UNIVERSITY OF FINANCE AND ADMINISTRATION

Faculty of Economic Studies

Field of Study: Business Management and Corporate Finance

Follow-up master´s study programme in the full-time form

Vladimir Arsentyev

Relationship Between Macroeconomic Indicators and

Business Development

DIPLOMA THESIS

Prague 2019

Final Thesis Supervisor: Mgr. Ing. Dominik Stroukal, Ph.D

Acknowledgements

I express my deepest and sincere gratitude to my mentor Mgr. Ing. Dominik

Stroukal, Ph.D who personally supervised, supported and encouraged me all
through this work.
Declaration
I hereby declare

that I have compiled this final thesis on my own and all the quoted literature as well
as other sources used in the thesis are listed in the bibliography. The electronic copy
of the thesis is identical with the hard-bound copy. I approve that this diploma
thesis is published pursuant to Section 47b Act No.111/1998 Coll., on Higher
Education and on the amendment and modification of other acts (the Hig her
Education Act), as amended.

10.04.2019 _________________________
Abstract
The thesis analyses the relationship between macroeconomic indicators
and corporate business growth of state-owned companies. The findings
of the research testify that the overall trends in the economic environment play
an important role in shaping the development of individual companies.
At the same time, the business activities of large multinational corporations,
specifically those which are state-owned, can affect these trends in their turn,
which means that the influence is bilateral. The practical part of the research
reveals that in the case of Gazprom Neft, a simple multiple regression analysis
model cannot be built with a high level of reliability and statistical significance.
The model created with GDP, exports, unemployment, and inflation
as independent variables showed moderate correlation with Gazprom Neft’s
profits. Nevertheless, a conclusion can be drawn that macroeconomic indicators
and state-owned corporations’ profits have a high level of correlation in general.

Abstrakt
Práce analyzuje vztah mezi makroekonomickými ukazateli a růstem firemních
podniků ve firmách ve vlastnictví státu. Výsledky výzkumu dokazují, že celkové
trendy v ekonomickém prostředí hrají důležitou roli při formování rozvoje
jednotlivých firem. Obchodní aktivity velkých nadnárodních korporací, zejména
těch, které jsou ve vlastnictví státu, mohou tyto trendy ovlivnit, což znamená,
že vliv je dvoustranný. Praktická část výzkumu ukazuje, že v případě společnosti
Gazprom Neft nelze vytvořit jednoduchý model vícenásobné regresní analýzy
s vysokou mírou spolehlivosti a statistické významnosti. Model vytvořený pomocí
HDP, vývozu, nezaměstnanosti a inflace jako nezávislé proměnné vykazovaly
mírnou korelaci se zisky společnosti Gazprom Neft. Lze však vyvodit závěr,
že makroekonomické ukazatele a zisky státních podniků mají obecně vysokou míru
korelace.
Keywords

Economic growth, Gazprom Neft, macroeconomic indicators, multinational

corporations, multiple regression analysis, state-owned companies.

Klíčová slova

Ekonomický růst, Gazprom Neft, makroekonomické ukazatele, nadnárodní

korporace, státní společnosti, vícenásobná regresní analýza.
Table of Contents

Introduction ................................................................................................................. 8

1 Macroeconomic indicators................................................................................. 10

1.1 Definitions of macroeconomic indicators .......................................................... 10

1.2 Relationship between macroeconomic indicators ............................................ 16

1.3 Economic growth and classification of macroeconomic indicators ................... 19

2 Business development ...................................................................................... 26

2.1 Business development strategies....................................................................... 26

2.2 Innovation and business environment............................................................... 32

2.3 Role of business development in economic growth .......................................... 36

3 Classification of businesses and their impact on macroeconomic indicators 38

3.1 Classifications of companies by organizational form......................................... 38

3.1.1 Public limited company .........................................................................................................38

3.1.2 Private limited company .......................................................................................................39

3.1.3 Sole proprietorship ..................................................................................................................39

3.1.4 Partnership ...................................................................................................................................40

3.1.5 Limited liability partnership ................................................................................................40

3.2 Classifications of companies by size................................................................... 40

3.2.1 Small businesses........................................................................................................................40

3.2.2 Medium-sized businesses.....................................................................................................41

3.2.3 Large businesses........................................................................................................................41

3.3 Classifications of companies by type of ownership ........................................... 42

3.3.1 Private companies ....................................................................................................................42

3.3.2 State-owned companies ........................................................................................................42

 3.3.3 Mixed-ownership companies .............................................................................................43

3.4 Impact of large and small companies ................................................................ 44

3.5 Impact of state-owned companies .................................................................... 47

4 Empirical analysis of relationship between macroeconomic indicators and

business development on example of Russian company Gazprom Neft ................ 50

4.1 Research design.................................................................................................. 50

4.2 Calculations ........................................................................................................ 51

4.3 Results and discussion........................................................................................ 59

4.4 Limitations and further research ....................................................................... 63

Conclusion .................................................................................................................. 68

References ................................................................................................................. 72
Introduction
In the conditions of globalization, national markets tend to converge,
and companies have greater opportunities to expand their business
on the international scale. As Carlin and Soskice note, entering the international
market is an opportunity for companies to cover broader customer audiences, raise
their trade turnover and achieve better financial results in the long run.
(CARLIN, SOSKICE, 2015, pp. 1-2)

Although internal business indeed provides greater opportunities for companies

to improve their business results, it also raises the level of threats borne
by the companies. According to Chugh, in order to maintain their effective business
activities, companies have to deal effectively with a broad range of factors,
including internal factors and factors of the external environment. Among such
factors of the external environment, it is worth noting specifically macroeconomic
indicators, i.e. factors of the national economy, which are largely beyond the scope
of and individual entity’s impact. (CHUGH, 2015, pp. 20-21)

As Stutley explains, for the purpose of adapting effectively to changes

in the macroeconomic environment, companies need to be able to analyze
the changes in the macroeconomic indicators of the country of their incorporation
and to make appropriate changes to their business policies. To do this, it is worth
knowing precisely to which extent changes in macroeconomic indicators correlate
with business development. (STUTLEY, 2006, pp. 3-5)

This thesis deals with the issue of macroeconomic indicators and their impact
on business development of companies.

The aim of the thesis is to analyze the relationships between macroeconomic

indicators and business development on the example of Russian company Gazprom
Neft.

The goals of the thesis are to reveal the key theoretical aspects related
to macroeconomic indicators and their characteristics; to analyze the main business
development strategies and their importance in business growth; to analyze

8
the interconnection between macroeconomic indicators and business development
on the case study of Russian company Gazprom Neft; and to draw conclusions
based on the findings of the thesis.

The hypothesis of the thesis is that there is high correlation between business
development and macroeconomic indicators in the case of Russian company
Gazprom Neft.

The methods to be used for writing the thesis will include secondary research and
regression analysis. Secondary research will be used in order to run the theoretical
part of the research and reveal the main theoretical findings. The practical part
of the thesis will be based on a case study of Russian company Gazprom Neft.
Multiple regression analysis will be applied as a method to track the correlation
between the macroeconomic indicators of the Russian Federation and business
development of Gazprom Neft. The dependent variable (Y) for the multiple linear
regression analysis will be net profits of Gazprom Neft. The independent variables
will include GDP (X1), exports (X2), unemployment (X3), and inflation (X4).
The results of the analysis will reveal to which extent the set of these independent
variables affects changes in the level of Gazprom Neft’s net profits.

The findings of the thesis should allow developing recommendations

for the company to improve its planning based on the expected dynamics
of macroeconomic indicators.

9
1 Macroeconomic indicators

This chapter will be dedicated to an overview of macroeconomic indicators and

their key specificities. Namely, it will aim at revealing the main definitions
of macroeconomic indicators and analysing the differences between them and their
specificities; establishing the nature of relationships between different
macroeconomic indicators in the context of assessment of the national and global
economic environment; and at providing the main classifications of macroeconomic
indicators and analysing how such particular macroeconomic indicators
are calculated and for which particular purposes they are used in the context
of public management and wider macroeconomic analysis. The findings of this
chapter should allow understanding better how a country’s macroeconomic growth
can be assessed effectively.

1.1 Definitions of macroeconomic indicators

Prior to proceeding to an analysis of macroeconomic indicators, it is worth

identifying clearly the nature of macroeconomics in general, and the
interconnection and differences between macro- and microeconomics.

According to Sepp and Frear, macroeconomics can be defined as “the branch

of economics dealing with the broad and general aspects of an economy,
as the relationship between the income and investments of a country as a whole”.
(SEPP, FREAR, 2011, p. 74) The scope of focus of macroeconomics is national
economy as a whole, i.e. macroeconomics is aimed at revealing the general patterns
and trends existing in a country’s economy, analysing their current development
and forecasting their future trends, and so on. As the researchers explain,
macroeconomists focus on analysing national income and economic output, wages
in the country, inflation, price stability, and other important indicators which affect

10
all economic actors in the given jurisdiction, including individuals, companies, and
public authorities.

In contrast to macroeconomics, microeconomics only focuses on a part

of the national economy, and seeks analysing the economic performance
of particular economic sectors, individual actors, and so on. Thus, as noted
by Arnold, microeconomics can be defined as “the branch of economics that deals
with human behavior and choices as they relate to relatively small units
– an individual, a firm, an industry, a single market”. (ARNOLD, 2008, p. 14)
In contrast to macroeconomics, microeconomics focuses on analysing how
a particular market works, which trends persist in it, what output particular
companies produce, how the customer deals with choosing companies products,
how government policies affect companies and individuals in particular markets
and economic sectors, how a particular company sets its prices and how it runs
competitive struggle in the market, and so on. Therefore, microeconomics studies
economic parameters of a smaller scale, which do not have such impact
on all economic actors in a given jurisdiction, in contrast to macroeconomics.

In the theory of macroeconomics, there are many different schools and current,
which propose to analyse macroeconomic issues from different perspectives,
and therefore come to different conclusions regarding the nature and effects
of particular macroeconomic tendencies and trends. Among the most influential
schools of macroeconomics, Sepp and Frear note Classical economics, Keynesian
economics, Milton Freedman’s Monetarism, Post-Keynesian economics, New
classical economics, New Keynesian economics, and Supply-side economics.
(SEPP, FREAR, 2011, p. 74) De Vroey states that modern macroeconomics started
with the works John Maynard Keynes. With the occurrence of the 1929–1933 Great
Depression, Keynes emphasized the need to develop a new approach to the analysis
of interconnections between macroeconomic indicators. According to Keynes,
market equilibrium with full employment is impossible. This is due to the fact that
both individuals and firm owners tend to spare a part of funds available to them,
and therefore aggregate demand is always smaller than aggregate supply.
As a result, Keynes believed that the government had to regulate the demand side

11
of the national economy, namely by running effective monetary policies. Keynes’s
approach was different from the one offered by classical and neoclassical
economists, who failed to classify macroeconomics into an individual branch
of economic research. (DE VROEY, 2016, pp. 3-4)

Arnold notes that while macroeconomics and microeconomics are self-sufficient

economic disciplines and coexist separately and independently as of today,
the principles of macroeconomic and microeconomic analysis are often used
together in the practice of companies and public authorities. By running complex
macro- and microeconomic analysis, it is possible to understand better the overall
development of the national economy, and a company’s position in the national
economy. For corporate managers, this means obtaining a full understanding
of the current trends and tendencies in the external business environment
and of the company’s position in such business environment. For the government,
this allows understanding the general conditions of the national economy, but also
to reveal specific issues existing in the operation of particular markets, economic
sectors, or major companies, and therefore making all actions required to improve
the existing business policies and to maximize their expected outcomes.
(ARNOLD, 2008, p. 14)

Greene notes that macroeconomic analysis is “the study of an economy's main

components: the accounts used to measure performance, key performance
indicators, and the main policies driving the economy”. (GREENE, 2017, p. 16)
Within the framework of macroeconomic analysis, an economy’s performance
is considered as a whole, from its general perspective, and the focus of such
analysis is put on revealing particular systemic traits of the national economy,
the existing relationships between them, and thus to understand where specific
flaws exist in the economy and how they can be addressed. Macroeconomic
analysis is based on the use of macroeconomic indicators, among which Greene
notes real and nominal GDP, external debt to GDP, GDP deflator, current account
balance to GDP, debt service to exports of goods and services, and a number
of other important indicators and ratios. Without macroeconomic indicators,
it would thus be impossible to compile the results drawn through macroeconomic

12
analysis, and it would be impossible to understand effectively the current stage
and prospective of an economy’s subsequent development. (GREENE, 2017,
pp. 16-17)

