An import driven development as a road into periphery the evidence from the Eastern European Countries. Dr. Justyna Schulz, University of Bremen
The thesis The focusing on money inflows in form of foreign investments, EU-funds or remittances is at the core of the peripheral development of the region. The analysis is based on the balance-sheet approach and Ownership Economics (Heinsohn/Steiger, Stadermann) 13.07.2012 WIFO, Wien 2
How to finance investment (I)? I = S The neoclassical answer: S = Y C I = S + G + (net)km 13.07.2012 WIFO, Wien 3
The development function of capital import 1. To close the gap between domestic savings and fundings necessary to finance investment 2. To close the technology gap 3. To close the know-how gap 13.07.2012 WIFO, Wien 4
Creditor-debtor-contract 13.07.2012 WIFO, Wien 5
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How to finance investment (I)? Ownership Economics I = S + G + A S = Savings G = Government Spendings A = activated assets in creditor-debtor-contracts 13.07.2012 WIFO, Wien 7
Ownership Economics 1. The economic process starts with leverage backed by collaterals and ends with deleverage. 2. The more investors activate assets, get into debts and due to their competiveness successfully repay their financial obligations, the more dynamically the economic system develops. 3. The precondition for the participation in these monetary contracts is the disposal of marketable collaterals. 4. Everyone who can offer pledge-able assets can initiate investment and generate income. 5. The asset-activation can be made by foreign or by domestic actors. 6. The economic systems differ in the ability of their citizens to enter monetary contracts and to initiate investment and generate income. 13.07.2012 WIFO, Wien 8
Balance of payment Current account 1. Trade in goods 2. Trade in services 3. Income 4. Transfers Financial account 1. Direct investment 2. Portfolio investment 3. Reserve assets 4. Trade credits, loans and other investment 13.07.2012 WIFO, Wien 9
Current account in % of GDP 0-1 -2-3 Czech Republic Hungary Poland Slovakia 2004 2005-4 -5-6 -7-8 2006 2007 2008 2009 2010-9 13.07.2012 WIFO, Wien 10
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Currently, the NIIP [net international investment position] positions exceed the indicative threshold of -35% in a number of Member States: Bulgaria, the Czech Republic, Estonia, Spain, Hungary, Latvia, Lithuania, Slovakia, Poland, and by small margin in Slovenia (Alert Mechanism Report, European Commission, 2012, 8). 13.07.2012 WIFO, Wien 12
Balance of payment net import of goods and services = import of capital = export of assets = increase in foreign debts = decrease in the international investment-position = reducing the country ownership-position 13.07.2012 WIFO, Wien 13
Balance of payment net export of goods and services = Export of capital = import of foreign assets = increase in the international investment position = widening the creditor and ownershipposition 13.07.2012 WIFO, Wien 14
Capital export allows investor to expand, to influence and to control markets, production and investment, both at home and abroad. The motivation for the capital export is - as in the case of every economic activity the defense of the owner position. With capital export the potential to initiate the economic process increases thanks to the control about foreign assets. Therefore, the capital export and not as the development theories suggest capital import builds a foundation for current account surpluses. 13.07.2012 WIFO, Wien 15
"International trade theory takes for granted that investment follows trade. Most people think international trade in goods when they hear the words international trade. But increasingly today trade follows investment. International movements of capital rather than international movements of goods have become the engine of the world. (...)Even if a lower exchange rate improves a country`s exports, it also weakens a country`s ability to invest abroad. And if trade follows investment, lower foreign exchange rates for a country`s currency diminish exports within a few years. This is what happened to the United States: the cheaper dollar increased American manufactured exports in the short term. But it also impaired the ability of American industry to invest abroad and thus to create export markets for the long term (Drucker, 1997, 167). 13.07.2012 WIFO, Wien 16
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Tightening credit conditions for the domestic investors: Credit restriction policy through generally higher interest rates than in western economies Refusing domestic bonds by central bank and basing the money issue policy solely on foreign assets. 13.07.2012 WIFO, Wien 18
Financial assets in % of GDP in 2007 % 450 393,6 395,4 400,3 400 350 310,7 300 250 244,3 200 150 100 50 67,5 84,3 114,4 118,5 119,9 0 Quelle: NBP Februar 2008: S. 5. 13.07.2012 WIFO, Wien 19
350,0 International and domestic debt securities in billions US Dollar, amounts outstanding 2011 300,0 250,0 200,0 Government 150,0 100,0 Financial Institutions Corporate 50,0 0,0 Czech Republic Hungary Poland Slovakia Austria 13.07.2012 WIFO, Wien 20
100% Segments of Polish bond market 90% 80% 70% 60% 50% 40% 30% Central Bank Bonds Treasury Bonds Commercial Papers Covered Bonds 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 13.07.2012 WIFO, Wien 21
Segments of West-German bond market 120% 100% 80% 60% 40% 20% 0% Covered Bonds Commercial Papers Treasury Bonds 13.07.2012 WIFO, Wien 22
Obstacles for monetary contracts in the Eastern Europe lack of pledge-able collaterals resulting from not-existing legal property titles caused by unresolved property questions, out-dated legal registers or titles in disputes lack of enforceability of the legal titles due to the dysfunctional judiciary system and social policy deteriorating the collateral-function of property capital weakness of the domestic financial sector controlled by foreign investors restrictive monetary policy of central banks refusing domestic securities as collaterals in money supplying policy. 13.07.2012 WIFO, Wien 23
For the economic development three factors are important: functioning property order financial system transferring domestic assets in liquidity at competitive conditions persons who are willing to take risks and to pledge property in order to invest. 13.07.2012 WIFO, Wien 24
Not the scarcity of savings is the crucial barrier for the financing of investment in the region but the scarcity of assets which can back monetary contracts. 13.07.2012 WIFO, Wien 25
Yes, we took money from the EU with the one hand and we have not invested it in modern technologies with the second one. All went into consumption. As a result, those who produced closed their factories and opened import companies. Thus, because they could earn more money in this way. (Chrysochoidis, Faz, 9 February 2012) 13.07.2012 WIFO, Wien 26
Thank you! 13.07.2012 WIFO, Wien 27