Auoes 2 2019

ROMANIA
MINISTRY OF EDUCATION AND RESEARCH

UNIVERSITY OF ORADEA
THE ANNALS
OF
THE UNIVERSITY OF ORADEA
ECONOMIC SCIENCES
TOM XXVIII
2nd ISSUE / DECEMBER 2019
ISSN 1222-569X (printed format)

ISSN 1582-5450 (electronic format)
The publication of the papers in the Journal “The Annals of the University of Oradea. Economic Sciences”- Tom
XXVIII, 2019, ISSN 1582-5450 (in electronic format on CD-ROM), ISSN 1222-569X (in printed format) a journal
listed CNCSIS category B+ and indexed in RePec, Doaj, EBSCO, CABELLS PUBLISHING SERVICES, and
ERIH PLUS international data bases, and respectively on the site of the journal
http://anale.steconomiceuoradea.ro, in electronic format, with free and open access to full text.
The papers published in this volume are exclusively engaging authors.
Editor-in-Chief:
Dr. Adriana GIURGIU, University of Oradea, Romania
Associate Editors:
Dr. Alina Bădulescu, University of Oradea, Romania;
Dr. Claudia-Diana Sabău-Popa, University of Oradea, Romania.
Sections` Heads:
Dr. Dorin-Paul BÂC, University of Oradea, Romania - Section Head Economics, Business Administration, Tourism
and Statistics;
Dr. Simona-Aurelia BODOG, University of Oradea, Romania - Section Head Management, Marketing, Economic
Informatics and Cybernetics.
Dr. Liana-Eugenia MEȘTER, University of Oradea, Romania - Section Head International Business, European
Integration, Foreign Languages and Business Environment;
Dr. Claudia-Diana SABĂU-POPA, University of Oradea, Romania - Section Head Finance, Banking, Accounting
and Audit.
Members:
Dr. Valeriu IOAN-FRANC, Correspondent Member Dr. Eugeniusz KWIATKOWSKI, University of Lodz,
of the Romanian Academy, Romania; Poland;
Dr. Gheorghe ZAMAN, Correspondent Member of Dr. Rajesh KUMAR, Osmania University, India;
the Romanian Academy, Romania; Dr. Eszter LANG, Hitelintézeti Szemle (Financial
Dr. Ahmet AKTAS, University of Akdeniz, Alanya, and Economic Review), Central Bank of Hungary,
Turkey; Hungary;
Dr. Ismet ATES, Adnan Menderes University, Dr. Nicola MATTOSCIO, “G. D’Annunzio” University
Turkey; of Chieti – Pescara, Italy;
Dr. Mihaela BELU, The Bucharest University of Dr. Piero MELLA, University of Pavia, Italy;
Economic Studies, Romania; Dr. Guido MONTANI, University of Pavia, Italy;
Dr. Luminita CHIVU, The Romanian Academy, Dr. Andras NABRADI, University of Debrecen,
Romania; Hungary;
Dr. Jose CIFUENTES, Honrubia, University of Dr. Carmen NĂSTASE, “Ștefan Cel Mare” University
Alicante, Spain; of Suceava, Romania;
Dr. Dezhi LIU, Shijiazhuang University of Dr. Ovidiu NICOLESCU, The Bucharest University
Economics, China; of Economic Studies, Romania;
Dr. Marin DINU, The Bucharest University of Dr. Giuseppe PAOLONE, “G. D’Annunzio”
Economic Studies, Romania; University of Chieti, Pescara, Italy;
Dr. Anca-Otilia DODESCU, University of Oradea, Dr. Dorel Mihai PARASCHIV, The Bucharest
Romania; University of Economic Studies, Romania;
Dr. Sergei F. FEOSTIKOV, Moscow Academy of Dr. Ryszard PIASECKI, University of Lodz, Poland;
Business, Blagoveschensk Branch, Russia; Dr. Marilen PIRTEA, West University of Timisoara,
Dr. Veronika FENYVES, University of Debrecen, Romania;
Hungary; Dr. Nicolae Al. POP, The Bucharest University of
Dr. Xavier GALIEGUE, University of Orleans, Economic Studies, Romania, Dr. H.C of the
France; University of Oradea;
Dr. Dongheng HAO, Shijiazhuang University of Dr. Ioan POPA, The Bucharest University of
Economics, China; Economic Studies, Romania;
Dr. Gheorghe HURDUZEU, The Bucharest Dr. Ion POPA, The Bucharest University of
University of Economic Studies, Romania; Economic Studies, Romania;
Dr. Nicolae ISTUDOR, The Bucharest University of Dr. Michael STOICA, Washburn University, USA;
Economic Studies, Romania; Dr. Gabriela TIGU, The Bucharest University of
Dr. Zoran IVANOVIC, University of Rijeka, Croatia; Economic Studies, Romania;
Dr. Goran KARANOVIC, University of Rijeka, Dr. Jean-Emmanuel TYVAERT, University of Reims
Croatia; Champagne-Ardenne, France;
Dr. Ada Mirela TOMESCU, University of Oradea, Dr. Călin GURĂU, Montpellier Business School,
Romania; Montpellier, France;
Dr. Valentina VASILE, The Romanian Academy, Dr. Nicolae ISTUDOR, The Bucharest University of
Romania. Economic Studies, Romania;
Dr. Marie-Noelle JUBENOT, University of Reims
Honorary Committee Champagne-Ardenne, France;
Dr. Mugur ISĂRESCU, Member of the Romanian Dr. Androniki KAVOURA, Technological Educational
Academy, Romania – Dr. H.C of the University of Institute of Athens, Greece,
Oradea; Dr. Goran KARANOVIC, University of Rijeka,
Dr. Gheorghe ZAMAN, Correspondent Member of Croatia;
the Romanian Academy, Romania – Dr. H.C of the Dr. Ramona LACUREZEANU, University Babes-
University of Oradea; Bolyai, Cluj Napoca, Romania;
His Excellency, Jonathan SCHEELE – Dr. H.C of the Dr. Domicián MÁTÉ, University of Debrecen,
University of Oradea; Hungary;
Dr. Gheorghe Gh. IONESCU – Dr. H.C of the Dr. Ovidiu MEGAN, West University, Timisoara,
University of Oradea; Romania;
Dr. Ovidiu NICOLESCU- Dr. H.C of the University of Dr. Tatiana MOSTEANU, The Bucharest University
Oradea; of Economic Studies, Romania – Dr. H.C of the
Aldo POLI – Dr. H.C of the University of Oradea; University of Oradea;
Franco ANTIGA – Dr. H.C of the University of Dr. Valentin MUNTEANU, West University,
Oradea; Timisoara, Romania;
Dr. Constantin BRĂTIANU – Dr. H.C of the Dr. Doina MUREȘANU, Université of Québec in
University of Oradea; Abitibi-Témiscamingue, Québec, Canada;
Dr. Constantin ROSCA – Dr. H.C of the University of Dr. Carmen NĂSTASE, “Ștefan Cel Mare” University
Oradea; of Suceava, Romania;
Dr. Gheorghe OLAH – University of Oradea. Dr. Răzvan Liviu NISTOR, “Babeș-Bolyai”
University, Cluj Napoca, Romania;
Scientific Committee: Dr. Ioan Radu PETRARIU, The Bucharest University
Dr. Maria ALB, West University, Timisoara, of Economic Studies, Romania;
Romania; Dr. Nicolae PETRIA, ”Lucian Blaga” University of
Dr. Carmen BĂBĂIȚĂ, West University, Timisoara, Sibiu, Sibiu, Romania;
Romania; Dr. Nicolae Al. POP, The Bucharest University of
Dr. Ioan BĂTRÂNCEA, ”Babes–Bolyai” University, Economic Studies, Romania – Dr. H.C of the
Cluj-Napoca, Romania; University of Oradea;
Dr. Liviu BEGU, The Bucharest University of Dr. Mariana PREDIȘCAN, West University,
Economic Studies, Romania; Timisoara, Romania;
Dr. Nicolae BIBU, West University, Timisoara, Dr. Gabriela PRELIPCEAN, “Stefan cel Mare”
Romania; University of Suceava, Romania;
Dr. Sorin BRICIU, “1 Decembrie 1918″ University, Dr. Cristina Teodora ROMAN, ”Alexandru Ioan
Alba Iulia, Romania; Cuza” University of Iași, Iași, Romania;
Dr. Alexandru CHIȘ, University Babes-Bolyai, Cluj Dr. Ovidiu RUJAN, The Bucharest University of
Napoca, Romania; Economic Studies, Romania;
Dr. Gheorghe CIOBANU, University Babes-Bolyai, Dr. Steliana SANDU, The Romanian Academy,
Cluj Napoca, Romania; Romania;
Dr. Smaranda Adina COSMA, University Babes- Dr. Klaus-Bruno SCHEBESCH, ”Vasile Goldiș”
Bolyai, Cluj Napoca, Romania; Western University, Arad, Romania;
Dr. Margit CSIPKÉS, University of Debrecen, Dr. Nicoleta SÎRGHI, West University, Timisoara,
Hungary; Romania;
Dr. Emilian M. DOBRESCU, Romanian Academy, Dr. Cristi SPULBĂR, University of Craiova,
Bucharest, Romania; Romania;
Dr. Cosmin DOBRIN, The Bucharest University of Dr. Gabriela STĂNCIULESCU, The Bucharest
Economic Studies, Romania; University of Economic Studies, Romania;
Dr. Nicoleta FARCANE, West University, Timisoara, Dr. Orhan ȘANLI, Adnan Menderes University,
Romania; Turkey;
Dr. Liliana FELEAGA, The Bucharest University of Dr. Hüseyin ŞENKAYAS, Adnan Menderes
Economic Studies, Romania; University, Turkey;
Dr. Veronika FENYVES, University of Debrecen, Dr. Ioan TALPOȘ, West University, Timisoara,
Hungary; Romania;
Dr. Xavier GALIEGUE, University of Orleans, Dr. Carmen TODERAȘCU, Alexandru Ioan Cuza
France; University, Iasi, Romania;
Dr. Patrizia GAZZOLA, Insubria University, Italy; Dr. Adriana TIRON TUDOR, Babes – Bolyai
Dr. George GEORGESCU, The Romanian University, Cluj Napoca, Romania
Academy, Romania; Dr. Ioan TRENCA, “Babes-Bolyai” University, Cluj-
Dr. Zizi GOSCHIN, The Bucharest University of Napoca, Romania;
Economic Studies, Romania; Dr. Constantin TULAI, “Babes-Bolyai” University,
Cluj-Napoca, Romania;
Dr. Jean-Emmanuel TYVAERT, University of Reims Dr. Alina Georgeta AILINCA (Centre for Financial
Champagne-Ardenne, France; and Monetary Research, National Institute of
Dr. Gabriela ȚIGU, The Bucharest University of Economic Research, Romanian Academy), Dr.
Economic Studies, Romania; Emre Ozan AKSOZ (Anadolu University, Turkey),
Dr. Leonard Călin ABRUDAN, University of Oradea, Dr. Alina ALMĂȘAN (West University of Timișoara,
Romania; Faculty of Economics and Business Administration,
Dr. Maria-Madela ABRUDAN, University of Oradea, Department of Accounting and Audit, Romania), Dr.
Romania; Sorin Gabriel ANTON ("Alexandru Ioan Cuza"
Dr. Olimpia-Iuliana BAN, University of Oradea, University of Iași, Faculty of Economics and
Romania; Business Administration, Department of Finance,
Dr. Daniel Laurențiu BĂDULESCU, University of Money and Public Administration, Romania), Dr.
Oradea, Romania; Laura ASANDULUI ("Alexandru Ioan Cuza"
Dr. Dorin-Paul BÂC, University of Oradea, Romania; University of Iași, Faculty of Economics and
Dr. Mihai BERINDE, University of Oradea, Romania; Business Administration, Department of Accounting,
Dr. Simona-Aurelia BODOG, University of Oradea, Economic Informatics and Statistics, Romania), Dr.
Romania; Emine Turkan AYVAZ GUVEN (Manisa Celal Bayar
Dr. Victoria BOGDAN, University of Oradea, University, Turkey), Dr. Lia Alexandra BALTADOR
Romania; (”Lucian Blaga” University of Sibiu, Romania), Dr.
Dr. Marcel-Ioan BOLOȘ, University of Oradea, Ionel BARBU ("Aurel Vlaicu" University of Arad,
Romania; Romania), Dr. Daniel BĂDULESCU (University of
Dr. Elena-Aurelia BOTEZAT, University of Oradea, Oradea, Faculty of Economic Sciences, Department
Romania; of Economics and Business, Romania), Dr. Ionuț-
Dr. Nicoleta-Georgeta BUGNAR, University of Cosmin BĂLOI (Craiova University, Faculty of
Oradea, Romania; Economics and Business Administration,
Dr. Adrian-Gheorghe FLOREA, University of Department of Management, Marketing and
Oradea, Romania; Business Administration, Craiova, Romania), Dr.
Dr. Ioana-Claudia HOREA, University of Oradea, Ciprian Beniamin BENEA (University of Oradea,
Romania; Faculty of Economic Sciences, Department of
Dr. Ioana-Teodora MEȘTER, University of Oradea, International Business, Romania), Dr. Corneliu-
Romania; Cristian BENȚE (University of Oradea, Faculty of
Dr. Liana-Eugenia MEȘTER, University of Oradea, Economic Sciences, Department of Finance-
Romania; Accounting, Romania), Dr. Ana-Maria BERCU
Dr. Ioan Dan MORAR, University of Oradea, ("Alexandru Ioan Cuza" University of Iași, Faculty of
Romania; Economics and Business Administration, Romania),
Dr. Adrian NEGREA, University of Oradea, Dr. Irina Iuliana BILAN ("Alexandru Ioan Cuza"
Romania; University of Iași, Faculty of Economics and
Dr. Anamaria-Mirabela POP, University of Oradea, Business Administration, Romania), Dr. Ioana
Romania; Teodora BIȚOIU (National University of Political
Dr. Andra-Teodora PORUMB, University of Oradea, Studies and Public Administration, Bucharest,
Romania; Romania), Dr. Gratiela Dana BOCA (Technical
Dr. Ioana-Crina POP-COHUȚ, University of Oradea, University Cluj Napoca, North Center Baia Mare,
Romania; Romania), Dr. Simona-Aurelia BODOG (University
Dr. Claudia-Diana SABĂU-POPA, University of of Oradea, Faculty of Economic Sciences,
Oradea, Romania; Department of Management-Marketing, Romania),
Dr. Monica-Ariana SIM, University of Oradea, Dr. Victoria BOGDAN (University of Oradea, Faculty
Romania; of Economic Sciences, Department of Finance-
Dr. Naiana-Nicoleta ȚARCĂ, University of Oradea, Accounting, Romania), Dr. Carmen BOGHEAN
Romania; ("Ștefan Cel Mare" University of Suceava, Faculty of
Dr. Daniela-Marioara ZĂPODEANU, University of Economic Sciences and Business Administration,
Oradea, Romania; Department of Economics, Business Administration
Dr. Egidio RANGONE, ”G. D’Annunzio” University of and Tourism, Romania), Dr. Florin BOGHEAN
Chieti, Pescara, Italy. ("Ștefan Cel Mare" University of Suceava, Faculty of
Economic Sciences and Business Administration,
Editorial Review Board Department of Accounting, Finance and Business
Dr. Cristina-Laura ABRUDAN (University of Oradea, Informatics, Romania), Dr. Ioan-Marcel BOLOȘ
Faculty of Economic Sciences, Department of (University of Oradea, Faculty of Economic
International Business, Romania), Dr. Leonard Călin Sciences, Department of Finance-Accounting,
ABRUDAN (University of Oradea, Faculty of Romania), Dr. Ioana-Alexandra BRADEA
Economic Sciences, Department of International (Bucharest University of Economic Studies,
Business, Romania), Dr. Carmen ACATRINEI Romania), Dr. Laura BRANCU (West University of
(Bucharest University of Economic Studies, Timișoara, Faculty of Economics and Business
Romania), Dr. Daniela-Tatiana AGHEORGHIESEI Administration, Romania), Dr. Constantin
(CORODEANU) ("Alexandru Ioan Cuza" University BRĂTIANU (Faculty of Business Administration, The
of Iași, Faculty of Economics and Business Bucharest University of Economic Studies,
Administration, Department of Management, Romania), Dr. Grațiela BRÂNZĂ (Constanța
Marketing and Business Administration, Romania), Maritime University, Romania), Dr. Nicoleta-
Georgeta BUGNAR (University of Oradea, Faculty ("George Bacovia" University, Bacău, Romania), Dr.
of Economic Sciences, Department of International Ramona FLOREA ("George Bacovia" University,
Business, Romania), Dr. Adrijana BULEVSKA Bacău, Romania), Dr. Florin Sabin FOLTEAN (West
ZARIKJ (Integrated Business Faculty, Skopje, North University of Timișoara, Faculty of Economics and
Macedonia), Dr. Esra Burcu BULGURCU GÜREL Business Administration, Romania), Dr. Andreea-