According to Frumkin, macroeconomic indicators should be understood

as particular ratios which represent the general situation in the national economy
or international economy and deal with national fiscal and monetary policies,
parameters of economic growth, industrial output, labour market performance, and
so on. The researcher states that macroeconomic indicators are indispensable for
understanding the true situation in a country’s national economy and to make
forecasts regarding the trends to persist in it in the future. Macroeconomic
indicators are used for budgeting and planning, and their comprehensive analysis
allows improving significantly the outcomes of national economic policies
in different respects. (FRUMKIN, 2004, p. 33)

Greene states additionally that macroeconomic indicators are the ultimate

illustration of a country’s economic growth, and therefore they can serve as a basis
of comparison between different states. Comparative analysis based
on macroeconomic indicators is beneficial, as it allows understanding better where
particular disadvantages exist in the national economy and how they can
be addressed with the aim of minimizing their ultimate effects on the opportunities
of economic growth. (GREENE, 2017, p. 16)

Analysing the sources for obtaining macroeconomic indicators, Frumkin states that
the main of such macroeconomic indicators are taken from official statistics
published by responsible public authorities, and also from reports of international
organizations. Data in such statements and reports are grouped according
to particular directions and sectors of national economic activities, and also
by the time when particular indicators were achieved. Frumkin notes that most
often, macroeconomic indicators are analysed on a weekly, monthly, quarterly
or yearly basis, but also sometimes within five-year intervals. Thanks
to the breakdown by years, it is possible to evaluate effectively macroeconomic
indicators in their dynamics, and not in a static position. This is important
for the purpose of evaluating the actual results achieved by the government

13
and for revealing where national economic policies failed to provide the expected
results, thus assessing the availability of reserves and possibilities of their
introduction for improving the existing situation. The quality of economic data
is essential for ensuring appropriate quality of macroeconomic indicators
and any particular analysis based on the use of such macroeconomic indicators. This
is why any unreliable sources should be omitted in the course of macroeconomic
analysis, and only official data should be taken into account. However, in particular
cases, when no data from official bodies are available, estimates can be used
as well with due account for possible discrepancies and deviations.
(FRUMKIN, 2004, pp. 33-34)

In addition, Frumkin notes that there are a number of reputable private

organizations which provide their own statistical data pertaining to macroeconomic
research, and such data are widely used in analysis. Among such reputable private
organizations Frumkin notes The Conference Board, Stock and Watson Indicator
Report, and a number of other financial companies and trade associations.
(FRUMKIN, 2004, p. 33) Analysing the requirements to financial data used as a basis
of macroeconomic indicators, Frumkin notes data integrity. According
to the researcher, macroeconomic indicators should not be considered just
as statistics. They are used as a basis for national policy-setting. As a result, such
data should be truly objective, and they should rely upon the highest professional
standards. This is a key precondition for their effective use in the development
of national economic policies. This is why only data from public authorities,
international organisations and reliable private entities are taken into account
in the calculation of macroeconomic indicators as noted earlier in this thesis.
(FRUMKIN, 2004, p. 34)

Now, given the findings presented above, it is worth understanding the range
of users of macroeconomic indicators, and their purposes for using such data.

Bowles and Whynes state that the users of macroeconomic indicators include
a wide range of economic actors, from the government to companies
and individuals. For the government, the use of macroeconomic statistics
is indispensable in the process of development of national economic policies.

14
Macroeconomic indicators are used in budgeting and planning, as well
as in the analysis of the results obtained in previous periods and ongoing control.
When developing its policies for future periods, the government assesses
the expected change in terms of the main macroeconomic indicators,
and elaborates plans featuring such indicators for effective monitoring and control.
The availability of such plans and ongoing control over dynamics of particular
macroeconomic indicators allow making effective and timely changes
to government policies and reacting quickly to any changes in the macroeconomic
environment. (BOWLES, WHYNES, 2015, pp. 189-190)

For companies, analysing macroeconomic statistics is important in order

to understand possible future scenarios in the economic environment and to design
their appropriate policies to withstand possible negative impact from the outside.
The understanding of macroeconomic indicators and their possible future dynamics
is of essential importance for crisis management and for the avoidance of major
negative consequences for companies in times of economic downturns. Knowing
the specificities of macroeconomic indicators and their dynamics, investors can
come to more justified conclusions on where funds should be invested and what
particular financial outcomes it can lead to. As a result, it can be stated that
the corporate sector’s effective understanding of all macroeconomic indicators
is particularly important for the most effective redistribution of funds in the
national economy as a whole.

Bowles and Whynes note further that as for individuals, their understanding
of macroeconomic indicators affects directly their expectations, and thus their
market behaviour. When individuals have negative expectations regarding
the dynamics of macroeconomic indicators, they tend to spend less and spare their
funds. On the contrary, with their positive expectations, demand tends to increase,
as people are ready to spend more. Therefore, individuals’ decisions based
on the macroeconomic indicators they are aware of affect not only their own
wealth, but also the national economy in general, as households constitute
its integral part. The government should seek maintaining positive expectations

15
of individual with the aim of avoiding possible long-term negative effects caused
by their adverse expectations. (BOWLES, WHYNES, 2015, pp. 189-190)

Taking into account the facts noted above, it can be stated that macroeconomic
indicators serve the interests of a wide range of different users and are equally
important for the government, legal entities and individuals. Taking into account
the great importance of macroeconomic indicators and their analysis, it is worth
now proceeding to a more detailed investigation of the relationship between
macroeconomic indicators.

1.2 Relationship between macroeconomic indicators

Analysing the relationship between macroeconomic indicators and particular

phenomena persistent in the economy, it is worth paying specific attention
to the following aspects of the aforesaid relationship: interconnection between
macroeconomic indicators and the real economic sector and interconnection
between macroeconomic indicators and the financial sector.

The interconnection between macroeconomic indicators and the condition

of the real economic sector can be analysed through the prism of economic actors’
expectations based on the availability of macroeconomic indicators. According
to Leijonhufvud, evaluating the expectations of economic actors is indispensable
for the government in the development of its national economic policies. However,
the researcher notes that such expectations are often hard to measure, which
imposes additional difficulties on the government and makes it harder to achieve
the desired goals of policy-setting: “sensible policy judgments cannot be made
at all if their influence is ignored. They cannot be measured accurately
for econometric purposes. Significant progress on their measurement, moreover,
is unlikely.” (LEIJONHUFVUD, 2000, p. 54) Nevertheless, despite the difficulties
associated with economic actors’ expectations, it can be stated that such
expectations are interconnected directly with macroeconomic indicators. Thus,
when a country’s national economy is in a period of recession, its industrial output
is dropping, its GDP is decreasing, the labour market is contracting, and so on,

16
it all gives birth to negative expectations of economic actors, which in the long run
affects the opportunities of the government to perform its economic policies
effectively and to improve the prospects of economic growth.

However, Leijonhufvud notes further, that economic actors’ expectation are formed
solely by their opinion on the existing macroeconomic indicators and their
dynamics. Economic actors’ expectations also depend significantly on the political
and military situation in the country, its positioning in the international arena
and effectiveness of partnership ties with other states, ability to achieve interest
on the part of international investors, effectiveness of domestic governance,
and a wide range of other specific domains and sectors. Leijonhufvud also notes
that macroeconomic expectations can be either short-term (linked to particular
short-term changes in macroeconomic indicators) or long-term (linked to long-term
changes and their actual effects for the national economy). (LEIJONHUFVUD,
2000, p. 54)

Proceeding to the analysis of interconnection between macroeconomic indicators

and the stock market, it should be noted that according to Tripathy, “there
are many macroeconomic variables which affecting the stock market but the most
prominent are interest rate, inflation rate, exchange rate and international market.
A fall in interest rates reduces the costs of borrowing and encourages firms
for expansion with the expectation of generating future expected returns
for the firm. Further significant amount of stocks are purchased with borrowed
money.” (TRIPATHY, 2011, p. 210) The researcher states that the impact
of macroeconomic indicators on the stock market has long been proven in scientific
literature and empirically in the economic practice of countries. Using the tools
outlined above, the government performs its monetary policies, which in their turn
affect directly the aggregate volume of the securities market and its growth
prospects. For example, the government might prefer to increas e interest rates
in order to decrease the ultimate amount of lending in the economy. This step
brings negative effects for the stock market, as borrowed funds are less freely
available, and therefore companies have smaller resources to invest in purchases
of securities and other operations on the securities market. Similarly, it is worth

17
emphasizing the impact of investors’ expectations on their operations
in the securities market. When investors’ expectations are negative, they tend
to invest less in operations with securities, due to which the stock market
is experiencing negative tendencies. The trend is the contrary in case of positive
investors’ expectations.

Pilinkus points out specifically the importance of dynamic analysis of the stock
market and macroeconomic indicators. According to the author, the stock market
is interconnected closely with the real economic sector, and the dynamics
of the financial sector often testify possible tendencies to be expected in the real
economy. Therefore, when analysing macroeconomic indicators in their dynamics
together with the indicators of the stock market, it is possible to evaluate earlier
possible risks of economic crises, and thus it becomes easier for the government
to make appropriate changes and amendments to modify effectively public policies
in the field of national economy. (PILINKUS, 2010, pp. 294-295)

Lischka states that this impact was traceable during the 2008 global financial
and economic crisis. The stock market was the first to show signs of adverse
economic events. The financial sector was inflated through the availability of cheap
credits, and this imposed major threats on the whole global economic sector.
The ensuing events with the unfolded financial crisis rapidly brought the same
consequences to the real economic sector, and the global economy entered into
a condition of deep recession. (LISCHKA, 2015, pp. 6-7)

Therefore, it can be stated that macroeconomic indicators are interconnected

closely with both the real economic sector and the financial sector.
It is indispensable for both the government and other economic actors to analyse
in detail all basic macroeconomic indicators in order to reveal accurately the current
situation in the real and the financial economic sectors, and thus to develop
effective policies to implemented in the light of the existing macroeconomic
situation and its expected consequences.

Taking into consideration the facts outlined above, it is worth now proceeding
to the analysis of economic growth and classification of key macroeconomic

18
indicators, focusing specifically on revealing the nature and contents of particular
macroeconomic indicators and their use in economic theory and practice.

1.3 Economic growth and classification of macroeconomic indicators

Analysing the specificities of particular macroeconomic indicators, it is worth

understanding clearly the definition of economic growth, as macroeconomic
indicators serve specifically to identify the dynamics of economic growth. According
to Nagel, economic growth can be defined as an “increase in the gross national
income adjusted for inflation. National income is used in this sense as a generic
concept covering income earned by people from the nation regardless when they
earn it, or income earned by people who may or may not be citizens.”
(NAGEL, 2002, p. 95) Therefore, it can be stated that economic growth is regarded
as one of the key indicators describing the overall achievements of a country’s
national economy and its growth. Economic growth outlines the overall
opportunities and wealth which all economic actors have within a country,
and serves as one of the key indicators for comparative analysis of states, and also
for controlling and monitoring the effectiveness of government policies.

Among the most widely used indicators to evaluate a country’s economic growth,
it is worth noting first of all gross domestic product (GDP). According
to Sherman et al., GDP can be defined as “the sum of all prices of final goods
and services produced within the border of a nation”. (SHERMAN et al., 2018,
p. 124) Therefore, this means that GDP summarizes the total amount of economic
output achieved within a country by all economic actors who take part in economic
activities. At the same time, as noted by Grezina, gross national product is “another
measure of economic health; it measures the size of a nation's economy. GNP differs
from GDP in that it is defined as the monetary value of all goods and services
produced by labor and property supplied by the residents of the country.
GNP reflects the output of domestically owned enterprises, both within and beyond
national borders”. (GREZINA, 2011, p. 12)

19
The same explanation of the difference between GDP and GNP can be found
in Tainer, who notes that the main difference between GDP and GNP is rather
minor. Thus, while GDP includes the goods and services produced only within
a jurisdiction, GNP serves to evaluate the aggregate amount of goods and services
produced both in this particular jurisdiction and abroad. In fact, the amount
of GNP differs from the amount of GDP by the amount of factor income transferred
from abroad. While GDP is used more often in macroeconomics, the use of GNP
might be specifically important for developing economies, where a large number
of the population is working abroad and transfers of money from abroad constitute
an important source of national GDP formation. However, the interpretation
of the dynamics of GDP and GNP for judging national economic growth is rather
similar and testifies the same patterns. As GDP and GNP are decreasing, this factor
is negative for the national economy, as it proves that the economy is producing
less. On the contrary, growing GDP is positive for the national economy
and the economic actors operating within the state. (TAINER, 2006, p. 38)

Analysing GDP as the most widely used macroeconomic indicator, it is worth noting
specifically that GDP can be measured in either nominal or real figures. According
to Baurnol and Blinder, “nominal GDP is calculated by valuing all outputs at current
prices. Real GDP is calculated by valuing outputs of different years at common
prices. Therefore, real GDP is a far better measure than nominal GDP of changes
in total production.” (BAURNOL, BLINDER, 2008, p. 88) Real GDP is seen
as a more reliable macroeconomic indicator when there is a need to compare
a country’s economic condition in different years, or to compare dynamically
different country’s economic positions. Also, GDP can be evaluated in per capita
figures, which means that the volume of GDP is divided by the number of local
population. The GDP per capita indicator allow comparing the economic output
of states which differ significantly by the size of economy, thus assessing their
relative efficiency in the use of available economic resources.

