.V. Pustovoyt // Nauka ta innovatsiyi. – 2013. – T.9. – #3. – S.59-72.
9. Holovash B.E. Osoblyvosti funktsionuvannya yevropeys'koyi modeli tekhnoparkiv
[Elektronnyy resurs] / B.E. Holovash // Problemy systemnoho pidkhodu v ekonomitsi. – 2011. –
# 4. – Rezhym dostupu: http://www.nbuv.gov.ua/e-journals/PSPE/2011_4/ Golovash_411.htm
10. Kosse D.D. Osoblyvosti pravovoho rezhymu opodatkuvannya sub"yektiv
spetsial'nykh ekonomichnykh zon v Ukrayini: avtoref. dys. … kand. yuryd. nauk: 12.00.07 /
D.D. Kosse. – K. : Instytut zakonodavstva Verkhovnoyi Rady Ukrayiny, 2007. – 20 s.

150