(Muğla Sıtkı Koçman University, Turkey), Dr. Florina FORA (University of Oradea, Faculty of
Simona BUTA ("Ștefan Cel Mare" University of Economic Sciences, Department of International
Suceava, Faculty of Economics and Public Business, Romania), Dr. Harun GUMUS (Celal
Administration, Romania), Dr. Eduard Gabriel Bayar University, Manisa, Turkey), Dr. Stefán
CEPTUREANU (Bucharest University of Economic GUNNLAUGSSON (University of Akureyri, Akureyri,
Studies, Faculty of Management, Romania), Dr. Iceland), Dr. Raluca GUSE (Bucharest University of
Sebastian CEPTUREANU (Bucharest University of Economic Studies, Romania), Dr. Andrea
Economic Studies, Faculty of Management, HAMBURG (University of Oradea, Faculty of
Romania), Dr. Viorica CHIRILĂ ("Alexandru Ioan Economic Sciences, Department of International
Cuza" University of Iași, Faculty of Economics and Business, Romania), Dr. Daniela HARANGUS
Business Administration, Romania), Dr. Ana Maria (Economic Department, Faculty of Economic
CHISEGA-NEGRILĂ ("Carol I" National Defense Sciences, "Aurel Vlaicu" University of Arad, Arad,
University, Romania), Dr. Alexandru CHIȘ (Babeș- Romania), Dr. Mariana HATMANU ("Alexandru Ioan
Bolyai University, FSEGA, Cluj-Napoca, Romania), Cuza" University of Iași, Romania), Dr. Camelia
Dr. Denisa ČIDEROVÁ (University of Economics in Daniela HAȚEGAN (West University of Timișoara,
Bratislava, Faculty of Commerce / Fakulta obchodu Romania), Dr. Emilia HERMAN (University of
Vysoké školy ekonomickej v Bratislave, Slovakia), Medicine, Pharmacy, Sciences and Technology of
Dr. Laura Mariana CISMAȘ (West University of Tîrgu Mureș, Romania), Dr. Ioana-Claudia HOREA
Timișoara, Faculty of Economics and Business (University of Oradea, Faculty of Economic
Administration, Romania), Dr. Maria CIUREA Sciences, Department of International Business,
(University of Petroșani, Romania), Dr. Anca Romania), Dr. Tao HUANG (Jiangxi University of
CONSTANTINESCU-DOBRA (Technical University Finance and Economics, Nanchang, China), Dr.
of Cluj-Napoca, Romania), Dr. Lavinia Denisa CUC Andreea-Oana IACOBUTA ("Alexandru Ioan Cuza"
("Aurel Vlaicu" University of Arad, Romania), Dr. University of Iași, Faculty of Economics and
Serkan CURA (Celal Bayar University, Manisa, Business Administration, Department of Economics
Turkey), Dr. Marius DEAC (Christian University and International Relations, Romania), Dr. Liviu
"Dimitrie Cantemir" Bucharest, Romania), Dr. ILIEȘ (Babeș-Bolyai University, Faculty of
Suzana DEMYEN (University "Eftimie Murgu" of Economics and Business Administration, Cluj-
Resița, Faculty of Economic Sciences, Romania), Napoca, Romania), Dr. Roxana IOAN (West
Dr. Laura DIACONU (MAXIM) ("Alexandru Ioan University of Timișoara, Romania), Dr. Florin Lucian
Cuza" University of Iași, Faculty of Economics and ISAC (Aurel Vlaicu University of Arad, Romania), Dr.
Business Administration, Romania), Dr. Adina Oana Raluca IVAN ("1 Decembrie 1918" University
DORNEAN ("Alexandru Ioan Cuza" University of of Alba Iulia, Romania), Dr. Mihaela KARDOS
Iași, Faculty of Economics and Business ("Petru Maior" University of Târgu Mureș, Faculty of
Administration, Romania), Dr. Cristina DRAGOMIR Economic, Juridical and Administrative Sciences,
(Constanța Maritime University, Romania), Dr. Romania), Dr. Androniki KAVOURA (Technological
Laurențiu DROJ (University of Oradea, Faculty of Educational Institute of Athens, Greece), Dr. Rozalia
Economic Sciences, Department of Finance- Iuliana KICSI ("Ștefan cel Mare" University of
Accounting, Romania), Dr. Dana Codruța DUDĂ- Suceava, Romania), Dr. Mustafa KIRLI (Manisa
DĂIANU ("Aurel Vlaicu" University of Arad, Celal Bayar University, Turkey), Dr. Gábor Dávid
Romania), Dr. Alexandra-Viorica DULĂU (Babeș- KISS (University of Szeged, Faculty of Economics
Bolyai University, Faculty of Economics and and Business Administration, Hungary), Dr. Balazs
Business Administration, Department of Modern KOTOSZ (Faculty of Economics and Business
Languages and Business Communication, Cluj- Administration, University of Szeged, Hungary), Dr.
Napoca, Romania), Dr. Dorel Mihai DUȘMĂNESCU Tekmez KULU (Accounting Department, Celal
(Petroleum & Gas University of Ploiești, Faculty for Bayar University, Manisa, Turkey), Dr. Ramona
Economic Sciences, Romania), Dr. Laura ENDRES LACUREZEAN (Babeș-Bolyai University, Faculty of
(Preclinical Disciplines Department, University of Economics and Business Administration, Cluj-
Oradea, Faculty of Medicine and Pharmacy, Napoca, Romania), Dr. Maria-Isadora LAZĂR
Oradea, Romania), Dr. Pinar ERYIGIT (Celal Bayar (Bucharest University of Economic Studies,
University, Manisa, Turkey), Dr. Hariandja EVO Romania), Dr. Ramona LILE ("Aurel Vlaicu"
SAMPETUA (Universitas Pelita Harapan, University of Arad, Faculty of Economic Sciences,
Tangerang, Indonesia), Dr. Emőke–Szidónia Department fo Economic Disciplines, Romania), Dr.
FEDER (West University of Timișoara, Romania), Mariana LUPAN ("Ștefan Cel Mare" University of
Dr. Sergei Vladimirovich FEOKTISTOV (Moscow Suceava, Faculty of Economic Sciences and
Academy of Business, Blagoveschensk Branch, Business Administration, Department of Economics,
Russia), Dr. Bogdan Florin FILIP ("Alexandru Ioan Business Administration and Tourism, Romania),
Cuza" University of Iași, Faculty of Economics and Dr. Ondřej MACHEK (University of Economics
Business Administration, Romania), Dr. Bogdan Prague, Faculty of Business Administration,
Narcis FIRTESCU ("Alexandru Ioan Cuza" Department of Business Economics, Czech
University of Iași, Romania), Dr. Radu FLOREA Republic), Dr. Maria MACRIS (University of
Petroșani, Romania), Dr. Liviu-George MAHA for Tourism Studies, Portorož, Slovenia), Dr.
("Alexandru Ioan Cuza" University of Iași, Romania), Anamaria Mirabela POP (University of Oradea,
Dr. Gabriela MARCHIȘ (Danubius University of Faculty of Economic Sciences, Department of
Galați, Galați, Romania), Dr. Camelia Loredana International Business, Romania), Dr. Adela-Laura
MARGEA (West University of Timișoara, Romania), POPA (University of Oradea, Faculty of Economic
Dr. Diana-Elisabeta MATICA (University of Oradea, Sciences, Department of Management-Marketing,
Faculty of Economic Sciences, Department of Romania), Dr. Adriana Florina POPA (Bucharest
Finance-Accounting, Romania), Dr. Andrei MAXIM University of Economic Studies, Faculty of
("Alexandru Ioan Cuza" University of Iași, Faculty of Accounting and Management Information Systems,
Economics and Business Administration, Romania), Department of Accounting, Audit and Economic and
Dr. Valentin Petru MAZAREANU ("Alexandru Ioan Financial Analysis, Romania), Dr. Carmen Teodora
Cuza" University of Iași, Faculty of Economics and POPA (University of Oradea, Faculty of Law,
Business Administration, Romania), Dr. Georgeta- Oradea, Romania), Dr. Mirela POPA (Babeș-Bolyai
Madalina MEGHISAN-TOMA (The Bucharest University, Faculty of Economics and Business
University of Economic Studies, Romania), Dr. Administration, Department of Management, Cluj-
Oznur MERT (Celal Bayar University, Manisa, Napoca, Romania), Dr. Doina POPESCU
Turkey), Dr. Ioana-Teodora MEȘTER (University of (Bucharest University of Economic Studies, Faculty
Oradea, Faculty of Economic Sciences, Department of Management, Department of Management,
of Economics and Business, Romania), Dr. Liana- Romania), Dr. Felix Angel POPESCU (National
Eugenia MEȘTER (University of Oradea, Faculty of Institute of Administration, Bucharest, Romania), Dr.
Economic Sciences, Department of International Andra-Teodora PORUMB (University of Oradea,
Business, Romania), Dr. Costică MIHAI ("Alexandru Faculty of Economic Sciences, Department of
Ioan Cuza" University of Iași, Faculty of Economics International Business, Romania), Dr. Cătălina
and Business Administration, Romania), Dr. RADU (Bucharest University of Economic Studies,
Gabriela MIRCEA (West University of Timișoara, Romania), Dr. Valentin RADU (Valahia University of
Romania), Dr. Claudia Olimpia MOISĂ ("1 Targoviste, Romania), Dr. Irina Gabriela
Decembrie 1918" University of Alba Iulia, Romania), RĂDULESCU (Petroleum & Gas University of
Dr. Snezana MOJSOVSKA SALAMOVSKA Ploiești, Faculty for Economic Sciences, Romania),
(University "St.Kliment Ohridski", Faculty of Dr. Angela ROMAN ("Alexandru Ioan Cuza"
Economics, Department of Management, Marketing University of Iași, Faculty of Economics and
and Business, Bitola, Macedonia), Dr. Navid Business Administration, Romania), Dr. Remus-
MOLLAEE (Tehran Institute of Technology, Dorel ROȘCA (University of Oradea, Faculty of
Business Management Department, Iran), Dr. Maria Economic Sciences, Department of Management-
Cristina MORARIU (Bucharest University of Marketing, Romania), Dr. Corina RUSU (Christian
Economic Studies, Romania), Dr. Andreea Cipriana University "Dimitrie Cantemir" Bucharest, Faculty of
MUNTEAN ("1 Decembrie 1918" University of Alba Economic Sciences Cluj-Napoca, Romania), Dr.
Iulia, Romania), Dr. Pablo José MOYA Sergiu RUSU ("Aurel Vlaicu" University of Arad,
FERNÁNDEZ (Universidad de Granada, Spain), Dr. Romania), Dr. Claudia-Diana SABĂU-POPA
Carmen NĂSTASE (“Ștefan Cel Mare” University of (University of Oradea, Faculty of Economic
Suceava, Romania), Dr. Adrian NEGREA Sciences, Department of Finance-Accounting,
(University of Oradea, Faculty of Economic Romania), Dr. Irina-Iulia SALANȚĂ (Babeș-Bolyai
Sciences, Department of International Business, University, Faculty of Economics and Business
Romania), Dr. Mariya NEYCHEVA (Burgas Free Administration, Cluj-Napoca, Romania), Dr. Sinan
University, Burgas, Bulgaria), Dr. Iulia Monica SARACLI (Afyon Kocatepe University, Afyon,
OEHLER-SINCAI (Institute for World Economy of Turkey), Dr. Dinu-Vlad SASU (University of Oradea,
the Romanian Academy, INCE, Romanian Faculty of Economic Sciences, Department of
Academy, Bucharest, Romania), Dr. Murat Management-Marketing, Romania), Dr. Tomina-
ORTANCA (Celal Bayar University, Manisa, Gabriela SĂVEANU (University of Oradea, Faculty
Turkey), Dr. Aslihan OZEL (Celal Bayar University, of Economic Sciences, CCCDD, Romania), Dr. Emil
Manisa, Turkey), Dr. Mirela PANAIT (Petroleum & SCARLAT (Bucharest University of Economic
Gas University of Ploiești, Faculty for Economic Studies, Romania), Dr. Oana-Maria SECARĂ
Sciences, Romania), Dr. Iulia PARA (West (University of Oradea, Faculty of Economic
University of Timișoara, Romania), Dr. Jasanta Sciences, Department of Management-Marketing,
PERANGINANGIN (Institut Agama Islam Negeri Romania), Dr. Mariana SEHLEANU (University of
Surakarta, Indonesia), Dr. Ioan Radu PETRARIU Oradea, Faculty of Economic Sciences, Department
(Bucharest University of Economic Studies, Faculty of Economics and Business, Romania), Dr. Monica-
of International Economic Relations, Romania), Dr. Ariana SIM (University of Oradea, Faculty of
Aleksandra Zofia PIELOCH-BABIARZ (University of Economic Sciences, Department of International
Lodz, Faculty of Economics and Sociology, Business, Romania), Dr. Ovidiu Laurian SIMINA
Department of International Finance and (Center for Migration and Mobility Studies- SISEC,
Investments, Lodz, Poland), Dr. Toma PLEȘANU West University of Timișoara, Romania), Dr.
("Carol I" National Defense University, Romania), Ramona-Marinela SIMUȚ (University of Oradea,
Dr. Cătălin PLOAE (Bucharest University of Faculty of Economic Sciences and Business,
Economic Studies, Faculty of International Department of Economics, Romania), Dr. Nicoleta
Economic Relations, Romania), Dr. Eva SÎRGHI (West University of Timișoara, Romania),
PODOVŠOVNIK (University of Primorska, Faculty Dr. Aurelia STĂNESCU (Bucharest University of
Economic Studies, Faculty of Management, (Business College at University of São Paulo, São
Department of Management, Romania), Dr. Paulo, Brasil), Dr. Naiana Nicoleta ȚARCĂ
Cosmina Adela STANILA (West University of (University of Oradea, Faculty of Economic
Timișoara, Romania), Dr. Georgiana Oana Sciences, Department of Management-Marketing,
STĂNILĂ (Bucharest University of Economic Romania), Dr. Claudia Elena ȚUCLEA (Bucharest
Studies, Romania), Dr. Maria Gabriela STERIAN University of Economic Studies, Faculty of
(Romanian-American University, Bucharest, Commerce, Department of Tourism and Geography,
Romania), Dr. Iuliana Claudia STOIAN (BOBÂLCĂ) Romania), Dr. Diana UIVAROȘAN (Preclinical
("Alexandru Ioan Cuza" University of Iași, Faculty of Disciplines Department, University of Oradea,
Economics and Business Administration, Romania), Faculty of Medicine and Pharmacy, Oradea,
Dr. Ilija STOJANOVIC (RIT Dubai University, Dubai, Romania), Dr. Ioana VADASAN (West University of
United Arab Emirates), Dr. Eduard Alexandru Timișoara, Faculty of Economics and Business
STOICA (”Lucian Blaga” University of Sibiu, Administration, Romania), Dr. Valentina VASILE
Romania), Dr. Marta-Christina SUCIU (Bucharest (Institute of National Academy - Romanian
University of Economic Studies, Romania), Dr. Academy, Bucharest, Romania), Dr. Marian Catalin
Andrea SZÉKELY (University of Szeged, Hungary), VOICA (Petroleum & Gas University of Ploiești,
Dr. Florica ȘTEFĂNESCU (University of Oradea, Faculty for Economic Sciences, Romania), Dr.
Romania), Dr. Alina Iuliana TABIRCA (Valahia Gheorghe ZAMAN (Institute of National Academy -
University of Targoviste, Romania), Dr. Maria Romanian Academy, Bucharest, Romania), Dr.
TĂTĂRUȘANU ("Alexandru Ioan Cuza" University of Andreea Ileana ZAMFIR (Bucharest University of
Iași, Romania), Dr. Carmen TODERAȘCU Economic Studies, Faculty of Management,
("Alexandru Ioan Cuza" University of Iași, Romania), Romania), Dr. Deniz ZÜNGÜN (HRM Department,
Dr. Claudia Simona TIMOFTE (University of Celal Bayar University, Ahmetli Meslek Yüksekokulu
Oradea, Faculty of Law, Oradea, Romania), Dr. V.H.S., Manisa, Turkey).
Safiye TOKMAK (Celal Bayar University, Manisa,
Turkey), Dr. Alvair Silveira TORRES JUNIOR
.
TABLE OF CONTENTS
SECTION: ECONOMICS, BUSINESS ADMINISTRATION, TOURISM AND