In addition to GDP and GDP, there are a number of other essential macroeconomic
indicators which allow evaluating a country’s economic growth and its actual
economic position. Thus, according to Baguant et al., industrial output is one

20
of the key macroeconomic indicators used in the practice of economic analysis.
In contrast to GDP and GNP, this indicator evaluates only the amount of products
delivered by a country’s industrial sector, without taking into consideration
the income generated by the tertiary sector. Evaluating industrial output
is of particular importance for developing countries, which rely more on their
industrial sector and less on services. Often, industrial output is taken together with
other macroeconomic indicators in order to run a comprehensive analysis
of all indicator taken together and to get a more comprehensive picture
of the country’s actual economic position. In addition to this, it should be noted that
GDP composition can be a valuable macroeconomic indicator testifying the actual
level of a country’s economic development. Thus, more developed states tend
to have the tertiary sector as the predominant sector in terms of GDP generation.
At the same time, developing countries rely more on their industry and agriculture,
i.e. on less technological sectors. (BAGUANT et al., 2013, p. 49)

Kerr and Gaisford state that exports and imports of goods and services are another
important indicators of a country’s economic condition and opportunities
of economic growth. Absolute export and import values are analysed in their
dynamics: these macroeconomic indicators allow understanding how effectively
the analysed country is integrated in the structure of international economic ti es
and how effectively it performs trade cooperation with other states. Exports stand
for the total value of products and services delivered by manufacturers
of a particular country to other states, while imports, on the contrary, stand
for the value of products and services purchased from abroad. While the total
amounts of exports and imports allow understanding the dynamics of a country’s
international trade flows, there are other important indicators to evaluate
the quality of such trade flows. Namely, the composition of exports and imports
by particular products or services allows understanding which specific products
or services for the backbone of the country’s economy. Less developed states tend
to export more raw materials and low-technology products. In the structure
of developed countries’ exports, services and technological products account
for the greatest shares. At the same time, less developed states tend to import

21
industrial equipment, while developed countries import mostly raw materials
and high-technology products. Also, exports and imports are analysed
in the context of the key export and import partners. This kind of analysis allows
understanding better with which countries a state cooperates and on which
partners it is dependent in particular in terms of its foreign trade. (KERR, GAISFORD,
2007, p. 282)

Current account balance is defined as the difference between total exports

and total imports. According to Carbaugh, “a current account surplus means
an excess of exports over imports of goods, services, investment income,
and unilateral transfers”. (CARBAUGH, 2008, p. 348) On the contrary, a negative
current account balance exists when a country’s total imports exceed its total
exports. A situation with a negative current account balance testifies that
the country is dependent on imports, and its exports are not sufficient for covering
the expenses associated with imports. On the contrary, countries with a positive
current account balance are in a situation when they gain more on exports than
they spend on imports: this means that they have funds for funding subsequent
development of their national economy. Current account balance can also
be calculated as a percentage of GDP, which is particularly useful when there
is a need to compare different countries in terms of their export potential and
in terms of their overall economic condition.

External debt is another important indicator for evaluating a country’s economic

condition and opportunities of economic growth. According to Presbitero
and Arnone, external debt can be seen as a country’s total liabilities owed
to its foreign counterparties. A large external debt is seen as a major constraint
of effective economic development for the less developed states. Thus, developing
countries’ excessive dependence on foreign borrowed funds testifies that their
own resources are insufficient to fund their economic growth effectively,
and therefore they are dependent on foreign states. At the same time, developed
countries have greater opportunities of financial leverage and can draw greater
funds from external creditors for boosting their economic growth. However, in each
case, effective debt management is of critical importance for all countries to avoid

22
possible issues with third-party creditors and to guarantee their effective business
activities and to ensure their financial stability in the long-term perspective.
Presbitero and Arnone also note that excessive amounts of external debt might
be one of the main causes boosting negative expectations among individuals
and the corporate sector, and thus affecting negatively the country’s overall
opportunities of economic growth as described earlier in this thesis. (PRESBITERO,
ARNONE, 2013, p. 115)

Interest rates are characteristic of the government’s monetary policies. According

to De Mello, higher interest rates mean that the government aims at de-stimulating
lending in the national economy and seeks limiting national spending.
On the contrary, lower interest rates mean that the government seeks promoting
spending, as loans become less expensive for individuals and companies.
(DE MELLO, 2008, pp. 149-150) However, De Mello states further that “in countries
with high debt or debt that is of short-maturity, higher interest rates can also
increase the probability of default”. (DE MELLO, 2008, p. 150) Therefore, wise
government policies in relation to interest rates are of major importance
for achieving monetary balance.

Another important indicator is the rate of inflation. According to Badiru, inflation

can be defined as “the decline in purchasing power of money”. (BADIRU, 2013,
p. 601) High inflation might bring major negative effects for the national economy,
as it means lower purchasing power of both individuals and companies, and thus
affects the welfare of the former and the opportunities of economic growth
of the latter. Among the main causes of inflation, it is worth noting increases
in the amount of currency in circulation in the national economy, rising costs
of production, shortages of consumer goods, and so on. Rising inflation testifies
the existence of negative tendencies in the national economy. However, controlled
inflation at small rates is often seen as an effective tool of government policies,
namely for the purpose of raising proceeds from exports. Deflation is seen
as an opposite process and exists when prices in the national economy
are decreasing. CPI (consumer price index) is the most common reference

23
for measuring the level of inflation and for understanding the effects which inflation
brings to national economic actors.

Badiru notes further that exchange rates are another important macroeconomic
indicator, often used for analysis together with inflation. Exchange rates reflect
a national currency’s value against the value of another national currency. They are
helpful for analysing the comparative purchasing power of a particular national
currency and testify the power of the country’s real economy. Exchange rate
fluctuations are negative for effective economic growth, and they are inherent
of developing states. The weaker a country’s national currency, the greater such
fluctuations and the greater their negative effects for the national economy.
(BADIRU, 2013, p. 601)

According to the World Bank, total unemployment is another important indicator

used to assess a country’s economic condition. The rate of total unemployment
evaluates the actual number of the country’s population without a job.
Unemployment can be calculated either across the whole population, or for its
particular groups, for instance, male and female unemployment, unemployment
among people with higher education, unemployment in different economic sectors,
in particular regions, and so on. Unemployment rates beyond natural
unemployment illustrate that there might be deep structural problems
in the economy leading to the population’s impaired welfare and to the corporate
sector’s impaired opportunities of economic growth. Total unemployment can
be calculated either based on national estimates or based on ILO (International
Labour Organisation) estimates. (WORLD BANK, 2009, p. 187)

Starbird et al. note foreign reserves as another essential macroeconomic indicator:

“foreign reserves are the collection of foreign currencies currently on deposit
in the country”. (STARBIRD et al., 2004, p. 119) A country’s foreign reserves actually
testify its ability to meet adverse changes in the international environment
and the government’s opportunity to run effective monetary policies
for maintaining the exchange rate of the national currency at an appropriate level
and for constraining the growth of inflation.

24
Finally, it is worth noting foreign direct investment flows as a macroeconomic
indicator testifying the amount of investment which a country is able to raise from
abroad. According to Okoye, foreign direct investment (FDI) can be defined
as “an investment involving a long-term relationship and reflecting a lasting interest
and control by a resident entity in an enterprise resident in an economy other than
that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign
affiliate”. (OKOYE, 2016, p. 106) Countries which are able to raise significant foreign
direct investment from foreign investors have greater opportunities to finance their
effective economic growth. However, at the same time, it is worth noting that
developed countries are most often net donors of foreign direct investment, which
means that they direct greater foreign direct investment to other states that they
get from foreign states. FID flows can be accounted for either on a net basis
of flows, or on the basis of cumulated flows for a number of consecutive years.
The higher the amounts of investment flows, the greater the country’s activity
on the international market.

Therefore, as can be seen from the information outlined above, there are a wide
range of different macroeconomic indicators which can be used effectively
for the purposes of macroeconomic analysis. Such indicators touch upon different
sides of the national economy and allow revealing effectively its general
characteristics, current condition and opportunities of effective economic growth
in the future.

Given the findings of this chapter of the thesis, it is worth now analysing in detail
business development and its key specificities prior to proceeding to the practical
part of the research.

25
2 Business development

This chapter will be dedicated to the analysis of business development and its key
specificities. Namely, in line with the aim and goals of this thesis, it is worth focusing
specifically on business development strategies and their particular characteristics,
the role of innovations in the business environment, and the role of business
environment in economic growth. The findings of this chapter should allow
completing the previous theoretical background developed in the course
of the research and proceeding to the practical part of the thesis.

2.1 Business development strategies

Analysing business development and its particular strategies, it is worth noting

first the definition of business development and the key characteristics of business
development. According to Preece et al., business development should
be understood as a company’s improvement of the key indicators of its financial
performance, growth of its customer base, and acquisition of new markets.
Business development shapes the overall effectiveness of a business, and also
shows its potential opportunities of subsequent growth in the future. Business
development should be seen as a key objective for any company wishing to achieve
long-term market stability and steady financial performance on the market. Thus,
even companies with effective business results should seek business development
for the sake of optimizing the use of their economic resources, preventing increase
in competitors’ influence and market opportunities, and for establishing effective
preconditions for future market domination based on effective economic results.
(PREECE et al., 2007, p. 15)

Preece et al. note further that business development should not be seen
as an isolated activity, as it is interconnected closely with both internal and external
sources. Therefore, in order to ensure appropriate business development,
corporate managers should be able to ensure the most effective use of internal
resources available to their companies, but also to attract the required resource

26
from third parties and to adapt effectively to any changes in the external
environment, so as to guarantee uninterrupted economic growth and so as to avoid
possible negative long-term business effects. Preece et al. state that “business
environment is intertwined with the strategic decisions a firm takes. The business
strategy the firm adopts sets out the path of business development activity. Business
development is also tied into the business model of the firm.” (PREECE et al.,
2007, p. 15)

Therefore, as can be seen from the information outlined above, business

development is one of the main preconditions of any company’s steady market
positions and effective financial performance, and such business development
is interconnected closely with the strategic decisions the corporate management
implements. Therefore, it is worth now proceeding to the analysis of the main types
of business development strategies and their particular characteristics.

In today’s business practice, there are a number of different business development

strategies which companies can use effectively for the purpose of achieving
the desired financial performance and wider business results. The particular type
of business strategy is chosen by the company based on its vision of the market
situation, its own resources and the opportunities the company has to put them
to use effectively in the given business conditions. The most widely used of such
business development strategies are analysed below.

Growth strategy

According to Lewis et al., a growth strategy is designed to “increase the sales

and profits of the organization. At the business level, growth strategies involve
the development of new products for new or existing markets or the entry into new
markets with existing products”. (LEWIS et al., 2006, p. 106) The main purpose
of companies implementing growth strategies is to raise their revenues and sales
in the long-term perspective and to seize leadership in particular target markets.
Large companies can introduce new products often thanks to the availability
of significant funds and thanks to the opportunity of introducing new technologies
for innovative growth. At the same time, smaller companies find themselves

27
in a situation when considerably smaller resources are available to them,
and therefore effective use of such resources for business growth becomes
essential for achieving long-term market stability. Small companies often adopt
a growth strategy by seeking new markets for their products. They can modify their
products slightly in order to enter new markets and generate additional demand.
However, in today’s technological environment on the global scale, even smaller
companies tend to seek ways for becoming more innovative in their specific fields
of activities, as innovation is becoming indispensable not only for developing
high-quality products, but also for attracting maximum customer interest.
Lewis et al. also note that “over the last several decades, many organizations have
pursued a growth strategy by entering the international marketplace. When
an organization has fully penetrated the domestic marketplace, international
markets proved an opportunity to grow sales further”. (LEWIS et al., 2006, p. 106)

Stability strategy

According to Lewis et al., a stability strategy “is intended to ensure continuity

in the operations and performance of the organization”. (LEWIS et al., 2006, p. 106)
When a stability strategy is being implemented, no major changes are required
to corporate policies. The main scope of the management’s attention is put
on ensuring conditions in which the company would be able to continue
implementing effective business policies and gaining economic benefits from such
policies. Within the framework of stability strategies, companies offer the same
products or services they have been offering before on the target markets.
However, companies can also endeavour to seize greater market shares
and to improve their profits through increased operational efficiency. Companies
which have performed market penetration as the initial stage of their market entry
apply the stability strategy subsequently in order to focus on generating revenues
and succeed in terms of their financial performance. Companies which have already
achieved market stability can proceed further to implement a growth strategy
and to increase their market share.

