Belarusian Economic Research and Outreach Center

Working Papers

 Kateryna BornukovaDzmitry Kruk, Gábor Hunya, Rumen Dobrinsky, Olga Pindyuk, Amat Adarov, Peter Havlik

The Belarus Economy: The Challenges of Stalled Reforms

wiiw and BEROC study finds that the transition model of the past quarter century has reached its limits, and argues that policy changes are necessary if the system is to survive.

 Victor Arshavskiy

Design of Debt Covenants and Loan Market Conditions

When a debt covenant is violated the lender has the right to demand immediate repayment of the loan. Using this right, the lender can extract certain concessions from the borrower (manager), which may be inefficient. I propose a theory that explains why, despite this inefficiency, tight and often violated debt covenants may be optimal. In a repeated moral hazard problem combined with an incomplete contract set-up, the debt overhang prevents the manager from exercising optimal effort. I deviate from the standard incomplete contract set-up by allowing outside market participants to observe the uncontractable outcome. I model the manager's outside option as the opportunity to refinance his debt on a competitive loan market. In this situation, the market independently evaluates the manager's performance based on observable parameters. The value of the outside option has an important impact on the covenant design. A strict covenant will severely punish the manager if his outside option is low. If the covenant is violated the lender will have control over the manager's assets and the manager will face a renegotiation game in which the lender has all the bargaining power. In this case a high outside option allows the manager to retain some rents. The manager will exercise effort to increase his chances to have a high outside option.

Does Safeguards Need Saving? Lessons from the Ukraine - Passenger Cars Dispute

The Panel Report in Ukraine - Passenger Cars provides an opportunity to revisit an old debate over the role of safeguard measures in the WTO. With regard to the legal findings, the panel followed the established jurisprudence in this area, and found a number of violations of the Safeguards Agreement. With regard to the economics, we delve more deeply into the economic and political background of the safeguards investigation. Ukraine was hit by the economic crisis shortly after its WTO accession that significantly liberalized import tariffs on passenger cars. Next, we offer a de novo look at the injury and causation issues in this case, and discuss the challenges of an industry reliant on offshored production that sees a safeguard as a mechanism to attract FDI for production. We conclude with an assessment of the operation of the WTO’s safeguards regime, along with some tentative suggestions for reform. Overall, our examination of the economic analysis by the investigating authority and the legal review by the WTO panel raises questions about particular aspects of the domestic and WTO processes, but concludes that the system worked well in this case.

The Tax System of Belarus

This paper provides a comprehensive analysis of taxation in Belarus. I compare the dynamics of the tax rates and the tax revenue in Belarus to the world averages and to other countries of the Eurasian Union. The paper studies the the harmonization of the rates within the union and the efficiency of tax collection. Finally, the two possible reforms of taxation in Belarus and its possible consequences are discussed: an increase of VAT; reintroduction of the progressive personal income tax.

Spatial wage inequality in Belarus

This paper studies the wage inequality in Belarus' districts from 2000 till 2015 following the multi-step and multi-mechanism framework. The empirical results show: first, that wage disparities across the districts decreased in the 2000-2012 period and then increased from 2013 to 2015; second, there is the spatial dependency in district wages and increasing separation between districts, and between rural and urban population in Belarus; third, the main economic factors that contribute to decrease in district wage inequality are industrial development, retail trade and agricultural development. Finally, from theoretical point of view this research rejects the inverted U-shaped relationship between spatial inequality and economic development for Belarus and supports the hypothesis made by French economist Thomas Piketty that slow growth rates lead to rising inequality.

22 may 2016 Александр Ващилко

Effects of Trade Wars on Belarus

This paper looks at the effects of the trade wars that followed 2014 events in Ukraine on Belarus. The estimation of the model predicts the increase in the tarif revenue collected by Belarus. Because of ban on imports, the tari¤ revenue of Russian Federation declines. Being a part of Customs Union, Belarus needs to participate in the tarif revenue redistribution. The need to participate in the tarif revenue redistribution and the decline in the tarif revenue collected by Russian Federation lead to the decrease in the welfare of Belarus. To avoid this decrease, Belarus should argue for the modi…cation of the redistribution schedule.

Effects of Population Ageing on the Pension System in Belarus

Belarus currently has a relatively generous pay-as-you-go pension system, but population aging coupled with recent problems with economic growth will soon make it unsustainable. We build a rich OLG model of Belarusian economy, which shows that without reform the Pension Fund will run into persistent and growing deficit, which will reach 9 per cent of GDP by 2055. We also compute the fiscal projections of several parametric pension reforms.

Recent Developments in Consumer Credit and Default Literature

This survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default, and some ongoing challenges for the literature.

Exchange Rate, Imports of Intermediate and Capital Goods and GDP Growth in Belarus

The paper analyzes the short-run and long-run effects of imports of intermediate and capital goods on Belarusian economic growth for the period 2005 to 2015 taking into account large upward and downward exchange rate adjustments of Belarusian ruble. The empirical findings from the autoregressive distributed lag regressions indicate that there are negative effects of imports of intermediate goods on economic growth both in the short and long run. Second, contrary to the theory devaluation of the Belarusian ruble negatively influences both GDP growth and imports of intermediate goods in Belarus. Third, the results of Toda–Yamamoto causality test shows that GDP growth Granger causes growth in imports and exports, supporting the hypothesis that trade is more a consequence of the rapid economic growth in Belarus than a cause. Fourth, the findings from forecast error variance decomposition (VDC) confirm results obtained from TY causality test and additionally emphasize that changes in imports in Belarus are mostly driven by changes in exports especially in the long-run. Finally, the findings from VDC also indicate that the main contributor to growth fluctuations are domestic capital investments.

Gender and Innovativeness of the Enterprise: the Case of Transition Countries

Little knowledge exists on difference in innovation behavior of men and women leading the SMEs in transition countries. This paper estimates whether there is a gender gap in SMEs innovation actions. Results show that propensity to innovate is higher among female owners and this finding preserves for 5 measures of innovativeness. Thus, female involvement in business might be beneficial for the innovative sustainable development of economy. Estimation of the gap in performance of implemented innovations did not reveal any strong prevailing gender in terms of efficiency.