ECONOMIC STATISTICS 13
EMPLOYMENT IN BIHOR COUNTY. CONCRETE RESEARCH: “THE PERCEPTION
OF THE EMPLOYERS OF BIHOR ON THE PUBLIC EMPLOYMENT SERVICE” ..... 15
Bekesi Delia Georgeta
THE EUROPEAN TRANSLOCAL EMPOWERMENT: AN ECONOMETRIC
APPROACH ............................................................................................................. 27
Cialfi Daniela, Colantonio Emiliano
ESPON 2020 COOPERATION PROGRAM IN ROMANIA ......................................... 35
Csoka Gabriela Elena
TRENDS REGARDING RETAIL BUSINESSES. A CONSUMER PERSPECTIVE ON
THE COMMERCIAL ACTIVITY IN THE CITY OF RESITA ........................................ 44
Manciu Venera, Demyen Suzana
THE EFFICIENCY OF CHURCH IMPLICATION IN SOCIAL ECONOMY .................. 52
Miculaiciuc (Holovcsuk) Angelica
SUSTAINABILITY REPORTING PROCESS: BENEFITS, LIMITS AND
ACHIEVMENTS........................................................................................................ 60
Roșca Paula-Carmen, Bâc Dorin-Paul
A COURNOT-BERTRAND MODEL USING VARIOUS PRODUCTS ......................... 71
Rusescu Ciprian
MIGRATION OF LABOR FORCE IN BIHOR COUNTY ............................................. 86
Stan Lavinia
THE ECONOMIC EFFICIENCY FOR A SUPER-INTENSIVE IRRIGATED
BLUEBERRY CULTURE .......................................................................................... 94
Venig Aurora, Venig Adelina
SECTION: FINANCE, BANKING, ACCOUNTING AND AUDIT 101
SERVICE QUALITY AND CUSTOMER SATISFATCTION IN CEC BANK ............... 103
Bențe Corneliu, Droj Laurențiu
AN INNOVATIVE PERSPECTIVE ON FINANCIAL DECISION-MAKING ................. 109
Coita Ioana–Florina
THE EFFECTIVENESS OF THE SYSTEM OF QUALITY CONTROL IN
ACCOUNTING PRACTICES................................................................................... 119
Dumitrescu Diana, Bobitan Nicolae
ANALYSIS OF MAJOR CAPITAL STRUCTURE INDEXES OF ORGANIZATIONS
DEALING WITH SPORTS ACTIVITIES AND THEIR RELATION WITH THE NOTES
TO THE FINANCIAL STATEMENT ......................................................................... 129
Fenyves Veronika; Bács Zoltán; Bácsné Bába Éva; Kerezsi Dóra
FINANCIAL LITERACY AND PENSION PLANNING OF MONGOLIAN HERDERS . 137
Ganchimeg Gombodorj, Van Ophem Johan, Gankhuyag Nyam-Ochir
MANAGERIAL ACCOUNTING – A TOOL FOR MEASURING AND PILOTING THE
OVERALL PERFORMANCE................................................................................... 150
Hint (Ștefan) Mihaela, Tonea Ioana, Hada Izabela Diana
EMPIRICAL EXAMINATION OF THE ROLE OF FACTORS AFFECTING THE VALUE
OF FIRMS, IN RESPECT OF 8 YEARS .................................................................. 162
Kiss Anita
TRADE AND MANUFACTURING COMPANIES RISK ANALYSIS .......................... 169
Kulcsár Edina
ENVIRONMENTAL ACCOUNTIG DEVELOPMENT FOR ORGANIZATIONS IN
MEXICO ................................................................................................................. 179
Martínez Germán, Armenta Aida, Cabrera Abraham
FISCAL PRESSURE IN THE EU: AN ECONOMETRIC APPROACH ...................... 189
Petric Nicolae
FISCAL RISK OF VAT UNCOLLECTED IN EUROPEAN UNION ............................ 200
Porumboiu Adriana Elena, Butu Ionela, Ghetu Raluca, Brezeanu Petre
CHALLENGES IN THE FINANCIAL MANAGEMENT OF THE PUBLIC PENSION
SYSTEM IN ROMANIA ........................................................................................... 208
Szarka Arpad
TRADITIONAL VS. FUZZY INDICATORS OF MODERN PORTFOLIO THEORY .... 218
Vesa Lidia
SECTION: MANAGEMENT, MARKETING, ECONOMIC INFORMATICS AND