28
Product differentiation strategy

Lipczynski et al. state that the main focus of a product differentiation strategy
is to make a company’s products stand out among similar products
of its competitors. Companies can run their product differentiation strategies based
on a number of different parameters. For example, products can be differentiated
based on their, based on their design and features, based on sales promotion
activities, and so on. Product differentiation is associated with unique selling
proposition. Companies resorting to product differentiation strategies aim
at making the products unique in the eyes of customers and at promoting
the positive image of such products among the target audiences on the target
markets. On today’s markets, non-price competition is becoming more and more
important, and companies should be able to position their products effectively
in order to achieve positive market results through customer loyalty.
(LIPCZYNSKI et al., 2005, p. 416)

Retrenchment strategy

Flouris and Oswald state that a retrenchment strategy stands for a company’s
activities undertaken for reversing negative sales and tendencies in terms
of profitability. When performing a retrenchment strategy, a company seeks
reducing its costs and improving their structure. Within the framework of such
activities, the company might close a part of their business units and departments,
cut its expenses, dismiss a part of its staff, and so on, at the same time, developing
new principles of organization of its business activities with the aim of ensuring
the maximum effectiveness of operation of all business systems and individual units
as a single whole. Such convergence and implementation of an integrated approach
allow maximizing the synergic effect achieved through the implementation
of business activities and raising further the quality of business results obtained
for performing business growth on subsequent stages. (FLOURIS, OSWALD,
2006, p. 111)

29
Price skimming strategy

Smith states that a price skimming strategy is implemented by a company which

seeks introducing a new product to the market and wants to ensure such
a product’s quick market penetration and rapid profits from its sales. Initially,
the product’s price is set at a high level for the sake of achieving the desire amount
of revenues, and subsequently, as the product loses its novelty, the price decreases.
Most often, this strategy is used by renowned brands, which can use their positive
market image and customer loyalty in order to sales awaited products at relatively
higher prices. (SMITH, 2011, pp. 71-72)

In addition to the business development strategies outlined above, it is also worth

noting Michael Porter’s generic competitive strategies which aim at overcoming
the existing market competitors and ensuring the company’s higher market
positions compared to them. McIvor states that Porter’s generic strategies
are the following:

• Cost leadership

This generic competitive strategy is used by a company wishing to become a market

leader thanks to its lower costs, and thus ability to ensure higher profits thanks
to effective cost management. Decreased costs can be achieved by companies
thanks to economies of scale, effective organization and management of internal
business processes, development of innovative technologies, preferences
on the part of the government, and so on. Companies which can achieve cost
leadership in their activities can either get greater profit margins or lower their
prices for attracting a greater number of customers.

• Differentiation

Companies using the differentiation strategy focus their efforts on differentiation

themselves form the competitors based on particular specific traits of their
products or services, their brand image, activities associated with corporate social
responsibility, or a number of other specific activities which allow for their unique
positioning on the market and their comparative advantages over their competitors.

30
 • Focus

This generic strategy assumes that a company chooses a specific niche in which
it can achieve significant competitive advantages. In its turn, this strategy
is subdivided further into the cost focus strategy and the differentiation focus
strategy. Within the framework of a cost focus strategy, a company seeks becoming
a cost leader in particular target market segment, while within a differentiation
strategy, a firm seeks to achieve differentiation in a target segment as well.
(MCLVOR, 2005, p. 116)

Butler notes that regardless of the particular type of business development strategy
implemented by a company, its management should always refer back to the initial
strategic objectives in order to assess the development strategy’s overall
effectiveness and to analyse the need to make possible changes or amendments
in it to generate positive business results in the future. The tracking
of the achievement of business development indicators can be done either
on an ongoing basis, throughout the course of performance of the company’s
business activities, or upon completion of particular stages of the implementation
of corporate strategies, i.e. on particular milestones of business growth. Most often,
companies combine both approaches in order to ensure effective strategic control
over the performance of their business activities and achievement of the desired
business results and to make timely changes to business policies in order to avoid
negative business effects in the short-term perspective. The key performance
indicators used for the analysis of strategic achievements can also be used
for subsequent planning. For successful businesses, the process of planning
and control should be seen as cyclical and uninterrupted. (BUTLER, 2012, p. 173)

Taking into account the facts outlined above on the main types of business
development strategies and the specificities of their implementation in business
practice, it is now worth focusing specifically on innovation and its role in today’s
business environment.

31
2.2 Innovation and business environment

In today’s conditions of doing business, innovations have become one of the main
factors favouring the growth of businesses and their effective competitive struggle.
Innovations allow making business more effective, lowering the company’s
expenses and raising its profits. Innovations are also of key importance for unique
product positioning, i.e. for promoting particular corporate products and making
them stand out in the eyes of target customers.

In the context of analysis of innovations in the business environment, it is worth

providing a definition of the concept of research and development (R&D). Wetter
cites the definition given by the National Science Foundation of the United States,
explaining that research and development costs are “those expenses incurred
to support the search for new or refined knowledge and ideas for the application
or use of such knowledge and ideas for the development of new or improved
products and processes with the expectation of maintaining or increasing national
economic capacity or yielding other future benefit”. (WETTER, 2010, p. 47) Research
and development is a complex concept including a number of other phenomena.
Namely, it consists of applied research, basic research, and development. Applied
research is used as a tool to get systematic knowledge about the practical
application of particular innovations and their specific effects. Basic research
is directed to gain new knowledge on particular observable phenomena, without
any actual connection with their application in practice and without their use
for the development of particular products. Finally, development should be seen
as an application of knowledge in practice with the aim of producing new materials
or products, creating new processes or approaches, and so on.

As can be seen from the information outlined above, research and development
is performed on the corporate level, but is equally important for companies
themselves and for the state as a whole. Moreover, the government itself runs
research and development activities and designs programmes for supporting
and inciting innovations in the corporate sector of the economy. Leyden and Link
state that the government’s role in the creation of an innovative economy starts

32
from the creation of free market conditions in which all competitors would enjoy
equal opportunities of developing their business. In addition to this,
the government can undertake a number of programmes and initiatives directed
to raise the level of private investors’ spending on innovative activities. Forms
of government policies to increase R&D expenses can include a wide range of tools,
from grants for innovative activities to tax benefits. For the government,
it is effective to stimulate innovative spending on the part of companies, as this
leads to their greater competitiveness, specifically abroad, and therefore
the government can strengthen the country’s positions on the foreign market.
At the same time, it improves domestic conjuncture and contributes to more
effective economic growth. (LEYDEN, LINK, 2012, pp. 5-6)

Now, it is worth outlining more in detail particular effects which a more innovative
environment can being to the economic actors within a state. The main of such
effects are outlined below based on Susanne et al. (SUSANNE et al., 2018,
pp. 40-41):

• Innovation drives competition and promotes economic growth

More innovative activities raise the level of competition between companies within
a country’s corporate sector. Thus, when the level of innovations rises
in the economy, companies tend to become more innovative and therefore
can operate more effectively. In order to cope with their pace of effective activities,
other companies have to invest in innovations as well and have to develop some
unique models or tools of business growth. This contributes to the whole
economy’s growth and provides an impetus for all actors’ more effective business
activities.

• Cost structure optimization

Companies investing in research and development activities gain an opportunity

to reduce significantly the total amount of their costs, and therefore can optimize
the overall effectiveness of their financial performance. Namely, innovative
technologies allow decreasing the number of personnel used by companies,
as automation and computerization lead to greater effectiveness of corporate

33
business and thus reduce the need in manpower. Thanks to this, companies not
only get an opportunity to reduce their personnel-related costs, but also spare
significantly on administrative costs associated with simplified organization and
smaller number of employees involved. At the same time, it should be understood
that innovations contribute to more effective production, with smaller resources
invested and with greater outcomes which can be driven on smaller time intervals.

• Attraction of customers

Innovative products have significantly greater chances to become popular among

target customers. In the present conditions of doing business, companies should
seek not only delivering products which serve the needs of customers, but rather
products which can do it in the most innovative, cost-effective and unique way.
The more innovative a company’s product, the easier are the associated marketing
activities, and the easier it is to achieve effective market positioning. Useful
innovations also allow combining the features of several different products within
a single one, thus raising its attractiveness for target customers. Finally, it is worth
noting that with the growing availability of the Internet all over the world and
the steadily growing popularity of portable devices, the use of digital and online
technologies in the development of products and services is becoming
indispensable for companies wishing to achieve leading market positions and
ensuring their long-term stability.

• A driving factor for economic growth

Innovations and new technologies are a significant competitive advantage. Having

such competitive advantages, a country can become more influential in economic
terms in the international arena and can drive its more rapid macroeconomic
growth. Furthermore, even in cases when a country is not innovation-driven itself
(which is the case of most developing states), it seeks raising such investment from
abroad. Important donors of technologies can be not only governments of foreign
states, but also large multinational corporations which deploy their technologies
in host countries, thus contributing to their economic growth.

34
 • Sustainability

Today, innovations have become oriented on compliance with the principles

of sustainable economy. Companies seek carrying out their activities in a socially
responsible way, paying great attention to environment protection, decrease
in energy consumption, and so on. In these conditions, innovations are focusing
more and more not solely on increased production, but also on such sustainable
aspects, which is helpful not only for companies themselves in terms of their market
positioning, but also for the national economy as a whole.

Susanne et al. also note that large and small businesses have different opportunities
of investing in innovative environments, which is due to the differences in their
resources. Large multinational corporations most often have their own major
research and development centers and laboratories, where they develop new
technologies to be used in mass production. However, this doesn’t mean that small
companies cannot run effective innovative activities. On the contrary, small
and medium-sized entities which can act innovatively on the target market get
better opportunities to seize their particular market niches and thus to withstand
the competitive struggle. In developed countries, the government seeks supporting
smaller companies in their innovative activities, as smaller companies have better
opportunities of manoeuvre and are overall more flexible in terms of their quick
adaptation to the changing condition of the environment. (SUSANNE et al., 2018,
p. 40)

Therefore, based on the findings presented above, it can be stated that as of today,
innovations have become an indispensable factor of business development
for companies of different sizes. Innovations help not only reduce costs, but also
achieve effective market positioning and thus get stronger long-term stability.
Taking into consideration these facts, it is now possible to proceed to an analysis
of the role of business development in economic growth.

35
2.3 Role of business development in economic growth

Business development and economic growth are interconnected closely.

The corporate sector acts as the backbone of countries’ national economies,
and therefore the aim of any government is to create favourable conditions
for the development of businesses, providing them with a developed institutional
environment in which entrepreneurs would be incited to achieve the best growth.

As noted by Hipscher, analysing the role of businesses in economic growth,

it is worth noting first that when establishing a company, entrepreneurs invest their
own funds. Subsequently, they continue investing and also raise capital from
third-party investors, loans from banks or the government, and so on. As a result,
entrepreneurs mobilize the free funds available in the economy and contribute
to their use for revenue generation. Thanks to the fact that capital is pooled by such
entrepreneurs, national wealth is created and distribute between the members
of society. Therefore, companies ensure the turnover of funds in the economy,
by which they contribute to overall economic growth. (HIPSCHER, 2017, p. 31)

Next, it is worth noting that companies create jobs for the population. Hipscher
explains that they provide demand for labour force on the market, and therefore
create preconditions for declining unemployment on the national labour market.
People seeking jobs thus find a source of income through the performance of their
professional activities, and also can fulfil themselves in terms of the skills obtained
and in terms of their creative spirit. Thus, business development favours the most
effective use of human potential in a country’s national economy, and also
contributes to the government’s smaller costs associated with unemployment
benefits and other negative effects of unemployment. (HIPSCHER, 2017, p. 31)

Larsson states that the value produced by the corporate sector is one of the main
constituent elements of a country’s gross national product. The higher
the aggregate value of all products and services created by a country’s corporate
sector, the higher the country’s GDP in general. In its turn, this means
the population’s greater welfare and greater purchasing power, testifies growing
social standards, and is also one of the markers of opportunities for subsequent

36
economic growth. In this context, it is also worth noting that business development
of companies is linked directly with growing exports, which allows enhancing
a country’s positions in the international arena and improving the structure
of its international trade flows. Business development allows improving
the structure of exports, making them more innovation-driven, and therefore
contributing to the country’s steadier and more independent positions on foreign
markets. (LARSSON, 2004, p. 213)

Hipscher also notes that business growth is one of the important contributors
to effective regional development. As of today, companies tend to shift their sites
of production to more distant and rural areas, and the potential of such areas
is used more effectively. Thanks to this, the population of such regions is involved
more intensively in economic activities, and the share of such regional in GDP tends
to grow. This contributes as well to the government’s decreased spending
for equalizing the development of different regions and creates opportunities
for effective long-term economic growth. (HIPSCHER, 2017, p. 31)

Thus, based on the findings presented above, it can be stated that business
development contributes to economic growth in a number of different ways
and is indispensable for a country’s steady economic growth.

