Urmas Varblane

An Analysis of the Economic Convergence Process in the Transition Countries

The paper is analysing the process of economic convergence of transition countries during the period 1995–2004. Within the analysed period unconditional s-convergence across the transition economies existed. We could also discover the reduction of dispersion of income levels between accession countries (sigma-convergence). Comparative analyses of the new EU member states (NMS) economic convergence with the previous entrants into EU (Ireland, Greece, Spain, and Portugal) revealed that NMS have been much more successful in their convergence process before joining EU. Analyses of the macroeconomic, human capital, infrastructure indicators of the current accession countries compared with the previous cohesion countries indicated that the new members have been much better prepared to the enlargement. This allows drawing conclusion that the NMS face an opportunity to obtain much more rapid convergence process than expected by previous analyses, which have seriously undervalued the positive role of the pre-accession harmonisation process of NMS with the implementation of the major economic reforms in order to guarantee macroeconomic stability.

How to avoid customers leaving: the case of the Estonian telecommunication industry

Purpose – The purpose of this paper is to show that the major factors affecting loyalty are dependant on the level of loyalty of customers.Design/methodology/approach – A model of relationship between factors of loyalty and loyalty levels of customers was constructed and tested on the empirical data about 1,000 private customers from the Customer Satisfaction Survey of Elion, the biggest telecommunication company in Estonia. Logit model was used in order to examine which factors influence the probability of the customers remaining on their loyalty level or to moving to another loyalty level.Findings – The findings of the study revealed that it is not accurate to treat all customers equally in terms of methods of increasing their loyalty. The results reveal that four analysed factors affecting customer loyalty (satisfaction, trustworthiness, image and importance of relationship) are playing different roles in the different levels of customer loyalty. The overall satisfaction and importance of a relationshi...

The Value of Diversity: Foreign Direct Investment and Employment in Central Europe During Economic Recovery

We examine the role of FDI in job creation and job preservation as well as their role in changing the structure of employment. Our analysis refers to Czech Republic, Hungary, Slovakia and Estonia. We present descriptive stage model of FDI progression into transition economy. Employment aspects of the model are next analysed. We conclude that the role of FDI in employment creation/preservation has been most successful in Hungary and than in Estonia. Yet, FDI can operate as complement rather than as substitute in employment generation/preservation. The paper shows that the increasing differences in sectoral distribution of FDI employment across countries are closely related to FDI inflows per capita. The bigger diversity of types of FDI is more favourable for the host economy. There is higher likelihood that it will lead to more diverse types of spillovers and skill transfers. If policy is unable to maximise the scale of FDI inflows than policy makers should focus much more on attracting diverse types of FDI.

Can the National Innovation Systems of the New EU Member States Be Improved

This article outlines the main directions of the development of national innovation systems in the new EU member states as catch-up economies emerging from a period of systemic change. Attempts simply to copy the experience of the high-income economies in building national innovation systems are misconceived. That experience needs to be adapted to the specific conditions of catch-up countries with a unique systemic heritage. The dominant linear innovation model should be replaced as a basis for thinking and policy making by an interactive, learning-based approach. Catch-up economies such as these need to improve significantly their levels of innovation diffusion management and networking. A symbiotic approach to the balance of high- and low-tech industries is needed. Managerial and organisational competence is at least as important as technological competence.

Estonian Outward Foreign Direct Investments

This paper aims to analyse the role of outward foreign direct investments in the Estonian economy. The research is based on the macro data provided by the Bank of Estonia and on the results obtained from 70 firms that responded to the survey conducted by the authors in autumn 2001. In the process of research the firms in the sample were classified as follows: by the type of investors (direct and indirect), by the type of investments (production, trade, other services), and by the age of affiliations. It allowed us to find interesting differences in the behaviour patterns of various investors. The survey revealed that market related motives appear to be redominant among the factors that make Estonian firms to invest abroad. The most important effects on the parent company are related to additional market shares gained abroad and enhanced exports. Investments into the other Baltic countries have been more in line with earlier expectations than those into the CIS or the European Union..

European Social Survey as a source of new cultural dimensions estimates for regions

This article draws attention to the European Social Survey (ESS) database that widens the horizon of cross-cultural studies. The ESS has the potential to overcome several weaknesses of earlier data sets used for cross-cultural analysis – it provides unique opportunities for the analysis of differences between regions within nation states, and the data are representative of entire populations. We aim to develop a measurement tool of cultural dimensions based on the ESS that enables a deeper comparison of European regions besides country-level analysis. For creating ESS-based indicators, the initial indicators were selected based on Hofstede (2001), using the double classification method. Latent variables of cultural dimensions were computed using confirmative factor analysis. The results enable us to evaluate cross-cultural differences between regions inside the nation state as well as to figure out culturally close regions across nation state borders. The results of our analysis confirm that countries may be much more heterogeneous in terms of cultural variation than several cultural studies presume. Cultural heterogeneity varies across countries, and there are some quite homogeneous countries in the meaning of cultural dimensions, but most countries face cultural differences between its regions that have to be taken into account. It is also very important that the deeper the subdivision, the larger the differences. In some cases, border regions are remarkably less similar to the rest of the regions of the country than to the neighbouring regions of another country with a common border. In the case of countries with high cultural homogeneity, the use of nation-level cultural indicators may be justified, but in the case of highly heterogeneous countries a regional approach could be suggested instead.