CYBERNETICS 229
WHAT IS AN ETHICAL LEADER LIKE? – A STUDY BASED ON BUSINESS
STUDENTS’ OPINIONS ......................................................................................... 231
Barizsné Hadházi Edit
A QUALITATIVE STUDY ON PASSIVE – AGGRESSIVE BEHAVIOUR AT
WORKPLACE......................................................................................................... 241
Bucurean Mirela
PERCEPTION AND ACCEPTANCE OF GOAT CHEESE IN COMPARISION WITH
SHEEP AND COW CHEESE – AN EMPIRICAL STUDY ......................................... 248
Csapo Zsolt, Pentek Adam, Csapone Risko Tunde
DROPPING OUT OF VOCATIONAL TRAINING – HUNGARIAN EXPERIENCES ... 261
Cseh Papp Imola, Dajnoki Krisztina
EXAMINING ORGANIZATIONAL CULTURE WITH OCAI AMONG EMPLOYEES OF A
SERVICE COMPANY ............................................................................................. 272
Filep Roland
THE INCREASING SIGNIFICANCE OF WORKPLACE EXPERIENCES ................. 280
Héder-Rima Mária
SERVICE: FROM GENERAL VALIDITY IN ECONOMICS, TO DOMINANT LOGIC IN
MARKETING .......................................................................................................... 290
Jivan Alexandru, Nachescu Miruna
THE ANALYSIS OF THE EUROPEAN COMPETITION POLICY BASED ON
STAKEHOLDERS' INFLUENCE ............................................................................. 301
Petrariu Ioan-Radu
MANAGING CIVIL ORGANISATIONS: CIVIL MANAGEMENT MODEL .................. 311
Pierog Anita
DECISION MAKING FACTORS IN PURCHASING THE ANALGESICS BRANDS ON
ROMANIAN PHARMACEUTICAL MARKET............................................................ 321
Ruse Ana Valentina, Cristea Maria Adelina, Ciobanu Oana Maria, Roman Polixenia Aurora
PAST, PRESENT AND FUTURES OF DISTRICT HEAT SUPPLIERS, WITH SPECIAL
REGARD TO HUNGARIAN DISTRICT HEAT SUPPLIERS - LITERATURE REVIEW
............................................................................................................................... 330
Süveges Gábor Béla
ASPECTS REGARDING THE WAY IN WHICH GUESTHOUSES IN FELIX SPA AND
1 MAI SPA USE THE ONLINE TOOLS ................................................................... 340
Ţarcă Naiana, Popa Adela, Tarcza Teodora
SECTION: SUSTAINABLE DEVELOPMENT, INTERNATIONAL BUSINESS,
EUROPEAN INTEGRATION, FOREIGN LANGUAGES AND BUSINESS
ENVIRONMENT 349
TRADE OPENNESS, FOREIGN DIRECT INVESTMENT AND LIFE EXPECTANCY IN
NIGERIA ................................................................................................................ 351
Aigheyisi Oziengbe Scott, Oligbi O. Blessing
LANGUAGE POLICY AND ECONOMICS: DOES ENGLISH LANGUAGE
ACCELERATE THE WHEEL OF DEVELOPMENT IN THE ECONOMIES OR NOT? A
REVIEW ................................................................................................................. 366
Alhendi Osama
THE UNDERGROUND ECONOMY: COMPONENTS ............................................. 380
Guiaș Emil, Hăineală Codruța Mihaela
INNOVATION AND COMPETITIVENESS ............................................................... 385
Marincean Dan Andrei
THE EU COMPETITION POLICY – A BRIEF HISTORY IN BETWEEN NEO-
FUNCTIONALISM, INTERGOVERNAMENTALISM AND MULTI-LEVEL
GOVERNANCE ...................................................................................................... 415
Petrariu Ioan-Radu
THE NEXUS BETWEEN MIGRATION, INNOVATION AND ECONOMIC
DEVELOPMENT IN EU-28 ..................................................................................... 423
Sinoi Elena-Alexandra
MAIN CHARACTERISTICS OF THE PROFITABILITY OF HUNGARIOAN DISTRICT
HEAT SUPPLIERS BASED ON THE 2009-2017 FINANCIAL STATEMENTS ......... 434
Süveges Gábor Béla, Musinszki Zoltán
ELECTRIC VEHICLES AND CRITICAL RAW MATERIALS..................................... 444
Varga Beatrix, Fodor Kitti
SECTION: ECONOMICS, BUSINESS ADMINISTRATION,
TOURISM AND ECONOMIC STATISTICS
University of Oradea, Faculty of Economic Sciences
Oradea University Publishing House
EMPLOYMENT IN BIHOR COUNTY. CONCRETE RESEARCH: “THE

PERCEPTION OF THE EMPLOYERS OF BIHOR ON THE PUBLIC
EMPLOYMENT SERVICE”
BEKESI Delia Georgeta

Department of Sociology and Social Work, Faculty of Social Sciences, University of
Oradea, Oradea, Romania
georgianabekesi@yahoo.com
Abstract: This article carries out a quantitative, but also a qualitative analysis of the
activity of Bihor County Agency for Employment (AJOFM Bihor) in 2018. In the first
part, the article aims to treat the theoretical aspects related to employment, invoking
the significance that the specialized literature attaches to the concepts of supply and
demand of workforce, active population, employed population, labor resources,
active and passive policies, as well as considerations on the impact of employment
on the economy and the individual. Afterwards, a few quantitative aspects of the
2018 Bihor workforce structure are presented, as well as the results of a qualitative
research carried out through interviewing 16 subjects, specialists from the socio-
economic units in the county, in their position of employer representatives. The
research method used is the interview-based sociological investigation, which aims
to capture all of the aspects that are subject to the study in an in-depth manner, and
the investigation tool used is the interview guide. The qualitative research aimed to
gather knowledge on the perceptions of the employers in relation to the activity of
the Public Employment Service, represented by the Bihor County Agency for
Employment (concerning the general activity of the service, the way in which the Job
Fair is carried out, and the manner in which the employers communicate with the
persons looking for a job). At the end, we present the conclusions of the research,
which can be a useful tool for the public service in order to optimize its own activity.
Thus, the analysis of the subjects’ answers generally revealed that the majority of
the employers have a positive view on the activity of the institution, believe that it is
preferable to continue to communicate with it, arguing that it has numerous and
quality resources, that it manages an accurate database of the unemployed persons
in the county, divided by areas, levels of training and education, that it offers advice,
qualification and re-qualification courses, offers an updated list of vacant positions,
facilitating the identification of the persons appropriate for various jobs. Among the
measures proposed by the subjects in order to optimize the activity are: more
investments in advertising and online platforms, the involvement of vocational
schools in the process of the entry of the youth on the labor market, and the timely
notification and motivation of the skilled unemployed persons to participate in the
Job Fairs.
Keywords: workforce supply and demand; total population; employed population;
active policies; the Job Fair.
JEL Classification: J23; J24.
The Annals of the University of Oradea. Economic Sciences

Tom XXVIII 2019, Issue 2 (December 2019)
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15
1. Introduction
This article aims to treat a few of the aspects concerning employment in Bihor County
in 2018, the last year on which we currently have final data.
In the first part of the article, we express a few theoretical points of view on the need
to use the labor resources of a certain country or geographical area, demarcating
the concepts with which we operate in this sense, respectively those of total
population, active population, employed population, human resources, and
workforce demand and supply.
The second part of the article, which has the highest degree of originality, is
dedicated to the concrete research, carried out at the level of Bihor County and
structured into two parts, respectively, a quantitative research based on the
statistical analysis of the data offered by the AJOFM Bihor concerning the volume
and structure of the total population, of the working age population, of the employed
civil population, of the labor resources, of the unemployed and of the vacant positions
in 2018.
Another part of the concrete research is the presentation of the results of a qualitative
study, based on interviews, applied to a random sample of employers who
participated in the Job Fair in order to know their opinions on their relationship with
the Bihor Public Employment Services.
The final conclusions of the article also suggest a few possible measures for the
optimization of the institution’s activity, in order to reach its fundamental objective, to
contribute to the growth of the employment rate in Bihor County by choosing the
methods and means that are the most efficient and in consensus with the
expectations of its own beneficiaries.
2. Theoretical considerations concerning employment
Employment can be analyzed from the perspective of the concepts of workforce

demand and supply.
The workforce demand can be defined as the necessary number of workers, of
various trades and professions from a certain geographical area and during a certain
interval of time. This demand manifests as a result of the fact that labor is an
important production factor, which, along with the other production factors, primary
or original (natural capital, financial capital), participates in the production process,
which results in goods and services that can be sold on the market. (Preda, 2002)
The workforce supply represents the labor that the members of a society can perform
for a salary. The theoretical approaches of the workforce supply are based on the
relationship of interdependence between economic growth and the active
population. Thus, on the one hand, economic growth has an impact on the evolution
of the employees divided by activity sectors, social-professional categories, on the
territorial and professional mobility of the active population, as well as on the quality,
duration and difficulty of the labor. On the other hand, the active population can have
a positive effect on the economic growth process through increased productivity, the

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quality of the workforce, and its openness towards professional and territorial
mobility. (Nica, 2011)
When examined during one point in time, the workforce supply seems influenced by
several factors (Oprescu, 2001), such as: the size of the total population, the
participation or activity rate, meaning the percentage of the working age population
that is fit for work, working or looking for a job, the duration of the labor and the
quality of the workforce.
Human resources represent the essential factor in the economic and social
development of a country. They represent that section of the population that has the
physical and intellectual capacities allowing it to perform a useful activity. (Nica,
2011)
Thus, the total population of a country is formed of the active and the inactive
population. From an economic point of view, the most important demographic
category is the active population, also called the potential workforce of the society,
and it contains the employed persons: employees, employers, self-employed
workers, unpaid familial workers and unemployed persons. (Mihăescu, 2001).
As of late, the approaches that highlight the qualitative side of the labor resources
have been given considerable importance. The human capital theory, whose initiator
is Gary Becker, emphasizes the importance of education and vocational training in
order to economically capitalize on human potential.
The gain from investing in human capital does not only refer to the net amount of
income attained throughout life from the sale of skilled workforce in contrast to that
of unskilledworkforce, but also takes into consideration the subjective feeling of
intellectual well-being, trust and social recognition. (Giarini and Liedtke, 2001).
Employing labor resources at as high a level as possible is an important national
desideratum, a permanent objective of the governmental economic policies and
workers’ syndicate policies, having an impact on the population and the individual,
aiming to avoid wasting the labor resources of the active population, as well as an
impact on the level of the national economy, economic agents and social partners
(Bădulescu, 2006: 11; Cojocaru and Pupp, 2010:394).
In order to efficiently capitalize on the workforce, there are adequate policies to
decrease unemployment developed at governmental level in order to maintain and
increase the employment rate through direct or indirect actions to stimulate
employment both from the standpoint of the employers, as well as those who are
employable, aiming to ensure jobs for the youth entering the labor market, for the
unemployed, for persons with an employment risk, etc. (Odobleja, 2016: 72).
Employment is generally approached through two types of social policies: passive,
which especially consist in granting unemployment benefits, and active, which aim
to counteract the imperfections of the labor market, support the unemployed in their
pursuit for a job through measures such as: professional information and counsel,
the mediation of labor, vocational training, the stimulation of workforce mobility,
supplementing the salaries of the employees, and professional advice and
assistance in starting an independent activity or for the initiation of a business. Active
policies are more costly than passive ones, but can reduce the rate of unemployment

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and, thus, raise the employment rate and socio-economic productivity. (Neamțu,
2003)
3. Aspects concerning employment in Bihor County
3.1. The labor market in Bihor County, 2018 (Analysis carried out on the basis
of the Activity Report by the AJOFM Bihor, 2018)
3.1.1. The structure of the labor resources in Bihor County
When analyzing the employment and ensuring of the necessary workforce, one
should start from the labor resources existing at the national level or at the level of
the analyzed region, in this case, the level of Bihor County. The base of the workforce
resouces is, on the other hand, the total volume of the population living in the area,
in its concrete structure divided by age, gender, level of training, etc., which is why
the analysis of the workforce market of Bihor will commence from the identification
of the indicators mentioned.
In 2018, the total population of Bihor was 591,283, of which 304,172 were women
(51.44%) and 287,111 were men (48.66%).
The working age population was 384,600 persons, of which 183,900 (47,81%) were
women and 200,700 (52.19%) were men. The working age population consists of all
men and women from the age of 16 up to the standard retirement ages.
The civil active population was 274,800 persons, of which 129,600 (47.16%) were
women and 145,200 (52.84%) were men. We should mention that, in the civil active
population, the persons who are past the working age of 16 and represent the
available workforce for the production of goods and services are also included.
When it comes to the total labor resources, we can see that the working age
population is about 65% of the total population of the county, the rest being children
and persons who have exceeded the working age limit. Furthermore, the civil active
population represents 71.45% of the working age population and 46.44% of the total
population of the county.
Another element that can be mentioned here, which is relevant for the specifics of
the labor resources in the county, is the fact that if, in the total population, the female
persons represent over half, respectively 51.44%, within the other two structures,
the situation is reversed, as over 50% is represented by male persons (52.19% in
the case of the working age population, and 52.84% in the case of the civil active
population). It is notable that the phenomenon is present during all analyzed periods
both at Bihor level, as well as at national level, which suggests a higher risk of infant
mortality within the male population (Chipea, 2015: 112-150).
3.1.2. Unemployment in Bihor County, 2018

At the end of 2018, the number of registered unemployed persons (4,074 persons)
was lower than in December 2017 (6,497 persons) by 2,423 persons, but we should
remark that the number of unemployed persons receiving unemployment benefits is
approximately the same, with the decrease being due to the non-renewal of the
claims by the persons with no right to such benefits. Furthermore, at the end of 2018,
the registered unemployment rate at county level was 1.53%, which is lower by 90%

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than the same month of the previous year. The unemployment rate is influenced both
by the number of registered unemployed persons in said month, as well as the civil
active population at the level of Bihor County.
In what concerns the structure of unemployment based on age categories, on
31.12.2018, the highest percentage was represented by unemployed persons aged
40-49 (28%), followed by those aged 30-39 (20%), and, when analyzing the level of
employability, we can find that these two categories bear an employability level of
“Very hard” and “Hard.” (AJOFM Bihor Activity Report 2018)
When it comes to the structure of unemployment based on the level of training, the
unemployed persons who have a primary education, a middle school education or a
vocational education most often address the Bihor County Agency for Employment
in order to identify a job and find employment. On 31.12.2018, the amount of these
persons from the total number of unemployed persons was 45%. Unemployed
persons who had a high school education represented 17%, while those with a
university education represented only 10%.
3.1.3. The activity of the AJOFM in 2018

In 2018, 5,858 new entries for vacant positions, declared by employers, were
registered in the database of the Bihor County Employment Agency. These positions
were available on the workforce market, being identified through the weekly job
reports transmitted to the agency through all communication channels.
The types and structure of the positions communicated by the employers throughout
2018 confirmed the county’s, but especially the Municipality of Oradea’s orientation
towards activities in the technical domain, whether we are talking about production
engineers, CNC operators or industrial robot operators.
For the persons with a higher education, the vacant positions covered a very wide
array of trades, from engineer to economist, quality / sales analyst, programmer,
network administrator, human resource / WSH inspector, sales advisor to university
professor.
The most transmitted positions were meant to be filled by persons with high school
or vocational education (56%), especially in the activities related to commerce,
services and tourism, which were followed by those in the technical field and those
in the medical field.
The professions requested on the workforce market were: commercial worker,
salesperson, cashier, security agent, chef / sous-chef, server / busser, housekeeper,
medical nurse, production / industrial robot / electronic component operator,
mechanical fitter, technician, maintenance electrician, welder.
29% of the total number of positions registered in 2018 were for unskilled laborers,
and the studies required by the employers were high school- or middle school-level:
unskilledworkers in the light industry (the clothing industry or the industry of items
made of leather or its substitutes), merchandise handler, subassembly fitter, kitchen
worker.
Bihor County Agency for Employment, through its employment policies, supports
employers through the application of measures to stimulate employment in order to
create new jobs. The stimulation of the employers to hire the unemployed is done