Given the findings of the theoretical part of the thesis, it is now possible to proceed
to the practical part of the research.

37
3 Classification of businesses and their impact
on macroeconomic indicators

There are different classifications of companies commonly used in literature today,

depending on the main classification criterion chosen by the researcher. Below,
the main types of companies are analyzed in detail.

3.1 Classifications of companies by organizational form

According to this classification criterion, companies differ in terms of the legal

and organizational form their founders choose. The main types of corporate
organizational forms are numbered and explained below.

3.1.1 Public limited company

Barthwal notes that a public limited company (commonly referred to as a PLC)

is a company whose activities are separated from the activities of its shareholders.
The shareholders’ liability is thus limited in this type of companies. The minimum
number of shareholders for a PLC is seven, and the company’s capital is formed
through sales of its shares to shareholders. A PLC’s ownership is separated from
its management, which means that shareholders holding the company’s shares
are not entitled to manage directly its business activities. The Board of Directors
is the general body responsible for an effective performance of the company’s
business activities. As the company is public, it discloses to the public its financial
reports on a regular basis, which ensures greater transparency and legal control.
(BARTHWAL, 2007, p. 42)

According to Chandra, PLC is the most appropriate organizational form for large
companies, which is due to three main reasons: first, the risks for investors
are minimized; second, there is great growth potential, as such businesses have
access to considerable financial resources; third, as there is free transferability,
investors enjoy greater liquidity. (CHANDRA, 2008, p. 13)

38
3.1.2 Private limited company

In contrast to a PLC, a Pvt Ltd is a company whose minimum number

of shareholders is 2. Also, according to Chandra, in contrast to a public limited
company, within a private one, its shares can be transferred only between its
shareholders, which means that third parties from the public cannot subscribe
to such a company’s shares. Private limited companies are subject to smaller
control on the part of responsible authorities. Thus, there are no requirements
applicable to private limited companies as regards the submission of financial
reports in open access, no requirements to carry out yearly meetings
of shareholders, and so on. Within the classification of private limited companies,
there can be different subtypes of business depending on the type of limitation.
Thus, there are companies limited by shares (in this case, the shareholders’ liability
is limited to the face value of the shares they hold), by guarantee, or there can
be unlimited liability (where shareholders’ bear the company’s liability even
with their own assets and property). (CHANDRA, 2008, pp. 12-13)

3.1.3 Sole proprietorship

As noted by Cassidy, “sole proprietorship is the simplest form of business

organisation. The formalities and costs attributable to creating and using this
structure are minimal”. (CASSIDY, 2006, p. 18) The companies of this type
do not have any legal liabilities to carry out yearly audits or to file financial reports.
They bear liabilities only in association with general law, including taxation
and other commercial laws. In contrast to public and private liability companies,
sole proprietorships are not treated as separate legal entities. Therefore,
all activities within such companies are carried out on behalf and at the expense
of the individual. The individual’s liabilities are without limitation, which means that
their own assets and property can be used to cover their debts. In some states, sole
proprietors enjoy additional tax benefits, which make this type of companies
particularly suitable for small business initiatives.

39
3.1.4 Partnership

This type of companies is similar to sole proprietorship, with the only differences
that there are more than one business owners. Such business owners, the partners,
share mutual responsibilities, with their shares of responsibilities and benefits
stipulated explicitly in the partnership agreement. All the partners are responsible
for the company’s results without limitation. Chandra adds that “while
a partnership firm can benefit from the varied experience and expertise
of the partners and draw on their combined capital resources, its advantages
and disadvantages are more or less similar to that of a sole proprietorship firm”.
(CHANDRA, 2008, p. 11)

3.1.5 Limited liability partnership

A limited liability partnership (LLP) is a type of partnership within which the liability
of partners is limited. Chandra explains that an LLP is a business model within which
the maximum liability of each partner is limited by their share in the capital. Thanks
to the limitation of liability and less strict requirements imposed by the legislation
compared to public and private companies, limited liability partnerships
are especially popular as registration forms for start-up businesses. (CHANDRA,
2008, p. 11)

3.2 Classifications of companies by size

According to the size criterion, companies can be classified into small, medium-sized
and large businesses. The division of companies into such categories depends
on the legislation of each particular country and the regulations it stipulates
as regards the size of capital and the number of employees involved.

3.2.1 Small businesses

As noted by Taylor, according to American law, a small business is a company with

a total turnover of less than USD 1 billion a year. The number of staff in such
a company is small. Small businesses can operate under different organizational
forms, and can be run either by a sole proprietor, partners, or shareholders.

40
The structure of management in small businesses is most often linear,
and communication is closer between the managers and their subordinates. Thanks
to this, the performance of managerial duties in such companies is simpler. Small
companies are generally more flexible compared to larger businesses and tend
to operate in business niches. However, a major shortcoming of small enterprises
compared to larger companies is the fact that their financial and human resources
are limited, and thus they cannot benefit from economies of scale. (TAYLOR, 2003,
p. 13)

3.2.2 Medium-sized businesses

A medium-sized business is often hard to separate from a small company according

to formal criteria, and therefore the two are often referred to jointly as SMEs
(small and medium-sized enterprises). Thus, as noted by Sellitto et al., a medium-
sized company is most often considered as an entity having 21-50 regular
employees, while small businesses can be considered to have up to 20 employees.
Both types of companies are characterized by similar approaches to business
activities, structures of management and other essential parameters. (SELLITTO
et al., 2016, p. 4)

3.2.3 Large businesses

Considering large companies, it should be noted that such entities operate a staff
of more than 50 employees, and the financial and other resources they concentrate
are considerably greater compared to small and medium companies. Thanks
to this, large entities benefit from economies of scale and can achieve higher
effectiveness in terms of their ultimate financial performance.

A particular case of large companies is multinational corporations. According

to Haughton, a multinational corporation can be defined as an “enterprise that
engages in foreign direct investment and owns or controls value-added activities
in more than one country”. (HAUGHTON, 2011, p. 130) Thus, multinational
corporations’ activities extend beyond the borders of a single state, and such
companies engage in large-scale production and sales activities in foreign

41
jurisdictions. Today, such large corporations concentrate not only important
financial resources, but also considerable political powers, and therefore the impact
of such companies is high even in the field of international geopolitics. Furthermore,
it should be understood that large multinational corporations are global
technological leaders: the research and development activities performed by such
corporations contribute to the overall technological development of humanity
and precondition the vectors of development of the global economy in general.
Among the main risks associated with multinational corporations, it is worth noting
the concentration of monopolist powers, suppression of competition, and the harm
brought to the environment.

3.3 Classifications of companies by type of ownership

Within this classification, companies differ in terms of the sector to which they
belong: either the private sector (private companies) or the public sector
(state-owned companies).

3.3.1 Private companies

Private companies are those enterprises which have private owners and are not
controlled directly by the state. Such companies perform their activities on markets
in the conditions of competition and operate based on the resources available
to them for the sake of generating profits. The activities of private companies
on the market constitute an important factor of ensuring effective free competition.
Free market competition is in its turn an important precondition for optimizing
economic activities in the state in general. In contrast to state-owned companies,
private enterprises do not have a free access to monopolist resources and therefore
have to improve their activities otherwise, namely by implementing effective
innovations.

3.3.2 State-owned companies

In contrast to private companies, state-owned enterprises are controlled and

managed directly by the state. According to Kurlantzick, the government holds

42
direct control over such companies and bears responsibility for their effective
performance. The main benefits of state-owned companies include the opportunity
for the government to involve directly in economic activities, namely ones
associated with strategic resources, and therefore preserving levers of economic
control in particular sectors. The activities of state-owned companies can be used
to manage limited resources, but also to improve state GDP and exports in general.
Nevertheless, the operation of state-owned companies in a country’s national
economy is interconnected with a number of inherent difficulties and
disadvantages. Thus, it should be understood that when managing the activities
of state-owned companies, the government can use various mechanisms
to stimulate or improve their activities. This affects directly the principles of free
market economy and thus impairs free and equal competition in the state.
Furthermore, compared to private companies, state management of corporations
tends to be more rigid and less effective. As a result, this can affect negatively
a country’s macroeconomic indicators where private companies could contribute
with higher performance. (KURLANTZICK, 2016, p. 226)

3.3.3 Mixed-ownership companies

Today, both private and state-owned corporations operate on the markets

of different countries, and the two types of companies perform their important role
in the maximization of states’ effective performance of their economic policies.
A specific type of companies based on ownership is the so-called mixed-ownership
companies, where both the government and private investors have their shares
and participate in joint management.

In addition to the main classifications of companies noted above, it is worth noting

that today, with the rapid development of the global economy under the impact
of innovative digital and online technologies, an important type of business entities
is start-up companies. As noted by Žarkić-Joksimović and Marinković , a start-up can
be defined as a temporary organization operating on the market with the ultimate
aim of creating a scalable and effective business model. Start-ups are created more
often in the IT sector or in connection with information technology. They are based

43
on an intensive use of innovations and are destined to solve effectively particular
needs of people. Start-ups are flexible and can operate effectively on the market
thanks to their effective use of innovations and unique business models. However,
their main problem is the need to raise significant investment, due to which
start-up owners often have to resort to the help of third-party investors.
(ŽARKIĆ-JOKSIMOVIĆ, MARINKOVIĆ, 2018, p. 675)

Taking into account the facts outlined above, it is now worth focusing more in detail
on revealing the impact of large and small companies, as well as of innovative
companies, on macroeconomic indicators.

3.4 Impact of large and small companies

Analyzing the impact of multinational corporations on macroeconomic indicators,

it is worth recalling both the benefits and the threats associated with the activities
of such companies. Thus, first of all, it should be noted that large corporations run
large-scale production and trade activities. According to May, the total production
output delivered by multinational corporations thus affects directly the level
of the national economy’s production and the level of the country’s gross domestic
product. Therefore, the development and improvement of corporations’ economic
results are important factors for raising the quality of the state’s economic growth
in general. Furthermore, it should be understood that, when performing their
commercial activities, large corporations create a great amount of jobs for local
employees. Thanks to this, the government’s burden in terms of satisfying the need
of the local population in jobs becomes smaller, and the whole economy can
become more productive against the background of dropping unemployment.
Thanks to the fact that multinational corporations export significant amounts
of products and services abroad, they also contribute directly to the country’s
indicators associated with foreign trade, and namely contribute to a positive foreign
trade balance. Thanks to the trade flows generated by large corporations,
the jurisdiction in which they are incorporated also receives important flows
of foreign currency, which allows more effective monetary policies implemented

44
by governments. Finally, this also contributes positively to macroeconomic
indicators through increased tax receipts of the national budget. (MAY, 2015, p. 16)

May adds further that technological research and development run by multinational
corporations is another positive factor brought by such companies
to the development of the national economy of their jurisdiction. Technological
growth is a factor of sustainability and of long-term stability. Countries having their
own innovative technologies can become more effective on the global market,
as they have important competitive advantages compared to other states.
The technological expansion of multinational corporations abroad is also a factor
of spreading of the country’s economic, cultural, and political influence abroad,
which in its turn is converted directly into financial benefits, and thus into improved
macroeconomic indicators. (MAY, 2015, p. 16)

Huniche and Pedersen state that multinational corporations are also important
donors of foreign direct investment. By expanding their activities in foreign
jurisdictions, multinational corporations invest considerable amounts of funds
in acquiring new entities abroad. This contributes directly to positive changes
in macroeconomic indicators in terms of the country’s foreign direct investment
balance. Also, the intensification of economic and other ties with foreign
jurisdictions should be seen as one of the important factor of improving
the investment climate in the country, and thus raising incoming foreign direct
investment flows as well. (HUNICHE, PEDERSEN, 2006, p. 181)

In addition to the positive effects associated with multinational corporations

in terms of macroeconomic indicators, it should be noted that there are also
important threats of deterioration of such macroeconomic indicators which should
be taken into account effectively when designing government policies. Thus,
as noted earlier in this thesis, due to their large-scale production activities,
multinational corporations are among the main polluters of the environment.
As a result, this raises directly the level of government expenditures associated with
environment protection and healthcare. Furthermore, it is worth highlighting that
deterioration of the environment is an important factor of decreasing the total

45
longevity of the population and the quality of workforce residing in a multinational
company’s state of incorporation.

