Belarusian Economic Research and Outreach Center

Working Papers

Determinants of poverty with and without economic growth. Explaining Belarus's poverty dynamics during 2009-2016

This paper studies the incidence and determinants of poverty in Belarus using data from yearly Household Budget Surveys for 2009-2016. The poverty is evaluated from consumption perspective applying the cost of basic needs approach and using food and absolute poverty lines. During last two years, absolute poverty in Belarus has increased twofold and reached 29% of the population.

Politicized Trade: What Drives Withdrawal of Trade Preferences?

We examine if a trade policy tool designed for fostering development is used strategically. We study this question using GSP country eligibility reviews regarding worker rights violations.

Committee assignments and the value of corporate political connections: evidence from legislators' sudden deaths

We present new causal evidence that political connections to U.S. legislators are valuable for individual firms. We also estimate that almost all of the value generated by connections to the U.S. legislators can be attributed to their influence over and above their formal committee assignments in Congress.

The Trade Effect of GSP Removal: Evidence from Belarus

Under the Generalized Scheme of Preferences (GSP), rich countries grant unilateral trade preferences to developing countries. We study the EU’s withdrawal of GSP preferences from Belarus in 2007 to understand how the GSP a ects export patterns. The withdrawal caused a signi cant drop in trade for a ected products (26%-29% trade decline) and some trade reduction at the extensive margin. However, there is little evidence of a GSP e ect on total trade. This is due to the fact that the main exports of Belarus were not eligible for the GSP program.

 Anastasia Luzgina, Ilze Vaivode, Janis Volberts, Dr. Erkki Laukkanen, Dr. Ilmari Larjavaara

Corporate Engagement in Fighting Corruption and Tax Evasion in Construction Sector

This is the Final Report for the project Corporate Engagement in Fighting Corruption and Tax Evasion. The project, financed by the Nordic Council of Ministers, includes three partners: Transparency International Latvia (Delna, host organisation), Transparency International Finland and BEROC, a research institute in Minsk, Belarus. The aim is to engage entrepreneurs in fighting corruption and tax evasion, with a focus on municipal construction procurements in Latvia, Belarus and Finland.

 Kateryna Bornukova,  Gleb Shymanovich, Alexander Chubrik

Fiscal Incidence in Belarus: A Commitment to Equity Analysis

The paper employs the Commitment to Equity (CEQ) framework to present a first attempt at a comprehensive fiscal incidence analysis for Belarus, encompassing both the revenue and expenditures components of the fiscal system, including direct and indirect taxes, as well as direct, indirect and in-kind transfers. The analysis reveals that fiscal policies in Belarus effectively redistribute income from the top to the bottom of the income distribution. Direct transfers, in particular pensions, are the most equalizing and pro-poor of the fiscal interventions – direct transfers and direct taxes lower the national poverty headcount by 17 percentage points and lower the Gini index of inequality from 0.407 to 0.267. Some of the indirect taxes, on the other hand, are regressive, and indirect transfers – poorly targeted, such that the effect of these components of the fiscal system is not equalizing. Finally, the cost-efficiency of different parts of the fiscal system in Belarus varies considerably. Unemployment benefits, pensions and child benefits are found to be cost-efficient, while indirect subsidies are highly cost-inefficient. The analysis points towards possible reforms that would allow to reduce poverty and inequality more efficiently.

 Aleh Mazol, Sergey Mazol

Does good corporate governance supports economic development: the role of CG in increasing stock market value, fighting corruption and attracting FDI

We examine the empirical relationship between the quality of corporate governance practices and economic development in an unbalanced panel of 185 countries covering 2010 through 2015. We find that corporate governance is positively associated with the FDI inflow and market capitalization, and negatively associated with the public sector employment in low-income countries. Our results also suggest that corporate governance is negatively correlated with corruption in the high-income countries. Finally, we establish the unidirectional causality running from corporate governance to economic development, and find no evidence of causal effect of economic development on corporate governance. Therefore, our results suggest that the policy makers should in the first place address the institutional transition of the countries including the implementation of best corporate governance practices to accelerate economic development in developing economies.

The influence of financial stress on economic activity and monetary policy in Belarus

The paper determines episodes of financial stress in Belarus during 2004-2016 period using constructed financial stress index, and offers an analytical framework to evaluate the influence of financial turmoil on Belarus's economy, in particular economic activity and monetary policy. The findings show evidence of two episodes of financial stress and two episodes of recessions in Belarus during studied period. The results from the estimated ARDL models show that high level of financial stress causes the substantial downturn in economic activity of Belarus. Moreover, the results of Toda and Yamamoto causality analysis indicate that higher financial stress in Belarus has led to lower economic activity that caused higher inflation, which in turn led to higher policy rate introduced in order to constrain inflation in Belarus. Finally, from theoretical point of view results also signify that there is no evidence for the support of the conventional wisdom hypothesis in Belarus since 2004. Therefore, price stability is not a sufficient condition to support financial stability in Belarus and should certainly be addressed independently of the objective of price stability of the National Bank of Belarus.

 Dzmitry Kruk

SVAR Approach for Extracting Inflation Expectations Given Severe Monetary Shocks: Evidence from Belarus

Inflation expectations play a crucial role for macroeconomic dynamics and more specifically for monetary environment. However, inflation expectations is an unobservable variable. So, the quality of the correspondent measure in a great extent predetermines its feasibility for macroeconomic analysis. Today, survey-based measures of inflation expectations prevail in macroeconomic analysis. However, the drawbacks and/or unavailability of such measures give a rise to other identification strategies. Extracting inflation expectations from the actual data (e.g. series of interest rate and actual inflation) basing on SVAR identification approach has become a valuable alternative/supplement for measuring inflation expectations. In this paper I show that the existing strategy of inflation expectations identification through SVAR approach is very sensitive to the state of monetary environment. When a monetary environment is unstable (e.g. high and volatile inflation), the assumptions of the baseline approach are not hold, and it produces biased estimations. I emphasize two sources of this bias in estimations and suggest procedure for obtaining unbiased estimates. My identification strategy includes a number of steps. I suggest applying Markov regime-switching framework for extracting an unbiased mean for ex ante real interest rate. Further, I use two-stage SVAR identification strategy. First, I identify an unexpected shock to actual inflation, which is crucial for obtaining a proper measure of inflation expectations. Further, I net the series of ex post interest rate from this ‘noise’. Second, I run a baseline SVAR procedure, for which I use the data adjusted at the first step. Finally I obtain an unbiased and informatively rich series of inflation expectations.

Current Gender Trends in Belarusian Labor Market: Wage Gap, Child Penalty and Marriage Premium

The issue of gender equality in Belarus labor market is still unclear. On the one hand the rate of female participation is high. At the same time there is evidence of the rising gender pay gap that grew from 16.5% in 2005 to 24% in 2014. The decomposition of the wage gap during 2005- 2014 time period using Oaxaca-Blinder, Juhn-Murphy-Pierce and Machado-Mata techniques revealed that differences in income function (the difference in a way efforts of men and women are remunerated) are the main factors affecting the growth of gender inequality, while the personal characteristics are losing the influencing power. The role of the factors differs depending on the quantile of income distribution. I also find no association between wages and marriage for females, while there is a 10.5% wage premium in case of married males. The parenthood wage penalty is attributed to women and equals approximately 14.4%. Moreover, children from 0 to 6 provide the most severe drop in wages. In addition, the paper reveals that educated women are suffering the most and face 20.4% decline in wages, while penalty for women with the secondary school or lower amounts to just 8%.