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especially through the subsidizing of the jobs. We should mention that the employers
that can benefit from these subsidies are those who hire unemployed persons who
are part of the following categories: graduates of educational institutions, people over
45, unemployed parents who are the sole providers in single-parent families, NEET
youth, unemployed persons who, in 5 years’ time from the employment date, fulfill
the conditions for retirement, disabled persons. (art. 80, 85 of Law 76/2002, with
amendments and additions). Other measures that support employers, but also the
persons searching for a job refer to labor mediation and the stimulation of the mobility
of the workforce, and an efficient method for labor mediation is the organization of
the General Job Fair. (Onica-Chipea, 2015: 75-120)
3.2. Qualitative study concerning the perception of employers in Bihor on the

Public Employment Service
3.2.1. The objectives of the study and the research methodology
The purpose of the qualitative study that will be presented below is to know the
perception of employers in Bihor on the Public Employment Service, represented by
the Bihor County Employment Agency.
The research objectives consist in: identifying the general perception of the
employers in Bihor on the Public Employment Service; the identification of the
general perception of the employers in Bihor on the General Job Fair; the manner in
which the employers and the AJOFM communicate.
The research method used was the interview-based sociological investigation, which
aims to capture, in an in-depth manner, all of the aspects that are subject to this
study, while the investigation instrument used was the interview guide.
The interview guide is structured into 3 dimensions and contains a total number of
14 questions. The first dimension has to do with the general perception of employers
on the AJOFM Bihor, and the questions contained here are meant to identify the
opinions of the investigated subjects on the services offered by the AJOFM Bihor, to
know the most accessed services, and to find the measures for the optimization of
the services, according to the opinions of the subjects.
The second dimension of the interview guide concerns the organization and
operation of the General Job Fair organized by the AJOFM Bihor, with the questions
addressed to the employers focusing on knowing their opinion on how the Job Fair
is organized; identifying the employers’ expectations in what concerns this type of
activity; whether the firms that they represent have participated in other such job
fairs, and what the actions or activities are that could contribute to aiding employers
in identifying potential employees during these events.
The third dimension has to do with the web portal launched by the AJOFM Bihor,
locuridemuncabihor.ro, and the communication methods that the employers prefer
in their interaction with the Public Employment Service. The questions contained
here aim to discover: the problems encountered by the subjects when accessing
said web portal, as well as the website of the institution; the main reasons for which
they access these websites; what measures they would recommend for the
improvement of information transmission towards and from the AJOFM Bihor.

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The universe subject to this investigation is represented by all employers in Bihor,

while the sample consists of 16 employers or representatives of employers selected
from those who participated in in the Job Fair organized by the AJOFM Bihor in April
2019.
The positions of the 16 subjects are: recruitment specialist, human resource
inspector, commercial director, sales agent supervisor, marketing and PR executive,
human resource coordinator, human resource analyst, administrator, financial clerk,
head of human resources and assistant manager.
The type of the research is qualitative, and is not representative from a statistical
point of view due to the small number of interviewees, but it can be a starting point
for more in-depth and larger scale research, and the data obtained can be useful
reference points for the formulation of certain theoretical conclusions, and it can
especially represent a practice optimization instrument for the Public Employment
Service of Bihor.
3.2.2. The results of the research

Through the analysis of the discussions and answers, a series of conclusions have
resulted concerning the perception of the employers on the Public Employment
Service of Bihor (PES), which we will synthesize using the dimensions presented:
1. Employers’ general perception on the PES
When asked “How would you briefly characterize the activity carried out by the
AJOFM Bihor, based on your latest interactions with the members of the organization
and the services offered?,” most employers (15 of the 16 subjects) expressed their
satisfaction in what concerns the activity of these services, appreciating their manner
of organization, the efficient communication, and the quality of the services offered.
The interactions of the employers with the employees of the service have been
deemed adequate, underlining their direct and efficient involvement in the
identification of the personnel appropriate for the specifics of the various jobs offered.
When asked “What are the services that you access most frequently and how do
they help you in carrying out your activity?,” most of the interviewees (14 of 16)
answered that the most frequently accessed services are the institution’s site, the
database of unemployed persons, and the communication of the vacant positions.
The employers also mentioned that a form of communication that was often used
was the direct communication with the employees of the AJOFM Bihor for the
purposes of notification concerning the available courses and the organization of job
fairs.
When asked “If you were to propose actions for the improvement of the AJOFM’s
activity, what would be the most important for employers, respectively for identifying
a job opportunity?,” the employers gave answers that can be systematized into a few
categories: the priority orientation of attention and investments of time, financial
resources and competencies toward appropriate advertising; better visibility of
available positions such that they can be accessed by a public that is as diverse as
possible; the intensification of the collaboration with the schools that fit the profile of
the vacant positions, including through promoting an online environment that is as
friendly, accessible and simple as possible.

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The final question of this first dimension, namely “Would you recommend the AJOFM
Bihor as a recruitment solution? If so, why? If not, why?,” most employers (14 of 16)
claimed that they would recommend the AJOFM as a recruitment solution, as the
institution has many more resources of much higher quality, also benefitting from an
adequate office in the county. Other arguments mentioned by the subjects to support
their recommendation were: the Public Employment Servicehas a database with all
unemployed persons in the county, divided by localities and qualification levels; they
offer professional advice, as well as qualification and re-qualification courses
depending on what is needed; based on the requests made by the employers, the
Public Employment Service draws up and continuously updates a list of vacant
positions, which is then made public through all of its means of communication,
leading to a higher chance of finding the employees compatible with the
requirements of those vacant positions.
Even if the vast majority of the subjects expressed favorable views of the AJOFM
Bihor, which could be an effect of a social desirability bias, two of the sixteen subjects
were more reserved, explicitly mentioning that they would not recommend the
AJOFM as a recruitment solution, as they considered private specialized firms to be
far more motivated in recruiting the persons appropriate for the vacant positions.
This can, at least, be an impulse in the process of continuous improvement of the
AJOFM’s own activity such that they become even more competitive.
2. The General Job Fair
When asked the first question of this dimension, respectively “How would you
characterize the event as it is currently (in terms of expectations, positive and / or
negative aspects, etc.)?,” most employers (15 of 16) expressed favorable opinions,
believing that the organization of such events “helps people find a job” and that “it is
a very good idea since employers get to meet their possible future employees face-
to-face.” They also believe that the event is as ample as it is because it has “a very
high visibility on the labor market.”
The main issues that the employers have is that “the same people came frequently,”
and the participants (the persons looking for a job) “are not well prepared for the
requirements of the vacant positions.”
When asked to “Please state a few results that you have had by participating in this
event (number of candidates interested in the offer promoted, number of persons
selected for an interview, number of persons selected for employment, impressions
referring to the participants, etc.),” the employers expressed their satisfaction with
the fact that there were many interactions, but they were dissatisfied due to the fact
that: the number of people interested in their offer was small and that “unfortunately,
too few met the expectations,” and so, the number of persons selected for an
interview and who were eligible for hiring was too small.
The employers who participated for the first time in this event stated that they were
pleased, even if they did not find suitable people to hire, because they became better
known on the labor market.
When asked the third question, “Has the organization that you represent ever
participated in other such events organized by the AJOFM Bihor? What about you?,”
most employers answered that both the interviewed subjects and the organizations

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they represented have participated in other such events. There were also a few
employers (4 of 16) who claimed that, although their organization has participated in
other such events, they personally were participating for the very first time, and, in
two cases, neither the organization, nor the interviewed subject had ever participated
in such an event, expressing favorable opinions in line with those mentioned above
by the other subjects.
When asked “If the representative of the employer has participated in other such job
fairs, how would you characterize this event in comparison with other events that you
have participated in?,” the subjects who had participated in other such events
expressed favorable opinions about the current event, invoking arguments such as:
there was a very large number of employers in comparison with other events that
they had participated in; the location of the event is more adequate in terms of size;
When asked the final question of this dimension, namely “What actions / activities
do you think could contribute to supporting employers in identifying potential
employees at events such as the job fair?,” some employers suggested that it would
be necessary to invest more in advertising andonline platforms. They also believe
that vocational schools should become more involved in the process of the youth’s
entry into the labor market, and that skilled unemployed persons should be notified
in a timely fashion about the organization of such an event.
Most employers, however, said that everything that is already being done is sufficient
and that they have no activity to propose that might aid them.
3. Web portal / Communication
The first question included in this dimension – “When you wish to obtain information
on the labor market / facilities offered to the employers, what means / methods do
you use in order to be informed (visiting the headquarters of the AJOFM Bihor,
phone, e-mail, website, etc.)?,” most employers (12 of 16) stated that the method
that they preferred was the e-mail, website or phone. Some employers (4) mentioned
that they prefer visiting the headquarters of the AJOFM, as they preferred direct
contact with the specialists and the persons looking for a job.
When asked “What are the main reasons for which you use
http://www.bihor.anofm.ro/, in order to obtain information, in comparison with other
means / methods?,” the employers gave answers that fell into a few categories: in
order to continuously visualize what the vacant positions are; in order to download
various forms; in order to see the legislation in force; because it is the fastest and
most accessible means.
When asked “Do you use the web portal locuridemuncabihor.ro? If so, have you
encountered issues when using the web portal? If so, can you specify the issues
encountered?,” most employers (10 of 16) answered that they do not use this web
portal, while those who did stated that they had encountered no issues.
One single employer stated that they encountered issues when using the web portal,
as it froze and failed to load, but they also stated that they had reported the issue to
the employees of the AJOFM Bihor.
When asked “What are the measures that you would propose for the improvement /
facilitation of gaining / transmitting information from / to the AJOFM Bihor?,” most
employers stated that they had absolutely no improvement measure in mind, as they

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considered the communication between the AJOFM Bihor and the employers to be
very good, which is possibly the effect of a social desirability bias.
4. Conclusions:
- The analysis of the activity of the Bihor County Agency for Employment in 2018,
through the structure of the vacant positions managed, shows an orientation of the
county’s economy, based on the period analyzed, towards the technical domain, as
most vacant positions were for engineers, production engineers, CNC operators and
industrial robot operators.
- Most of the communicated vacant positions were meant for persons with a high
school or vocational school education (56%), a large portion of which had to do with
activities related to commerce, services and tourism, which were then followed by
those in the technical and medical domains.
- 29% of the vacant positions were activities for unskilled laborers, of whom
employers request middle school or high school education.
- In order to stimulate employment in accordance with the needs of the employers,
the AJOFM Bihor applies a series of policies for employment stimulation, pursuant
to the legal provisions.
- The purpose of the interview-based qualitative research carried out on a number of
16 employers who participated in the Job Fair was to know the perception of the
employers in Bihor on the Public Employment Service of Bihor.
- The analysis of the answers given by the subjects generally showed that most
employers have a positive view on the institution’s activity, considering it preferable
to continue to interact with it, arguing that it has numerous quality resources at their
disposal, that it manages an accurate database of the unemployed persons in the
county, divided into areas, levels of education, and degree of training, also stating
that it offers professional advice, qualification and re-qualification courses, and an
updated list of vacant positions, facilitating the identification of the adequate persons
for various jobs.
- When it came to the Job Fair, most subjects had favorable opinions, appreciating
the possibility offered to the employers and potential employees to interact directly,
and the preoccupation for identifying adequate locations. They were, however,
dissatisfied with the small number of participants and the inadequate quality of their
training, which are elements that lower the possibility to recruit the persons adequate
for the vacant positions.
- When it came to communication, the subjects specified that their preferred method
was the e-mail, website or phone, while some preferred direct contact with the
specialists and the persons looking for a job.
- Even if the opinions of the subjects were, for the most part, favorable in what
concerns the institution, the fact that two subjects answered that they would
recommend a private service for recruiting and selecting personnel, as they are more
motivated and offer higher quality services, should provide an impetus for the
personnel of the public service to continuously perfect their activity.