Another negative factor is that multinational corporations often transfer their

production activities abroad for the sake of minimizing their costs. Also, as noted
by Templar, Findlay and Hofmann, such large companies also resort to tax
optimization activities through offshore jurisdictions, which affects the total
amounts of budget proceeds received through taxation. (TEMPLAR, FINDLAY,
HOFMANN, 2016, p. 322)

In contrast to large corporations, small and medium-sized enterprises do not have

such considerable resources in both financial and technological terms.
Nevertheless, they play an important role for the jurisdiction of their incorporation
in terms of macroeconomic indicators.

First of all, it should be noted based on Hallberg that small and medium-sized
entities often operate in business niches and serve the needs of local communities.
They create an important amount of job offers, and thus contribute directly
to lower levels of state unemployment. Also, small and medium-sized entities
are drivers of market competition in the state, which means that they contribute
directly to technological and economic struggle in the corporate sector, which
in its turn is important for the overall level of economic output generated
in the state in general, for its improved investment climate, and for its competitive
positions on foreign markets. (HALLBERG, 2000, p. 2)

Hallberg notes further that as small and medium-sized companies act against
the concentration of monopolist powers, they contribute directly
to the diversification of corporate business activities in the country of their
incorporation. In its turn, this is an important factor of innovative growth. Thus,
small entrepreneurs who do not possess large-scale financial resources have
to become more flexible. They adapt more easily to the changing conditions
of the environment, and therefore can satisfy effectively the needs of customers
where large corporations fail to demonstrate the highest efficiency possible.
As a result, small and medium-sized businesses generate higher domestic

46
consumption, which means intensified economic activities in the country in general.
For the government, this means not only increased proceeds from taxation, but also
more effective redistribution of wealth between different economic sectors, and
thus more effective public management in general. (HALLBERG, 2000, p. 2)

Also, it is worth noting in particular the importance of start-up companies

for macroeconomic indicators. As stated earlier in this thesis, today’s start-up
companies emerge in innovative sectors and raise significant amounts of investors’
funds. Thanks to this, start-ups are important for the countries in which they
are created as they contribute directly to an inflow of foreign direct investment,
and also create a boom of technological growth. Also, start-up companies generate
an important share of total industrial output. They allow states remaining
at the forefront of innovative economic development, possessing important
strategic advantages on the global scale.

Now, taking into consideration the facts outlined above, it is also worth considering
more in detail how state-owned companies affect macroeconomic indicators before
proceeding directly to the empirical part of the research.

3.5 Impact of state-owned companies

Considering the impact that state-owned companies have on a country’s

macroeconomic indicators, it should be noted that the actual scope of such
companies’ impact is preconditioned by a number of factors. Thus, as stated
by Büge et al., the share of state-owned companies in total economic output
and gross domestic product depends directly on the country in which such
a company is incorporated and the key sector of its activities. In companies with
centralized models of national economy, the share of state-owned companies
is higher and their importance in the maintenance and growth of national economy
is greater as well. Thus, the share of state-owned corporations in terms of assets,
sales, and market capital in China is the highest and amounts to 96 % among the top
ten firms. In the UAE, this figure amounts to 88 %, and in Russia – to 81 %.
On the contrary, in countries such as Germany, Finland, or France, these figures

47
vary between 10 and 20 %. Furthermore, the role of state-owned companies
is higher in strategically important sectors: either the ones where the state
preserves its monopoly or the ones where investment project are implement
in a long-term perspective and required large-size financial resources. Thus,
Büge et al. suggest that sectors with the greatest penetration of state-owned
corporations on the global scale include mining, civil engineering, transport,
electricity, and telecommunications. (BÜGE et al., 2013)

In the sectors noted above, the government seeks not only achieving the highest
levels of economic production, but also ensuring national security. As a result,
the government maintains state-owned corporations. They ensure the most
effective use of strategic natural resources, which cannot be measured always
by purely financial indicators or direct measures of economic output. However,
as noted by Stratfor, in states such as China, state-owned corporations are among
the most important contributors to national economic output. Furthermore, they
allow the government implementing effectively its foreign policies and achieving
the economic and geopolitical goals followed in the international arena. As such
companies are owned by the state, their technological achievements in terms
of innovations contribute directly to effective economic growth as well.
Furthermore, with such companies, the government can manage more effectively
the levels of employment and inflation in the state, and have more effective
mechanisms to perform monetary policies. (STRATFOR, 2018)

Given the importance of large state-owned corporations for the national economy,
governments can often support such companies in order to attain the desired goals
in both the domestic and the international arena. Thus, as noted by Büge et al.,
“the triple role of the government as a regulator, regulation enforcer and owner
of assets opens a possibility of favourable treatment granted to state-owned
enterprises in some cases”. (BÜGE et al., 2013) Governments can provide large
state-owned corporations with subsidies, tax privileges, and other improved
conditions in order to maintain steady levels of production, employment, and other
key macroeconomic indicators. However, such activities can favor state-owned

48
corporations in their activities on international markets, thus affecting the principles
of free market competition on the global scale.

However, it is also worth taking into consideration the negative effects associated
with state-owned companies. Thus, as noted by Nicolescu and Lloyd-Reason,
“the state owned companies are the largest debtors to the national social security
budget… the profitability of state-owned enterprises is significantly lower than that
of private companies”. (NICOLESCU, LLOYD-REASON, 2016, p. 201) Therefore, when
the share of state-owned companies in the total economic output is high, this
means that the state loses a part of its GDP which would otherwise be generated
by more effective private companies. Also, the amount of public debt is higher.
Finally, the suppression of competition is another negative effect which affects
the actual level of a state’s macroeconomic indicators.

Therefore, it can be stated that the role of state-owned large-scale corporations

affect directly the quality of a country’s macroeconomic indicators. Taking into
account these facts, the next chapter of the thesis will provide an empirical analysis
of the relationship between the macroeconomic indicators achieved by the Russian
Federation and the business performance of Russian state-owned corporation
Gazprom Neft.

49
4 Empirical analysis of relationship between
macroeconomic indicators and business
development on example of Russian company
Gazprom Neft

4.1 Research design

The main aim of the empirical part of the thesis is to reveal whether any correlation
exists between the performance of Russian state-owned oil-and-gas corporation
Gazprom Neft and the actual macroeconomic performance of the Russian
Federation in general. The importance of this research is justified by the fact that
Russia is one of the world’s major exporters of oil and natural gas, and the country
sees energy resources as pone of the key factors of not only its international
success, but also its global geopolitical power. Therefore, it is important to track
possible empirical interconnections between the performance Russia and
the country’s state-owned giant.

The chosen method to perform this research is multiple regression analysis. The use
of this method can be justified by the fact that multiple regression analysis allows
calculating the impact of several independent factors on one or several dependent
factors. In this case, the dependent variable (Y) will be Gazprom Neft’s yearly net
profits. The independent variables will be GDP (X1), exports (X2), unemployment
(X3), and inflation (X4). Therefore, the aim of the multiple regression analysis will
be to reveal to which extent the aforesaid four parameters of the Russian
Federation’s macroeconomic performance affect the net profits of Gazprom Neft
as the country’s largest corporation. The calculations will be done for the years
2006–2017, the period for which official annual reports are available on the part
of Gazprom Neft.

50
In fact, this set of data is expected to keep track of a reversed tendency against
the one described by Larsson and analysed in the theoretical part: while Larsson
states that the corporate sector’s performance affects directly the state’s
performance, here the ultimate effects of the state’s development will
be monitored in its interconnection with the performance of state-owned
corporations. (LARSSON, 2004, p. 213)

The findings revealed through the multiple regression analysis as described above
will be investigated further to understand possible implications and to discuss
the results in the context of the general aim and goals of the thesis.

4.2 Calculations

The raw data for performing the multiple regression analysis as described
in the previous chapter are presented in the table below. The figures for Russia’s
GDP and exports are presented in current USD billion, and the figures for Gazprom
Neft’s net profits are presented in RUB billion due to the lack of data in USD
on the part of the corporation. For the multiple regression analysis, this difference
in the units chosen are irrelevant, as the correlation will be still calculated reliably
along the chosen time range.

51
Table 1 Raw data for multiple regression analysis
Y: Net profits X3: Total
X4: Inflation
of Gazprom X1: GDP X2: Exports unemployment,
(CPI), %
Neft %

2006 102,51 989,93 333,20 7,16 9,67

2007 110,00 1299,71 390,39 6,10 9,01

2008 114,12 1660,84 523,43 6,32 14,11

2009 96,44 1222,64 342,95 8,42 11,65

2010 103,14 1524,92 441,83 7,37 6,85

2011 168,73 2051,66 573,45 6,54 8,44

2012 184,15 2210,26 589,77 5,44 5,07

2013 186,72 2297,13 591,96 5,46 6,75

2014 126,66 2063,66 562,55 5,16 7,82

2015 116,20 1368,40 393,12 5,57 15,53

2016 209,73 1284,73 332,40 5,54 7,04

2017 269,68 1577,52 410,79 5,20 3,68

Source: World Bank Databank, 2018; Gazprom Neft, 2018

Taking into account the raw data presented above, it is now possible to use
Microsoft Excel built-in software to perform the multiple regression analysis based
on the chosen sets of data.

52
Table 2 Results of multiple regression analysis
SUMMARY OUTPUT

Regression Statistics
Mul ti ple R 0,848

R Squa re 0,719
Adjus ted R
0,558
Squa re
Sta ndard
36,198
Error
Obs ervation
12
s

ANOVA
Significance
df SS MS F
F

Regression 4 23466,898 5866,725 4,477 0,041

Res idual 7 9172,034 1310,291

Tota l 11 32638,932

Coefficie Standard Lower Upper 95 Lower 95 Upper 95

t Stat P-value
nts Error 95 % % % %

Intercept 382,364 115,173 3,320 0,013 110,023 654,705 110,023 654,705

X Va ri able 1 0,146 0,127 1,144 0,290 -0,156 0,447 -0,156 0,447

X Va ri able 2 -0,619 0,483 -1,280 0,241 -1,761 0,524 -1,761 0,524

X Va ri able 3 -21,799 13,007 -1,676 0,138 -52,555 8,957 -52,555 8,957

X Va ri able 4 -6,023 4,038 -1,491 0,179 -15,572 3,526 -15,572 3,526

Source: Own calculations

Based on the table above, it can be stated that the value of Significance F amounts
to 0.041, and thus is below 0.05. This testifies that the null hypothesis can
be rejected, which proves in its turn that the chosen model for the multiple
regression analysis should be deemed statistically significant, and thus appropriate
for the purposes of the calculations.

R Square for the chosen model amounts to 0.719 and is higher than the minimum
value of 0.6 to testify the model’s robustness. However, the value of Adjusted
R Sqaure is 0.558, which means that the model fits for explaining the changes

53
in Gazprom Neft’s net profits with changes in the four chosen independent variable
in 55.8 % of cases, which is a rather small figure. This suggests that the model
developed is not the most effective in terms of explaining the changes
of the dynamics of net profits in Gazprom Neft. These doubts are confirmed further
by the P-values of all independent variables: in each case, the P-value is above
0.05, and thus significantly higher than 0, which testifies that correlation between
the chosen variables is rather small.

In order to improve the model, it can be beneficial to re-calculate the net profit
of Gazprom Neft USD instead of RUB. Although the initial presupposition was that
the currency would not affect the calculations of the correlation, this can be now
re-thought. Thus, the great fluctuations of the Russian national currency’s exchange
rate against the stability of the US dollar can distort the figures in the model,
and therefore can affect the model’s overall viability. To test these assumptions,
new data, with Gazprom Neft’s net profit in USD calculated based
on the RUB-to-USD average yearly exchange rate, are presented below.