The Effect of Outward Foreign Direct Investment on Home-Country Employment in a Low-Cost Transition Economy

The current extensive literature on the home-country employment effect of foreign direct investment (FDI) focuses almost exclusively on investments from high-income and high labor-cost home countries. Our paper analyzes the home-country employment effect in Estonia as a low-cost, medium-income transition economy. The data from the population of Estonian firms between 1995 and 2002 are studied with regression analysis and propensity score matching to construct an appropriate counterfactual for firms that have invested abroad. Our results imply that the logic of the outward investments from low-cost transition and developing economies differs from that of high-income countries. The results indicate that in general, outward FDI positively affects home-country employment growth. Direct investors (domestic firms investing abroad) have a stronger home-country employment effect than do indirect investors (foreign-owned firms investing abroad) due to their smaller preinvestment size and because the subsidiaries of indirect investors are served from other locations rather than from Estonia. The positive employment effect is much stronger for investments made after 1999 due to the better macroeconomic performance of Estonia from 2000 onward. Services firms demonstrate a stronger home-country employment effect than do manufacturing firms.

Entrepreneurship education in the higher education institutions (HEIs) of post-communist European countries

Purpose - The purpose of this paper is to map the current situation of entrepreneurship education in higher education institutions (HEIs) of 22 European transition economy countries. Design/methodology/approach - The approach taken was an internet survey and analysis covering 774 HEIs of the region. Findings - In 332 institutions, entrepreneurship-oriented courses, modules or curricula are offered. Croatia and Slovenia are the leading countries in terms of the coverage of teaching entrepreneurship in universities and colleges, followed by the Baltic countries and the Czech and Slovak Republics. The highest entrepreneurship orientation is found in new and private universities and colleges. In a majority of schools, the theory of entrepreneurship is taught but practice-oriented training in entrepreneurship is rather limited. The current number of centres of entrepreneurship in the region is small, and the research-oriented model of entrepreneurship education is used in three to five institutions only. Practical implications - The paper provides a useful source of information for entrepreneurship education researchers, developers and education policy makers. Originality/value - The paper maps the HEIs entrepreneurship teaching in post-communist European countries.

External Macroeconomic Shocks and the Estonian economy: How did the Russian Financial Crisis affect Estonian Unemployment and Foreign Trade?

Abstract In this empirical paper we examine how the Russian financial crisis affected Estonian unemployment and foreign trade. In our interpretation the Russian crisis caused depression in the Estonian economy, but at the same time it also caused a relatively fast reallocation of trade. Eastward export flows (largely foodstuffs) declined drastically while exports to Finland and Sweden largely increased. Several manufacturing firms went into bankruptcy and foreign investors benefited from relatively low stock prices and bought majorities in many Estonian firms. Although the main FDI inflow was connected with the banking sector, we can say that the banking sector was in crisis because of the poor performance of manufacturing (and other sectors). As a result of FDI, labour efficiency increased and labour demand declined. Employment declined in the sectors that were most affected by the Russian crisis, especially fishing, agriculture, manufacturing and construction. Unemployment remained relatively high even as GDP rose, largely because of increased productivity. From our empirical analysis we draw the conclusion that most of the suffering that resulted from declining demand was experienced by less productive blue-collar workers. We also found that low-educated groups are at an increasing risk of unemployment compared with people with a university education. These findings indirectly support our assumption about technological changes. Less qualified, rather than skilled, labour lost their jobs.

Foreign Direct Investment and Innovation in Central and Eastern Europe: Evidence from Estonia

A growing literature is trying to analyse the productivity gap between domestic and foreign firms with differences in innovation indicators. In our paper we analyse the relationship between inward and outward FDI at either company or industry level and the innovation behaviour of companies in Estonia. We use company-level data from three waves of the Community Innovation Surveys, which are combined with financial data from the Estonian Business Register and FDI data from the balance of payments statistics. For the analysis we apply a structural model involving equations on innovation expenditure, innovation outcome and productivity, and also innovation accounting and propensity score matching approaches. Our results show that the higher innovation output of foreign owned companies vanishes after various company characteristics are controlled for, but there were significant differences in innovation inputs such as the higher use of knowledge sourcing and the lower importance of various impeding factors. Outward investment has a positive influence on innovativeness among both domestic and foreign owned companies.