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- Among the proposals for measures made by the subjects in order to optimize said
activity, we have: the necessity to invest more in advertising and online platforms;
the involvement of the vocational schools in the process of the youth’s entry into the
labor market; the timely notification and the motivation of skilled unemployed
persons to participate in the Job Fairs.
References
1. Bădulescu, A., (2006) Ocuparea și șomajul: între abordări teoretice și realități
contemporane [Employment and Unemployment: Between Theoretical
Approaches and Contemporary Realities] Oradea: Editura Universității din
Oradea
2. Chipea, F. (2015) Dezvoltare socială teritorială: premise conceptuale şi date
empirice [Territorial Social Development: Conceptual Premises and Empirical
Data] second edition, revised and supplemented, Cluj-Napoca: EIKON.
3. Cojocaru, M. & Pupp, M. E. (2010) Asistența socială a șomerilor din România
[Social Welfare for the Unemployed Persons of Romania] in Buzducea, D.
(coord.) Asistența socială a grupurilor de risc [Social Welfare for Risk Groups]
Iași: Polirom Publishing House
4. Giarini, O., Liedtke P. M. (2001) Dilema ocupării forței de muncă și viitorul
muncii[The Dilemma of Employing the Workforce and the Future of Labor]
Bucharest: All Beck
5. Mihăescu, C. (2001). Populație & ocupare- Trecut, Prezent, Viitor [Population and
Employment – Past, Present, Future], Bucharest: Economică
6. Neamțu, G. (coord.) (2003) Tratat de asistență socială [A Treatise on Social
Welfare] Iași: Polirom
7. Nica, E. (2011) Gestiunea resurselor umane [Human Resource Management]
Bucharest: Economică
8. Odobleja, A. M. E. (2016) Politici de reducere a șomajului și de creștere a gradului
de ocupare în România [Policies to Decrease Unemployment and Increase the
Employment Rate in Romania] Revista Transilvană de Ştiinţe Administrative 1
(38) [The Transylvanian Journal of Administrative Science] pp. 71-90
9. Onica – Chipea Lavinia (2015) Incluziunea socială prin integrarea în muncă a
tinerilor dezinstituționalizați. Perspectivă socio-juridică [Social Inclusion through
the Integration of Deinstitutionalized Youth as Workers. A Socio-Juridical
Perspective], Bucharest: ProUniversitaria
10. Oprescu, Gh. (2001) Piaţa muncii [The Labor Market], Bucharest: Expert
11. Preda, D. (2002) Ocuparea forţei de muncă şi dezvoltarea durabilă [Employment
and Sustenable Development] Bucharest: Economică
12. Agenția Județeană pentru Ocuparea Forței de Muncă Bihor. (2018) Raport de
activitate [Activity Report] [Online],
Availablehttps://www.anofm.ro/upload/5944/Raport_activitate_2018.pdf [30Aug
2019].
13. *** Legea 76/2002 privind sistemul asigurărilor pentru șomaj și stimularea
ocupării forței de muncă [Law no. 76/2002 about the unemployment insurance

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system and the stimulation of employment] actualized by Law no. 195/2015,

published in Official Gazette of Romania, P. I, no. 504/08.07.2015

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THE EUROPEAN TRANSLOCAL EMPOWERMENT: AN ECONOMETRIC

APPROACH
CIALFI Daniela, COLANTONIO Emiliano

Department of Philosophical, Pedagogical and Economic-Quantitative Sciences,
University of Studies G. d’Annunzio, Chieti-Pescara, Italy
daniela.cialfi@unich.it
colantonio@unich.it
Abstract: Nowadays, there are numerous initiatives in response to contemporary
socio-economic challenges. One possible response could be the social innovation
phenomenon defined, according to Avelino et al. (2017), as the changing of social
relations and involving new way of doing things. In this context, the aim of the paper
is to discuss the empowerment and the social innovations concept by developing the
empowerment mechanisms under a social psychology point of view, at one side, and
exploring, in an empirical way, how people are empowered through transactional
linkages, the translocal network. In particular, it is necessary to identify which
translocal empowerment dimension is present across the European countries via the
selection and the analysis of the possible social innovation proxies. To do this, it is
necessary to comprehend the social innovation determinants at the macro-economic
level across the European countries. Using the Akgüҁ multivariate regression model
(2019), the paper studies the role of one possible social innovation proxy: the social
protection expenditure. Under a methodological point of view, this model is used
since it allows the combination between the traditional macro-level variables and the
innovative ones, such as cultural norms and fear of failure; and it permits the
inclusion of the country-specific characteristics. It also takes into account the macro-
economic circumstance, the international financial crisis of 2008 until 2017. This
period of analysis permits to control if the international economic crisis in 2008 might
have influenced in some way the translocal empowerment dimension and brings
together a panel data of different indicators from different data sources, such as
Eurostat and Global Entrepreneurship Monitor (GEM), which provides measures of
the entrepreneurial behaviour within countries. As part of the robustness check, we
have used social innovation measures that could include country fixed effects
accounting the heterogeneities across European countries. What emerges from the
present empirical study is that the translocal network could be considered as a
crucial factor for the social innovation implementation, since social innovation actors
might access the local resources, developing, at the same time, the ability to
interface with the local institutions, present in the current socio-economic system.
Keywords:. Translocal empowerment; social innovation; panel data method; cross-
country analysis; Europe.
JEL Classification: C13; O31; O52.

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1. Introduction
Nowadays, there are numerous initiatives in response to contemporary socio-

economic challenges. In this framework, social innovation could be defined as the
changing of social relations. Its principal characteristics is to be transformative since
it alters and replaces the dominant institutions, according to Haxeltine et al. (2017).
Community members could learn new skills through the people’s empowerment
existing in social relations. The aim of the present paper is to identify which
translocal empowerment dimension exists across European countries via the
selection and analysis of the possible social innovation proxies.
This paper is structured as follows. Section 2 provides a literature review of the
empowerment and social innovation concepts under a theoretical approach. In
Section 3, the description of the Akgüҁ econometric model (2019) is provided and
the variables used for the empirical analysis are shown. Section 4 shows the
estimation of the social innovation proxies, the results and their robustness checks
for the period 2007-2017 are discussed. The last section provides some concluding
remarks.
2. The translocal empowerment and social innovation concepts
The empowerment concept could be defined, according to Sen (1999) and Avelino
et al. (2017), as the process through which actors gain the capacity to mobilize
resources to achieve a goal. More deeply, in this process, actors:
 have access to resources, defined as mental (such as information and

ideas), human (such as personnel and voters), artifactual (infrastructures)
and natural (physical space);
 are capable to accumulate resources to reach the goal.
This concept is translated in an empirical way through the combination of the self-
determinant theory of Ryan and Deci (2000) with the research of Thomas and
Velthouse (1990). They developed five psychological dimensions:
 Relatedness;
 Competence;
 Impact;
 Meaning;
 Resilience.
In particular, the self-determinant theory is based on the satisfaction of

psychological and universal needs with the aim to reach a well-being. We try to
understand this aspect by examining in which ways social innovation could support
the growth of individuals. As we have affirmed, there are two basic psychological
needs:

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 Relatedness, which refers to be part of a social group and receive

recognition from it;
 Competence, which is based on the perception of effectiveness in complete
actions (Bidee et al., 2013).
According to Thomas and Velthouse (1999), the ability to achieve goals

necessitates the same degree of impact and meaning, which supports the passage
of innovation. This capacity is the resilience, the last empowerment dimension.
As a consequence, psychological dimensions are present at an individual level but
at the same time they are established through relations, shared practices and
collective actions. Using this type of conceptualisation, we try to analyse which way
actors in social innovation networks put in action the above empowerment concept
within the translocal networks defined, according to Greiner and Sakdapolrak
(2013), as networks in which local connections between actors and local initiatives
are important.
Focusing the attention on the social innovation concept, it could be used for
understanding some modern social problems, such as unemployment and
inequalities across and within countries. While these problems have been discussed
in Canada and the United States, according to the Economist Intelligence Unit
(2016), European countries have only begun to debate them recently. Under the
empirical point of view, researches are based on qualitative methods, such as
interviews with social innovators; under the statistical methodology point of view,
instead, only with the Dobele work (2015), it began the cataloguing of the possible
components that might influence the social innovation growth, although her work
focused the attention only on one country. In this framework, the aim of the paper it
is to identify which dimension of the translocal empowerment exists across
European countries through the study of the country social protection expenditure
effect, configured as one possible social innovation variables, using the Akgüҁ
model approach. This model combines the traditional macro-level proxies with the
innovative ones, like cultural norms and fear of failure.
3. Methodology, data collection and variables used
This section provides a picture of the methodology used for the estimation of the
social innovation in terms of translocal empowerment proxies. It also provides a
description of the variables used in the paper, distinguished in dependent and
explanatory ones.
The aim of the Akgüҁ model is to identify a link between the dependent variable, the
social innovation proxy of a country, and the possible explanatory variables. More
deeply, he estimates the following fixed effects panel model equation:
Yit  a j X j ,it   i   it (1)

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where Yit is the translocal empowerment dependent variable, X j ,it are the
explanatory variables, where j  1,..., n are the different explanatory proxies,
i  1,..., m are the European countries and t  1,...,T is the time dimension. The
equation (1) possesses a fixed effect because of the presence of the term  i , the
specific characteristics of a country during the considered period of analysis, while
a random error term  it is present in order to consider any possible shock. Akgüҁ
used a standard panel data with country fixed effects in order to catch country
characteristics that might influence the chosen dependent variable. He collects the
standard errors at country level to check the possible existence of correlation
between error terms themselves and if they are statistically robust to avoid the
heteroscedasticity phenomenon.
Under the data collection and variables point of view, data were collected from
different sources, since this issue enters into the European political and economic
agenda only recently; according to Liger et al. (2016), indeed, the consequent lack
of data could be due “[...] both to the differences in legal status and the roles it plays
within the single EU Member States and to the attention traditionally paid by
statistical offices to social economy entities.” (p. 77).
Despite this data limitation, the macroeconomic indicators, such as GDP per capita,
social protection expenditure, tertiary education attainment, unemployment rate,
share of people at risk of poverty and gender pay gap, come from the Eurostat
database. Linked to the previous traditional variables, in this database there are
other proxies connected to entrepreneurship and innovation; even if these proxies
are not explicitly centred on social innovation they could influence the surrounding
environment in which they operate. Furthermore, these variables come from the
Global Entrepreneurship Monitor (GEM), which provides measures of the
entrepreneurial behaviour within countries. The following Table 1 presents the list
of variables used in the empirical analysis, divided into the empowerment
dimensions previously identified.
Table 1: List of used variables (years: 2007-2017)

Empowerment dimension Variable
Social protection expenditure

Relatedness
Poverty risk
Competence Commercial and physical infrastructures
Gender pay gap

Unemployment rate
Tertiary education attainment
Impact Total government expenditure
Job creation rate
GDP per capita

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Empowerment dimension Variable
Meaning Cultural and social norms
Resilience Fear of failure rate

Source: Authors’ representation
In this paper, the Social protection expenditure has been used as a social innovation
measure, identifying it as a dependent variable. Being defined, according to the
Eurostat, as the “[...] interventions from public and private bodies intended to relieve
households and individuals of the burden of defined set of risks or needs [...]”, it is
possible to affirm that social protection schemes could be enforced in a social
innovative way and hence it might be identified as a proxy for social innovation.
Regarding the period of analysis, given the data availability, it covers the years from
2007 to 2017. This time limit permits to control if the international economic crisis in
2008 might have influenced in some way the translocal empowerment dimension.
4. Estimation results
Starting with the summary statistics, as reported in Table 2, the social protection
expenditure is on average 16% of GDP across the European countries, and it
highlights great differences, between the minimum (0%) and the maximum (25%).
The percentage of people at risk of poverty and social exclusion is about 23% across
countries, with the maximum sharing around 60%.
Table 2: Summary statistics

Mean Median Minimum Maximum
Dependent variable
Social protection expenditure 16.34 16.40 0.00 25.60
Explanatory variables
Gdp per capita 26621 24450 10400 77300
Gender pay gap 14.202 15.100 -0.900 30.900
Poverty risk 22.41 22.90 0.00 60.70
Unemployment rate 32.07 33.55 0.00 0.00
Total government expenditure 44.95 45.42 26.30 65.00
Tertiary education attainment 28.47 28.80 12.00 46.50
Fail of failure 26.84 34.45 0.00 61.58
Cultural and social norms 1.664 2.250 0.000 4.010
Source: Authors’ elaboration
Following, Table 3 shows the estimated results for the social protection expenditure.

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Table 3: Determinants of social protection expenditure

Std.
Estimate t-value Pr(>|t|)
Error
1.288e-14
Tertiary education attainment 0.297048 0.036282 8.1872
***
- 2.588e-06
Gdp per capita 0.057381 -4.8096
0.275980 ***
Total government expenditure 0.760380 0.060829 12.5003 < 2.2e-16 ***
-
Gender pay gap 0.014560 -2.2393 0.026 *
0.032604
Residual Sum of Squared:

0.69354
R2 : 0.61945
Adj. R-Squared: 0.57319
F-statistic: 103.771
p-value: < 2.22e-16
Source: Authors’ elaboration
We can summarise from Table 3 that the total government expenditure is a positive
and significant social innovation estimator. This goes along with the findings that
countries with the most successfully social innovation plans are the ones with the
higher total government expenditures, such as the Nordic countries, France and
Austria. Tertiary education attainment exhibits a positive relation with social
innovation even if its influence diminished with the presence of other factors, such
as gender pay gap and GDP per capita. As before, in countries with a large share
of higher educated population, it is possible to observe a greater presence of
winning social innovation strategies. The presence of a negative relation between
GDP per capita and Gender Pay Gap could be explained in the following way. The
existence of a negative relation between gender pay gap and social protection
expenditures, according to Rubery and Koukiadaki (2016), social policies could
have a negative impact in at least two different aspects. First, social protection
affects the way women who become mothers are able to develop careers in their
jobs; second, it might encourage the gender division of labour with respect to their
job roles. Regarding the negative relation between GDP per capita and social
protection expenditure, it is possible to explain this phenomenon by dividing the
analysis into two periods: the expansion and fiscal stimulus, during the international
financial crisis, and the social consolidation, from 2010 to 2016. More deeply, during
the international financial crisis, most of the countries scaled the share of public
social expenditure for sustaining the growth and protecting population from the
adverse effects of financial shocks. However, as the crisis moved to its second
phase, from 2010 to 2016, the previous cyclical measures were short-lived, since
governments usually abandoned the fiscal stimuli and introduced, instead, fiscal
consolidation measures, showing a significant contraction through, for example, the
reduction of the subsides and the tax increment on consumption, and the social
protection benefits reduction.