54
Table 3 Raw data for multiple regression analysis (with Gazprom Neft’s net profit in USD)
Y: Net profits of X2: X3: Total X4: Inflation (CPI),
X1: GDP
Gazprom Neft Exports unemployment, % %

2006 3,66 989,93 333,20 7,16 9,67

2007 4,15 1299,71 390,39 6,10 9,01

2008 4,70 1660,84 523,43 6,32 14,11

2009 3,08 1222,64 342,95 8,42 11,65

2010 3,43 1524,92 441,83 7,37 6,85

2011 5,62 2051,66 573,45 6,54 8,44

2012 5,94 2210,26 589,77 5,44 5,07

2013 6,20 2297,13 591,96 5,46 6,75

2014 3,70 2063,66 562,55 5,16 7,82

2015 1,79 1368,40 393,12 5,57 15,53

2016 2,72 1284,73 332,40 5,54 7,04

2017 4,49 1577,52 410,79 5,20 3,68

Source: World Bank Databank, 2018; Gazprom Neft, 2018

Based on these new data thus obtained, it is now worth running a new multiple
regression analysis. The data for this new analysis are presented in the table below.

55
Table 4 Results of multiple regression analysis (with Gazprom Neft’s net profit in USD)
SUMMARY OUTPUT

Regression Statistics
Multiple R 0,861
R Square 0,741
Adjusted R
0,594
Square
Standard
0,854
Error
Observatio
12
ns

ANOVA
Significa
df SS MS F
nce F
Regression 4 14,625 3,656 5,018 0,032
Residual 7 5,100 0,729
Total 11 19,725

Coefficie Standard Lower Upper Lower Upper

t Stat P-value
nts Error 95 % 95 % 95 % 95 %
Intercept -0,081 2,716 -0,030 0,977 -6,503 6,342 -6,503 6,342
X Variable
-0,002 0,003 -0,680 0,519 -0,009 0,005 -0,009 0,005
1
X Variable
0,017 0,011 1,520 0,172 -0,010 0,044 -0,010 0,044
2
X Variable
0,194 0,307 0,633 0,547 -0,531 0,919 -0,531 0,919
3
X Variable
-0,180 0,095 -1,894 0,100 -0,406 0,045 -0,406 0,045
4

Source: Own calculations

As can be seen from the table presented above, the model’s statistical significance
and robustness are slightly improved compared to the first model. Thus,
the changes in Gazprom Neft’s net profit can be explained by the changes
in Russia’s GDP, exports, unemployment, and inflation in 59.4 % of the cases. Also,
Significance F is below 0.05 and amounts to 0.032. However, jus t as in the previous
case, the P-value of all the three independent variables are well above zero, which

56
means that the significance of each particular value for the overall results
of the model is rather low. Nevertheless, in overall terms the model can be deemed
more robust and rather reliable, as correlation exists in almost 60 % of the cases.

The previous findings suggest that, possibly, better results could be achieved,
if the USD-to-RUB exchange rate was taken as a basis for the research. To verify this
assumption, a third instance of regression analysis should be run. The raw data
for it are given in the table below.

Table 5 Raw data for regression analysis (with the exchange rate variable)
Y: Net profits of Gazprom Neft X: Exchange rate (USD to RUB)

2006 3,66 27,17

2007 4,15 25,58

2008 4,70 24,86

2009 3,08 31,83

2010 3,43 30,36

2011 5,62 29,39

2012 5,94 31,08

2013 6,20 31,85

2014 3,70 38,61

2015 1,79 61,07

2016 2,72 66,08

2017 4,49 58,29

Source: World Bank Databank, 2018; Gazprom Neft, 2018

Taking into account these raw data, the results of the regression analysis
are presented below.

57
Table 6 Results of multiple regression analysis (with the exchange rate indicator)
SUMMARY OUTPUT

Regression Statistics
Multiple R 0,527
R Square 0,277
Adjusted R
0,205
Square
Standard
1,194
Error
Observation
12
s

ANOVA
df SS MS F Significance F

Regression 1 5,471 5,471 3,838 0,079

Residual 10 14,255 1,425

Total 11 19,725

Standard Upper Lower Upper

Coefficients t Stat P-value Lower 95 %
Error 95 % 95,0 % 95,0 %

Intercept 5,927 0,983 6,033 0,000 3,738 8,117 3,738 8,117

X Variable 1 -0,047 0,024 -1,959 0,079 -0,101 0,007 -0,101 0,007

Source: Own calculations

As the table above reveals, the regression analysis using the USD-to-RUB exchange
rate as the only independent variable shows the weakest results among the three
models. Thus, the value of Multiple R and R Square is below 0.6, and the values
of Significance F and P-value are high. This testifies that the model is statistically
insignificant and irrelevant: the exchange rate factor cannot be used reliably
to explain the changes in Gazprom Neft’s net profit, as there is no firm correlation
between these ratios.

Therefore, it can be affirmed that the most appropriate model for empirical analysis
within the framework of this thesis is the second model, which features four
independent variables (GDP, exports, unemployment, and inflations) and where

58
the net profit of Gazprom Neft is given in USD. Taking into account these findings,
it is worth now proceeding to a more detailed analysis of the results obtained
and discussing them.

4.3 Results and discussion

The findings of the empirical analysis testify clearly that there is correlation
between the overall dynamics of the main macroeconomic indicators of the Russian
Federation and the dynamics of net profit of the country’s largest state-owned
corporation. Therefore, it allows stating that the actual profits of Gazprom Neft
are affected at least partially by the general economic policies implemented
by the Russian government and by the results of such policies in terms of the shifts
in Russia’s key macroeconomic indicators.

However, the robustness of the model and the level of correlation between
the chosen independent and dependent variables are rather lower than desired:
the model chosen allows explaining the changes in Gazprom Neft’s net profit
through the changes in the chosen macroeconomic indicators of the Russian
Federation only in a limited number of cases. The P-values of each individual
independent variable considered in the course of the empirical research are low,
and therefore such variable cannot be used effectively for justifying the changes
in the independent variable. The worst results were demonstrated by the model
where the independent variable was the exchange rate of the Russian national
currency.

There can be a number of different reasons affecting the quality of the models
developed and thus making it impossible to justify effectively the changes
in the corporation’s net profit. Thus, it should be understood that the main product
sold by Gazprom Neft is energy resources. Energy resources are required by states
regardless of their economic condition and regardless of the existing political
tensions. Thus, even after 2014, when economic sanctions were imposed
on the Russian Federation and affected the development of the Russian economy,
Western European states continued purchasing Russian gas and oil due to limited

59
alternatives. Therefore, even in the adverse conditions of the market and the rapid
devaluation of the Russian national currency, Gazprom Neft was able to maintain
a large number of its contracts and continue exporting its product. As shown
by the raw data, the net profit of the corporation decreased substantially against
the light of these events: nevertheless the fluctuations of Gazprom Neft’s profits
cannot be justified purely by the changes in Russia’s GDP or exports during
the same period right due to the factors outlined above: the corporation
has a privileged position not only on the Russian market, but also in terms of export
contracts.

As analyzed in the theoretical part, Preece et al. note that companies often look
for third-party funding to trigger effective growth. But in the case of Gazprom Neft,
it can be stated that the state funds the corporation directly, i.e. not
on the conditions of free market competition, which definitely affects subsequent
management of the corporation’s activities. (PREECE et al., 2007, p. 15)

Furthermore, Russia’s initiative in developing further its oil-and-gas sector

and spreading the influence of its energy corporations on the global scale are often
lobbied in the European Union. Thus, as noted by Rapoza, “the German companies
like BASF and Wintershall may be successful at lobbying their government to keep
the new Russian pipeline going, despite opposition from Washington. Such are
the worries being made behind closed doors within the state owned Central
and East European (CEE) gas companies that are no fans of Russia's Gazprom”.
(RAPOZA, 2018) This testifies that even in times when the Russian economy
is suffering from the sanctions imposed by Western states and the economic
and social conditions of the population’s living are deteriorating, the Russian
state-owned giant in the oil-and-gas sector can develop further its business,
including in the aforesaid Western European countries.

All this suggests that linear models cannot describe and explain effectively
the dynamics of Gazprom Neft’s net profit through macroeconomic indicators
of the Russian Federation. Nevertheless, it can be stated that this non-linearity
in the calculations is due to two key reasons: Gazprom Neft’s belonging

60
to the oil-and-gas sector on the one hand and the fact that the corporation
is state-owned on the other hand.

Another important reason for possible deviations worth noting in particular

is the fact that Gazprom Neft is not just an economic corporation. It is seen
by the Russian government as a key tool of Russia’s international economic power,
and also of Russia’s domination in the global geopolitical arena. Therefore,
for the Russian government, it is important to support Gazprom Neft,
for the company to demonstrate better market results. As noted by Collins, “price
conflicts and debts owed by customers – frequently exacerbated by unilateral gas
price increases imposed by Gazprom – often become the pretext for supply
curtailment. Such moves are part of a messaging campaign in which ostensibly
commercial factors are used to legitimize gas price and/or supply manipulations
that, in many instances, are motivated more by geopolitics than by concerns about
corporate profitability”. (COLLINS, 2017, p. 3) Thus, it can be stated that the Russian
Federation’s government uses the resources and the impact of its state-owned
corporations in order to put tensions on European states and to obtain greater
economic and geopolitical advantages for itself. In this case, it should
be understood in particular that for fulfilling such tasks, the Russian government
can provide Gazprom Neft with substantial financial and political support, which
in its turn affects directly the actual level of financial performance that
the corporation demonstrates.

This correlates with the theoretical findings revealed by Kurlantzick, as state-owned

corporations are always interconnected with not only economic, but also political
goals of governments, thus contributing most to an effective implementation
of all such policies. (KURLANTZICK, 2016, p. 226)

These facts allow understanding that the company’s financial performance cannot
be explained solely by market trends and patterns. It is affected directly
by the actual economic policies implemented by the Russian government, which
testifies further that the application of linear multiple regression analysis model can
only have limited effects in this case. The correlation between the general market
trends and the financial performance of Gazprom Neft will always be affected

61
by the actual directions in Russian economic policies and the practical effects
associated with their implementation in relation to Gazprom Neft and the sector.

As Collins notes further, “the Russian company’s inconsistent oscillation between

forbearance and sharp, severe price and/ or supply changes that closely correspond
to geopolitical events disturbs consumers and reduces their confidence in Russia
as a reliable energy supplier. If Gazprom (and ultimately, the Kremlin) truly
prioritized commercial concerns over political ones, we would expect to see more
frequent and consistent use of legal processes to enforce agreements and settle
disputes...” (COLLINS, 2017, pp. 3-4) Obviously, such political decisions cannot
be integrated within the framework of any multiple regression analysis model.
Moreover, they are not regular and are preconditioned in their turn by a number
of differently vectored factors. This makes the applicability of any linear analysis
models very limited as noted above.

Furthermore, it should be noted that the actual net profit of Gazprom Neft
is preconditioned to a large extent by the dynamics of the global prices for oil,
which in their turn are affected by the policies of the main oil producing countries
and the overall conjuncture of the global oil-and-gas market. Thus, as noted
by Astrasheuskaya, “the company’s results follows a trend among major Russian oil
and gas companies, which have received a boost from higher oil prices
and a weakened rouble, lifting earnings when foreign currency based export
revenues are converted to roubles”. (ASTRASHEUSKAYA, 2018) Also, global prices
for energy resources are predefined by the agreements achieved between the main
producers of such resources on the international scale. Thus, as noted by Zmeyev,
“The Organization of the Petroleum Exporting Countries (OPEC) and other leading oil
producers including Russia have agreed to cut their combined output by 1.8 million
barrels per day in order to smooth out global oil stockpiles and support oil prices”.
(ZMEYEV, 2018) The decreasing figures of oil output are one of the instruments
which oil-producing countries for the purpose of regulating their oil prices
effectively and for achieving the desired level of actual financial revenues.

So, limiting the analysis of changes of Gazprom Neft’ profits to linear changes
in a limited set of Russia’s macroeconomic indicators is not enough, and this is one

62
of the main reasons why neither of the multiple regression analysis model testified
a high level of reliability and correlation. This is particularly true speaking
of the Russian energy sector, where there are a great number of economic
and political factors involved, and where the economic and other policies of foreign
states affect the actual performance of Russian state-owned corporations as well.

With the facts noted above, the second model which showed correlation in almost
60 % of cases should be deemed rather reliable. This model can be deemed overall
fit to confirm that, despite the factors outlined above, the actual financial
performance of Gazprom Neft is indeed preconditioned at least to some extent
by the macroeconomic indicators of the Russian Federation. Therefore, the findings
of this empirical analysis allow confirming that there is some degree of correlation
between the variables noted above, even though such correlation cannot
be explained fully through the use of linear econometric models.

Taking into account the findings outlined in this chapter, it is now worth highlighting
the main limitations of this thesis and described possible directions for further
research.