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5. Conclusions
In this paper we have explored in an empirical way how the transactional

empowerment is spread across European countries through the study of one
possible social innovation proxy: the social protection expenditure.
As it is possible to stress out from the entire paper, the translocal network could be
considered as a crucial factor for the social innovation implementation, since social
innovation actors might access local resources, developing, at the same time, the
ability to interface with the local institutions present in the current socio-economic
system. More deeply, as shown in the paper, social innovation is positively
associated with the level of education and total government expenditure,
considering the country-specific fixed effects.
Under the future research point of view, it would be necessary if a comparison of
the different empowerment processes across different European translocal
networks, assessing the social drivers in terms of, for example, social justice and
sustainability.
References
1. Avelino, F., Wittmayer, J.M., Pel, B., Weaver, P., Dumitru, A., Haxeltine, A. and
O’Riordan, I. (2017) ‘Trasformative social innovation and (Dis)empowerment’,
Technological forecasting and Social Change, 10.1016/j.techfore.2017.05.002
2. Akgüҁ, M. (2019) ‘Understanding the determinants of social innovation in
Europe: an econometric approach’, European Planning Studies, pp. 1-14.
3. Bidee, J., Vantilbourgh, T., Pepermans, R., Huybrechts, G., Willems, J., Jegers,
M. and Hofmans, J. (2013) ‘Autonomous motivation stimulates volunteers work
effort: A self-determination theory approach to volunteerism’,
VOLUNTAS:International Journal of Voluntary and No-profit Organization, Vol.
24, no. 1, pp. 32-47.
4. Dobele, L. (2015) ‘Factors which influence the development of social innovation
in Latvia’, Proceedings of the 2015 International Conference on Economic
Science for Rural Development, Vol. 40, pp. 226-238.
5. Economist Intelligence Unit (2016) Old problems, new solutions: Measuring the
capacity for social innovation across the world, London: Economic Intelligence
Unity Study.
6. Greiner, C. and Sakdapolrak, P. (2013) ‘ Translocality: Concepts, applications
and emerging research perspectives’, Geography Compass, Vol.7, no.5, pp.
373-384.
7. Haxeltine, A., Pel, B., Wittmayer, J.M., Dumitru, A., Kemp, R., and Avelino, F.
(2017) ‘Building a middle-range theory of transformative socio innovation;
theoretical pitfalls and methodological responses’, European Public & Social
Innovation Review, vol. 2, no.1, pp. 59-77.
8. Linger, G., Stefan, M. and Britton, J. (2016) ‘Social Economy’, Directorate
General for Internal Policies – European Parliament.

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9. Rubery, J. and Koukiadaki, A. (2016) ‘Closing the gender pay gap: A review of
the issues, policy mechanisms and international evidence’, International Labour
Office – Geneva: ILO.
10. Ryan, R.M. and Deci, E.L. (2000) ‘Self-determination theory and the facilitation
of intrinsic motivation, social development, and well-being’, American
Psychologist, Vol. 55, no.1, pp. 68-78.
11. Sen, A.K. (1999) Development as freedom, New York: Knopf Press.
12. Thomas, K.W. and Valthouse, B.A. (1990) ‘Cognitive elements of empowerment.
An interpretative model of intrinsic task motivation’, Academy of Management
Review, Vol. 15, no. 4, pp. 666-681.

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ESPON 2020 COOPERATION PROGRAM IN ROMANIA
CSOKA Gabriela Elena

Department of Economics and Business, Faculty of Economic Sciences, University
of Oradea, Oradea, Romania.
gabi.csoka@yahoo.com
Abstract: The ESPON program aims to promote and stimulate the European
territorial dimension in development and cooperation by providing evidence,
knowledge transfer and policy delivery to public authorities and other public policy
actors at all levels. The objective of the ESPON 2020 Cooperation Program is to
support the strengthening of the effectiveness of EU cohesion policy and other
sectoral policies and programs under the European Structural Funds and European
Investment Funds (ESI funds) as well as national and regional territorial
development policies through the production, dissemination and promotion of
territorial data covering the entire territory of the 28 Member States and the four
partner countries - Iceland, Liechtenstein, Norway and Switzerland. Romania as a
member country of the program, will benefit from the results of ESPON 2020,
consisting of territorial analyzes and studies on European trends in various topical
areas: labor market or investment developments, commuting models, demographic
change, climate change impacts on European territory, etc.
Keywords: cross-border; cooperation; financing; Romania; funds.
JEL Classification: F26.
1. Territorial Cooperation Programs 2014-2020
European Territorial Cooperation is the instrument of cohesion policy which aims to

resolve cross-border issues and jointly develop the potential of different territories.
Co-operation actions are supported by the European Regional Development Fund
through three key components: cross-border cooperation, transnational cooperation
and interregional cooperation.
Cross-border cooperation programs are those programs that fund accessibility,
environmental and risk prevention projects, economic and social development and
'people to people' at the EU's internal and external borders'.
Specific priority areas include: promoting sustainable and quality jobs and
supporting professional mobility by integrating cross-border labor markets,
promoting social inclusion and cross-border integration of communities, developing
and implementing joint programs on education, training and training, etc.
Transnational cooperation programs have as main objective the financing of actions
and the development of networks leading to integrated territorial development in
areas such as environment, urban development, innovation and accessibility.
Specific priority areas include: strengthening the institutional capacities of public
authorities and stakeholders and the efficiency of public administration by
developing and coordinating macro-regional and maritime strategies.

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Interregional cooperation programs support cooperation between public authorities

on issues of common interest, through the transfer of experience and best practices
between the regions of the European Union through networking between EU cities
as well as between EU researchers (Badulescu at all., 2014).
Specific priority areas include: strengthening the institutional capacities of public
authorities and stakeholders and the efficiency of public administration by
disseminating good practices and expertise and promoting exchanges of experience
(Camagni., 2006).
Romania participates in 2014-2020 for 12 European Territorial Cooperation
Programs to be implemented both at the internal borders and at the external borders
of the European Union.
The 12 European Territorial Cooperation Programs benefit from European co-
financing through the European Regional Development Fund (ERDF), the
Instrument for Pre-Accession Assistance (IPA) and the European Neighborhood
Instrument (ENI), as follows:
- ERDF:
1. Interreg V-A Romania-Bulgaria Program;
2. Interreg V-A Romania-Hungary Program;
3. The Danube Transnational Program;
4. Interreg regional cooperation program INTERREG EUROPE;
5. The URBACT III cooperation program;
6. The INTERACT III cooperation program;
7. ESPON 2020 cooperation program.
- IPA II:
8. INTERREG IPA Cross-border Cooperation Program Romania - Serbia.
- ENI:
9. Joint Operational Program Romania-Ukraine 2014-2020;
10. Joint Operational Program Romania-Moldova 2014-2020;
11. Black Sea Basin Joint Operational Program 2014-2020;
12. Cross-border cooperation program ENI Hungary-Slovakia-Romania-Ukraine
2014-2020.
In order to support the beneficiaries of the financing, a maximum of 13% of the

eligible expenditures for the projects financed by the ERDF and IPA and up to 8%
for the programs financed by the ENI is ensured from the state budget.
2. Presentation of the ESPON program
ESPON is an applied research program designed to support the development of

territorial development policies in Europe. To this end, the program provides various
systematic data on territorial trends related to different economic, social and
environmental aspects in order to identify the potential of larger regions, cities and
territories as well as the economic challenges they face. ESPON activities target all
EU Member States, as well as Switzerland, Iceland, Liechtenstein and Norway.
Over 130 organizations across the continent are involved in this program. They

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carry out different types of studies (thematic, intertematic, on policy impact, research
networking or capacity building) and provide data on territorial trends in the form of
statistics, analysis and maps. Therefore, one of the major challenges for ESPON is
to put this material at the disposal of local policy makers. At EU level, the results of
the research activities carried out under ESPON are a source of comparable
information that can be used to improve the Union's competitiveness and
sustainable development. During the 2014-2020 programming period, ESPON will
operate as a European Grouping of Territorial Cooperation (EGTC). It will focus
mainly on the thematic objective no. 11: Strengthening the institutional capacity of
public authorities and stakeholders and an efficient public administration.
2.1. The objectives of the ESPON program

To achieve the objectives of the program, two priority axes were set: Priority Axis 1
- Focused on the production of territorial information, their transfer, observation,
tools and dissemination, Priority Axis 2 - Technical Assistance.
Priority Axis 1 will finance a Single Beneficiary Operation (EGTC ESPON 2020
EGTC), which will contract services to research institutions through public
procurement procedures. The funds allocated to Priority Axis 1 will finance research
projects that will contribute to: providing territorial information through applied
research, increasing knowledge transfer / territorial intelligence, improving territorial
observation capacity and tools for territorial analysis, better dissemination and
exploitation of the results of territorial research by interested users. Priority Axis 2
responds to a clear request from policy makers and practitioners, expressed in the
final phase of the ESPON 2006 Program, for user-oriented and on-demand actions
under ESPON 2013 Program. The targeted analyzes developed under ESPON 2013
aim to respond to this applications and provide a truly European dimension to the
database at regional / local, national, cross-border and transnational levels. Using
ESPON results in practice will help to make informed policy decisions. By calling for
an analytical process where ESPON results are integrated with more detailed
information and practical know-how, a new understanding of the potential and future
development challenges that may be turned into policy decisions on projects and
actions may emerge.
2.2. The total budget of the ESPON 2020 program

The total budget of ESPON 2020 is EUR 48.6 million, of which EUR 41.3 million
represents the allocation from the European Regional Development Fund for the
period 2014-2020.
As a member country of the program, Romania will benefit from the results of
ESPON 2020, consisting of territorial analyzes and studies on European trends in
various topical areas: labor market or investment developments, commuting
models, demographic change, climate change impacts on the European territory,
etc.

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2.3. Financing priorities

ESPON focuses on the thematic objective no. 11 "Strengthening institutional
capacity". However, all 22 thematic objectives have a territorial dimension or impact.
Therefore, all are considered relevant and can be supported by European territorial
data produced, generated and disseminated by ESPON 2020.
2.4. Formation of partnerships

The partnership is one of the conditions for participation in ESPON projects. In the
sections below, find out about partner partners and sources of partner identification.
For example, some statistical data on the structure of the partnerships of the 13
ongoing research projects were presented. The section on partnership proposals
will soon be complemented by the proposals made by the Romanian institutions and
by the institutions from the participating countries (EU / partner countries). ESPON
projects are generally formulated and implemented in partnerships consisting of
eligible institutions from at least three different countries participating in the ESPON
2013 Program. They are eligible for ESPON funding: public bodies; bodies
governed by public law; private bodies.
As far as the partner's country of origin is concerned, only institutions from the EU
Member States and the four partner countries Norway, Switzerland, Iceland and
Liechtenstein can participate as partners in a transnational project group. There is
also an exception to the general rule for projects with a budget value of up to
200,000 euros for which the fulfillment of the partnership formation condition is not
necessary, and the project proposals can be formulated and implemented by a
single eligible body. The project proposal has to be developed in close cooperation
with the project partners, this being a condition of the projects funded under the
"European Territorial Cooperation Objective". That is why preparing a successful
proposal involves more than fulfilling some of the requirements of the program,
based on the principle of "joint training" and "joint implementation", the term
"common" referring to the whole partnership. It is very important for the partners to
have experience of cooperating in transnational projects and of carrying out
research projects at a transnational level.
The following section presents information on the purpose, key outcomes and image
of Romania in 12 ESTON studies, finalized or in the advanced stage of
implementation - the list of these projects is presented below:
1. DEMIFER - Demographic and migration flows affecting European regions and

cities.
2. EDORA - Opportunities for development of different types of rural areas.
3. ESPON CLIMATE - Climate change and territorial effects on regional and local
economies in Europe.
4. FOCI - Future guidelines for city development.
5. ReRISK - Effects of rising energy prices on regional competitiveness.
6. TIPTAP - Assessing the Territorial Impact of Transport and Agriculture Policies.
7. CAEE - Agglomeration savings in Europe.

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8. ESPON TeDi .- Territorial Diversity in Europe.