4.4 Limitations and further research

As noted in the previous chapter, the second multiple linear regression analysis
model fits for describing at least partially the extent to which the macroeconomic
indicators of the Russian Federation affect the financial performance
of the country’s state-owned oil-and-gas corporation Gazprom Neft. However,
there are a number of limitations associated with the research design which affect
the quality of the findings and which should be taken into consideration.

Thus, first of all, it is worth noting that the number of cases considered in multiple
linear regression analysis is rather small and amounts to only 12 (years 2006-2017).
The smaller the number of cases considered, the smaller the model’s statistical
significance and robustness. It can be stated that 12 observations affect significantly
the quality of the findings. This can be deemed the main reason for high R-square
figures such as 0.74. Extending the research observations would allow achieving

63
greater reliability in either accepting or refuting the chosen model. But including
only 12 observations in the research is due to objective reasons. Thus,
this limitation of the thesis is due to the limited data available from Gazprom Neft
as regards its financial performance. Furthermore, Gazprom Neft was established
only in 1995, and even if the data were available for the whole period
of the company’s existences, the number of cases would still be too small
for the multiple regression analysis. This does not reject the model, but definitely
affects the quality of the correlation it shows.

Next, another important limitation of the empirical research is the fact that only
one company was considered. The statistical significance and reliability of the
models would be higher, if the multiple regression analysis included a greater
number of state-owned corporations. However, this would also entail difficulties.
Thus, as Gazprom Neft is a monopolist in the oil-and-gas sector, including other
companies in the analysis would mean comparing Gazprom Neft with state
corporations from other sectors of the national economy, which would affect
the opportunities of comparing such companies effectively due to the different
mechanisms used by the state for supporting different fields of economic activities.

In this case, further research could bring benefits in terms of comparing

the performance of state-owned companies in Russia’s energy sector with
state-owned companies from other states’ economic sectors. This could allow
broadening the scope of the research and revealing whether differences exist
in terms of correlation between the profits of state-owned energy corporations
and the macroeconomic indicators of states in which they are registered.

This kind of cross-country comparative analysis could also be interesting from

another perspective. Thus, today, Russia’s state-owned companies are suffering
directly from sanctions imposed by Western states. At the same time, the energy
companies of Western states are interconnected with Russian corporations in terms
of their commercial ties. Therefore, it would be important to track how particular
changes in macroeconomic indicators affect the performance of all such companies
taking into consideration their mutual dependence on the Russian energy sector.
Consequentially, the use of such data obtained could also provide an insight on the

64
actual independence of Western European states from the Russian Federation and
could allow understanding how the policies of Western countries in terms of energy
security could be modified in order to avoid the current excessive risks and to
guarantee energy independence in the long-term perspective.

Next, further research should include a more detailed analysis of various

macroeconomic indicators. Thus, within the framework of this thesis, five different
macroeconomic indicators were taken as a basis for three multiple regression
analysis models. In practice, it would be beneficial to analyze different
macroeconomic ratios in different combinations, as this could allow finding more
reliable models. Other macroeconomic variables which could be tested
for appropriateness in econometric models include total industrial output, foreign
direct investment outflows and inflows, foreign reserves, and a number of other
parameters. For the purpose of running this kind of research, a more sophisticated
piece of software would also be required, so as to test different combinations
of variable and so as to compare the results of multiple regression analysis for such
different combinations.

In the context of the Russian Federation and developing states, an important

macroeconomic indicator to be taken into account could be the monetary mass and
other macroeconomic indices related to the monetary and financial policies of the
national authorities. This is due to the fact that the authorities of developing states
often resort to the use of ungrounded emission for the purpose of covering
expenses. This affects the exchange rate of the national currency and the positions
of exporters. At the same time, the money obtained from such emission can be
directed to the development of strategically important state-owned corporations.
Therefore, it becomes interesting to reveal to which extent the fluctuations of the
monetary mass in a developing state’s national economy correlate with the
dynamics of state-owned companies financial performance. Furthermore, such
analysis could provide benefits when carried out for several states, so as to reveal
their contrastive differences. The findings of such research would demonstrate to
which extent the public corporations of the authorities of developing and
developed states depend on state support provided through emission.

65
Also, it could be beneficial to conduct interviews with experts in the field of public
administration and economy in order to learn their opinion regarding the situation
and to compare it with the numerical findings of the empirical research. This would
require additional time and financial expenditures, which was impossible within
the course of this research, but could be done otherwise within a wider kind
of analysis. The expert panels could be formed of professionals from different
states. Thus could allow for unbiased analysis, and therefore could raise the validity
of research data, strengthening them with justified arguments. A large-scale
research involving the directors of state-owned companies could also allow gaining
information on how the performance of companies against the background of
changing macroeconomic indicators are interconnected directly with the
managerial approach of such directors and with particular activities which they
undertake within the limits of their responsibilities.

Another option worth considering within the framework of a wider research would
be to use statistical forecasting instead of multiple linear regression analysis based
on past financial performance and macroeconomic indicators. Thus, building
forecasts regarding further dynamics of Gazprom Neft’s net profit against
the background of Russia’s general macroeconomic results could allow integrating
effectively situational factors such as Russia’s political decisions in the short-term
perspectives, and thus could allow getting another insight into possible
development of the state-owned corporation’s performance under the impact
of macroeconomic factors in subsequent periods.

However, forecasting within the given topic is associated with a number of inherent
difficulties. Namely, the current situation with the development of the Russian
economy is dependent largely on Russia’s foreign policies and the sanctions
imposed by Western states. The dynamics of Russia’s key macroeconomic
performance ratios are not linear, and therefore the exactitude of the forecasts is
significantly vulnerable. This allows making an assumption that the prediction of
state-owned companies’ performance based on the analysis of possible further
growth of the Russian Federation’s national economy will have an impaired level of
reliability. Nonetheless, such forecasting could play an important role in the

66
modification of Russian state-owned companies’ business policies. In particular, it
would be beneficial to provide forecasts based on analyzing the optimistic and
pessimistic scenarios, so as to reveal which particular peak and bottom
performance values could be achieved by the corporation and how it should act to
carry out its activities effectively in either of the cases.

In addition to the focal aspects of practical research noted above, further

theoretical research is required in order to understand more deeply
the interconnections which exist between the macroeconomic indicators of states
and performance of state-owned corporations. Today, the lack of such deep
theoretical research is one of the important restraining factors limiting
the opportunities of researchers to build effective and reliable models for statistical
analysis, as there are no studies showing which particular macroeconomic
indicators could be taken as variables in the analysis of correlation between
the performance of states and state-owned companies in different economic
sectors.

The performance of empirical studies as suggested earlier in this chapter could be

beneficial for accumulating sufficient theoretical material. Namely, by collecting,
processing, and summarizing the findings associated with the interdependence
between the performance of state-owned companies and the macroeconomic
indicators of states in which they are incorporated, large data arrays can be
prepared. As a result, theoretical implications can be derived for developing the
most appropriate and the most precise models of regression analysis. Thus, such
datasets could allow understanding which particular ratios fit best this kind of
analysis, which strengths and vulnerabilities every approach has. Proceeding from
the numerical data obtained, an optimum theoretical framework can be designed
and offered for subsequent implementation in practice.

67
Conclusion

The findings of this thesis allow stating that macroeconomic indicators and their
analysis are important aspects of economic activities both on the level of states
and on the level of the corporate sector. For the government, analyzing
macroeconomic indicators is important in order to reveal to which extent
the current state policies are effective and to which extent they allow achieving
the goals such policies. By comparing the planned and the actual achievements,
the government can identify where problems exist and where particular
improvements should be sought. As a result, it becomes possible to address such
issues effectively and to resolve them. Also, it is possible to minimize the negative
impact of external factors and to withstand possible shocks in cases of crises.

Companies as economic actors operate in the conditions of a fluctuating external

environment. This external environment includes the fields of economy, politics,
technologies, culture, and so on. All these factors affect the performance
of companies, and the impact of macroeconomic indicators is particularly
important. The performance of effective business is not isolated from the external
conditions, and companies need to be flexible in terms of the adaptation of its
commercial strategies and policies, so as to achieve the desired improvements in
terms of ultimate financial performance.

Thus, the actual financial performance is preconditioned to a large extent

by the general economic conditions in which they operate. The availability
of demand on the part of the population affects the general amount of a company’s
supply which can be satisfied. The impact of competitors preconditions the level
of prices at which companies can sell their products and services. The amount
of investment available on the market contributes to the opportunities of business
growth. Other important macroeconomic indicators affecting the opportunities
of companies to achieve effective corporate business results include exchange rate
dynamics, exports, foreign reserves, unemployment, inflation, etc.

68
Companies can adopt different business strategies and policies in their particular
business sectors in order to achieve their market goals and the desired business
growth. In all cases, companies need to analyze the general macroeconomic
environment to make their grounded decisions and to design their policies
in the most efficient way. This is particularly important today, when the market
is developing rapidly under the impact of technological growth and the penetration
of up-to-date online and digital technologies. Without such reliable analysis
of external factors, it is impossible for companies to minimize the risks associated
with their business activities and to optimize their costs incurred.

Different types of companies are important for the national economy of the state
in which they are incorporated. Thus, large multinational corporations concentrate
important financial, technological and human resources in their hands.
The activities of multinational corporations contribute to the state with
an important share of GDP, decreased unemployment, exports, and technological
growth. At the same time, small and medium-sized entities operate most often
in business niches. They contribute to the most effective satisfaction of local
customers’ needs. Also, SMEs are more flexible and can adapt more easily
to the changing conditions of the market. They contribute with tax proceeds, lower
unemployment, and an important share of output.

A particular case is the one of state-owned companies. The share of such

corporations in a country’s national economy is preconditioned directly by the state
governance system chosen by the state and by the economic policies it implements.
Governments most often tend to operate state-owned corporations in sectors
where strategic resources are involved. This is seen as a strategically important
measure not only from the economic, but also from the geopolitical perspective.
An effective use of such companies allows the government optimizing
its performance in different respects.

The hypothesis of this thesis stated in the beginning was the following: there is high
correlation between business development and macroeconomic indicators
in the case of Russian company Gazprom Neft.

69
The findings of the empirical analysis carried out within the framework of this thesis
do not allow either confirming or disapproving the hypothesis unequivocally. Thus,
three models were developed for multiple regression analysis. The model with one
independent variable (exchange rate) and one dependent (net profit of Gazprom
Neft) showed little reliability and little statistical significance. The model with four
independent variables (GDP, exports, unemployment, and inflation) and one
dependent variable (net profit of Gazprom Neft in RUB) showed greater confidence,
and the best results were demonstrated by the model where the net profit
of Gazprom Neft was calculated in USD. This model allows explaining the variations
in Gazprom Neft’s net profit through the aforesaid set of macroeconomic variables
reliably in approximately 60 % of cases, however with rather low reliability for each
individual independent variable.

Despite its shortcomings, this model can be deemed rather effective

and appropriate for the purposes of the thesis. Thus, it should be understood that
the results of Gazprom Neft can hardly be explained by any linear regression
models. The Russian government sees the corporation as an instrument
of spreading not only its economic power, but also its geopolitical ambitions.
Therefore, the government can provide the company with additional privileges
and preferences. At the same time, even despite the sanctions imposed on Russia
by Western European states, the governments of such countries still continue
purchasing oil and gas from Gazprom Neft, as energy is a deficit resource. All this
affects the actual performance of Gazprom Neft and makes it differ from
the general trends and patterns of the market. Nevertheless, the model built
allowed achieving the goals set for this thesis and can be used in further research
for improving the econometric framework to be used in calculations.

The findings of this research are limited by the inherent time and financial
constraints. However, they can be used in further research dedicated to the topic of
macroeconomic indicators and their interconnection with the performance of state-
owned companies. Namely, important directions of future research could be to
focus on developing more flexible and precise multiple linear regression analysis
model by including different sets of macroeconomic indicators, run cross -state

70
empirical studies related to the performance of companies from different sectors of
activities and states, involvement of third-party experts for unbiased analysis, and
forecasting.

71
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Table of tables

Table 1 Raw data for multiple regression analysis..................................................... 52

Table 2 Results of multiple regression analysis ......................................................... 53
Table 3 Raw data for multiple regression analysis (with Gazprom Neft’s net profit in
USD) ............................................................................................................................ 55
Table 4 Results of multiple regression analysis (with Gazprom Neft’s net profit in
USD) ............................................................................................................................ 56
Table 5 Raw data for regression analysis (with the exchange rate variable) ............ 57
Table 6 Results of multiple regression analysis (with the exchange rate indicator) . 58

79