9. METROBORDER. - Polycentric cross-border metropolitan regions.
10. SS-LR - Spatial Scenarios: New tools for knowledge of the territory.
11. SURE - Success of Convergence Region Savings.
12. ESPON DATABASE 2013 - ESPON database (scientific platform).
There is also an ESPON study whose interim results have been published -
EUROISLANDS, which analyzes the island regions of Europe.
2.5. Statistics on the structure of partnerships
2.5.1. Statistical data refers to the 13 ESPON research projects that have been
running since 2010
Table 1: Applied Research (Priority 1)

Project ESPON
DEMIFER EDORA FOCI ReRISK TIPTAP
name CLIMATE
No. of
7 15 13 7 3 3
partners
United
Germany
Kingdom
(2)
(4)
Finland
Netherlands Sweden
Norway Belgium
(2) Spain
The UK Spain
Austria Greece Spain Italy
structure of Finland Poland
Poland Ireland Sweden UK
the Hungary (2) Greece
UK Germany Greece Netherlands
partnerships Romania Switzerland
Sweden (2)
Slovakia France (2)
Italy Austria
Spain
Poland (2)
Netherlands
Hungary
Switzerland
Portugal
Source: http://www.mdrap.gov.ro
Table 2: Focus analyzes (Priority 2)

Project ESPON
CAEE EUROISLANDMETROBORDERS SS-LR SURE
name TEDI
No. of
4 4 3 4 2 2
partners
The UK Sweden
Greece Luxembourg (2)
structure of Ireland Greece Italy Italy
Denmark Switzerland
the Spain Romania Spain Switzerland
Malta Belgium
partnerships France Switzerland

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Table 3: ESPON Database (Priority 3)

Project name ESPON DATABASE
No. of partners 7
France (2)
Spain
The structure of Belgium
the partnerships Romania
France
Luxembourg
The studies conducted under the ESPON 2013 Program are a valuable source of
policy-making based on existing scientific expertise at European level.
2.5.2. The ESPON DATABASE 2013 project

The goal of the ESPON DATABASE 2013 project is to continue and improve a
spatial database that was developed under the ESPON 2006 Project. The first
ESPON database contains relevant indicators for the analysis of NUTS 2 and NUTS
3 spatial units from a perspective - territorial competitiveness and economic
convergence capacity (underlying the concept of territorial cohesion).
The ESPON Database 2013 project focuses on obtaining variables and indicators
with impact and relevance in the decision making process at different scales of
territorial analysis. The final products obtained in the implementation of this program
are spatial data bases and map funds, tools to which models and methodologies
are used to visualize information at the territorial level. The coverage area of the
study is represented by the countries participating in the ESPON 2013 Program and
some countries located in the South-Eastern neighborhood of the European Union
(Balkan states). The level of analysis starts with obtaining data and indicators for
classical administrative levels (NUTS0, NUTS1, NUTS2 and NUTS3) with local size
query capabilities (LAU1 and LAU2) for selected selected states. Efforts under the
ESPON Database 2013 project have a twofold goal: to streamline decision-making
through easy and fast access to relevant databases and indicators and to
complement major actors in the diffusion of spatial and spatial analysis tools through
a body has as its main mission the integrated monitoring of the active geographic
trends at the European continent (Faludi and Waterhout, 2002).
The ESPON DATABASE 2013 project results, taking into account the complexity of
geographic objects that require data processing and their inclusion in the database,
the ESPON Database 2013 Project is divided into a set of "challenges" that decline
according to different issues. Another issue it was to redefine the Functional Urban
Areas on the basis of a set of criteria that allow a better trace of the boundaries of
these entities (challenge to the working team working within the Free University of
Brussels), which makes some scientific approaches encountered in the
implementation of the project have a horizontal character that mobilizes common
forms of know-how, centered on the issue of local or regional databases. Some data
analysis methods, such as the decomposition of information from a hierarchically

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superior level (NUTS3) to a lower geographic level (a 1km x 1km grid), allow viewing
of spatial information on stairs for which the set of indicators is not available
normally. Continuing this approach could provide interested public stakeholders with
a number of useful tools for identifying key territorial processes active, independent
of administrative-territorial divisions.
Figure 1: Evolution of the population (2001-2006) in EU Member States in Central

and Southeast at LAU 2 level
Source: http://mdrap.ro
2.6. Proposals for partnership within the ESPON program

On May 13, 2010, 21 institutions in Romania were registered in the database
(increasing from January to 13) - the most potential partners registered in the
database against the other participating countries - www. espon.eu - Projects
section - Transnational Project Groups
http://www.espon.eu/main/Menu_Projects/Menu_ESPONPartnerCafe/index.html
On 24th January 2011, the Regional Development Agency of the Czech Republic
was interested in collaborating to formulate project proposals for the following
themes under Priority 1 - Applied Research in the Field of Territorial Development,
Competitiveness and Territorial Cohesion:
• European Regions: Potential Contribution to the EU 2020 Strategy;
• Territorial Scenarios and Visions for Europe;
• Territorial Governance – Best Practices for New Perspectives.
The Regional Development Agency was established in Ostrava in May 1993 by the
regional bodies and the former Ministry of Economy of the Czech Republic as pilot
project of the EU Phare program. The Agency played a key role in strategic

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planning,and they did prepared all the Moravian-Silesian regional development

programs, the Ostrava-Mošnov Airport Development Strategy, the Regional
Operational Program for EU Planning for 2007-2013 and they did as well prepared
many projects and strategic plans for the municipalities (Bański and Ferenc, 2014).
3. Conclusions
ESPON methodology in the field of spatial analysis and the results of this type of
study can be useful for local and regional decision-makers to visualize and interpret
risks and trends at specific spatial scales: development regions, counties,
metropolitan areas, intra-community development associations, cities, development
poles, urbanized axes and areas, etc.
The ESPON 2013 Program contributes to its debates at the European level on: the
implementation of the new European Territorial Cohesion objective introduced by
the Treaty of Lisbon, the contribution of cohesion policy to the achievement of the
Europe 2020 objectives and the future of the post-2013 European Cohesion Policy.
The year of 2010 marks the completion of a large number of territorial research
projects funded under the ESPON 2013 Program and the launching of new research
projects in which the exploitation of research results is one of the challenges of
implementing the program and an important objective at both program level as well
as at national level.
European territorial cooperation for the period 2014-2020 provides for the
strengthening of the effectiveness of the Cohesion Policy by promoting
"developmental analyzes and the links between cohesion of territorial cohesion,
including territorial aspects of economic and social cohesion, as well as the
harmonious development of European territory through studies, collection of data
and other measures ".
References
1. Bański J., Ferenc M., (2014), ESPON as a tool of a national and regional policy,
EUROPA XXI Vol. 25, 2014, pp. 23-35.
2. Badulescu A., Badulescu D., Borma A., (2014) Enhancing cross-border
cooperation through local actors’ involvement. The case of tourism cooperation in
Bihor (Romania) – Hajdú-Bihar (Hungary) Euroregion, în revista Lex Localis -
Journal of Local Self-government, 12(3), 2014, pp. 349-
371, https://www.researchgate.net/profile/Alina_Badulescu/publication/273773721_
Enhancing_Cross-
Border_Cooperation_through_Local_Actors%27_Involvement_The_Case_of_Touri
sm_Cooperation_in_Bihor_Romania_-_Hajdu-
Bihar_Hungary_Euroregion/links/59ad9bc20f7e9bdd115c5097/Enhancing-Cross-
Border-Cooperation-through-Local-Actors-Involvement-The-Case-of-Tourism-
Cooperation-in-Bihor-Romania-Hajdu-Bihar-Hungary-Euroregion.pdf
3. Camagni R., (2006), Tequila Sip: un modello operativo di Valutazione di Impatto
Territoriale per le province dell’Unione Europea, Rivista di Economia e Statistica del
Territori, F. Angeli, Milano, pp. 37-62.

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4. Espon 2013 Program: Interco, Indicators for the territorial cohesion, Final Report
Part A, ESPON and University of Geneva (2012) and Draft Final Report (DFR,
version 2011).
5. European Commission: The Programming Period 2014-2020, Monitoring and
Evaluation of European Cohesion Policy, Guidance document on ex-ante evaluation
(2013a).
6. Faludi A., Waterhout B., (2002), The Making of the European Spatial Development
Perspective: No Masterplan, Routledge, The RTPI Library Series, London, New
York, pp. 224.
7. Regional Use of ESPON Knowledge, (2010), Working Paper from the internal
ESPON Seminar 3-4 December 2009 in Malmö.
http://www.espon.eu/export/sites/default/Documents/Publications/
SeminarsReports/Malmoe_Seminar_Report.pdf [22/02/2019].
8. https://ec.europa.eu/regional_policy/ro/atlas/programmes?countryCode=RO,
accessed on 20.02.2019.
9. http://www.bursa.ro/programul-espon-2020-aprobat-de-comisia-europeana-
03572625 , accessed on 20.02.2019.
10. http://www.mdrap.gov.ro/conditii-privind-numarul-de-parteneri , accesssed on
20.02.2019.
11. http://www.mdrap.gov.ro/userfiles/espon/propunere_parteneriat_cehia1.pdf ,
accessed on 22.02.2019.
12. http://www.msid.cz/ , accessed on 22.02.3019.
13. https://www.proiecteue.ro/reglementari.php?r=19 , accessed on 22.02.2019.
14. https://www.espon.eu, accessed on 20.02.2019.
15. http://www.questp.ro/programe-de-cooperare-transfrontaliera/13/, accesssed on
20.02.2019.

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TRENDS REGARDING RETAIL BUSINESSES. A CONSUMER PERSPECTIVE

ON THE COMMERCIAL ACTIVITY IN THE CITY OF RESITA
MANCIU Venera, DEMYEN Suzana

Department of Economic Sciences, Faculty of Economic Sciences, University
“Eftimie Murgu” of Resita, Romania
v.manciu@uem.ro
s.demyen@uem.ro
Abstract: Every business has a series of objectives to achieve. Most of the
businesses in the field of commerce follow a certain strategy in order to achieve a
higher level of turnover or profitability. Over time, the importance of stores in general
and supermarkets in particular has increased, with the transition to a consumer
society. The consumer behavior thus becomes an important aspect for the way
organization generally or the marketing departments develop their strategies. In
order to achieve their goals, it is important for companies to be able to attract and
maintain a large number of customers. The general trends in this regard, that can be
identified worldwide, can be easily observed in the city of Resita also, reason why it
can be studied a direct connection between the number of customers and the level
of development of the stores. Whether we speak about supermarkets or small,
proximity stores, it cannot be denied the fact that the commercial area has gain
power and has been extended very much over the years. Still, each of these faced
a new threat, namely the expansion of online stores, reason why many of them try
to adapt in the digital environment also. Every analysis, however, depends on two
perspectives: the consumer perspective and the managerial perspective. The
present paper aims to present an overview of the first one, offering the possibility of
further development from the managerial point of view. The first part of the paper
consists in a theoretical background regarding commercial management, presenting
general aspects regarding the consumption phenomenon, while the second part
consists in a study carried out on a sample considered representative for the
population in the city of Resita, in order to achieve the perspective of customers
regarding the development trends of retail businesses in this part of the country.
Keywords: commerce; retail; consumer; business; commercial network; turnover.
JEL Classification: L81.
1. Theoretical Background
“The consumption phenomenon has reached important dimensions” (Stefan,

Craciun, 2011) nowadays, worldwide. Commercial activity is one that a person faces
day by day, interfering with sellers, merchants and a number of other categories of
staff. Literature in the field has defined each of these categories over time, while
imposing a number of specificities in terms of commercial management.
According to literature, “Originally, the term ‘sales management’ referred to the
direction of sales force personnel (…) Now, the sales management meant

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management of all marketing activities, including advertising, sales promotion,

marketing research, physical distribution, pricing, and product merchandising”
(Kundu).
Thus, there are several aspects that trade enterprises need to focus on, as “the term
‘selling’ encompasses a variety of sales situations and activities” (Jobber et al, 2016)
the underlying principles of which are the following:
- Selling involves building a dialogue with the customer
- Sales involve a high level of customer interest
- Selling involves building a climate of mutual trust.
- Selling provides maximum contribution to profit (Khan, 2012).
What is the basis of the sales process is mainly the customer's need, but it is in
direct relationship with the trader's needs, and the seller's by default.
The sales force performance level thus becomes directly related to the
characteristics, motivation and determination of the sales staff, in order to create a
“winning team” (Cates, 2015). Thus, “the sales organization, commonly referred to
as the sales force, plays a key role in the growth, development, profitability and
impact on customers” (Noonan, 1998).
The most important difference between the sale and the other elements of the
marketing activity is personal contact. “Today, a salesforce must have a wide range
of skills to compete successfully” (Jobber, Lancaster, 2009). The need to establish
personal contact may vary depending on multiple factors such as: the type of buyer,
the frequency of buying process, the novelty of the product, etc.
It is important for the management of the enterprise to know the types of staff that
form the sales force, their characteristics and their specificity, precisely, in order to
adapt the management strategies in general and the personnel strategies in
particular to their development needs.
According to Kundu, the elements of sales management are: planning, coordination,
controlling and motivating, while “a SWOT analysis is a basic tool for planning that
a salesmanager” can utilize in many ways (Schwartz, 2006).
If we analyze the main types of sales, their characteristics could be summarized as
follows:
Table 1: Types os sales

Type of sales Advantages Disadvantages
1. Sales with the Fast learning The agent's motivation
help of conditioned Selective information depends on the level of
reaction freedom offered to him in the
presentation of the goods
and the power of initiative
and decision making
2.Sales with Assumes the ability to Difficult learning process
conscious reaction identify needs High costs
Strong Relational Approach
3.Development Assumes Customer The need of powerful
sales database expansion personalities, creativity and
communication can create
problems

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Type of sales Advantages Disadvantages

4.Maintenance The staff has a vast Low level of focus on new
sales experience in customer business relationship
relationship and a good development, focusing on
knowledge of their needs. the old ones
5.Relational sales Refers to creating long-term The clients come first, not
relationships, focusing on the products sold
sales counselors
The modeling of the economic activity in relation to the market requirements

presupposes knowledge of the dimensions and the structure of consumption. The
research of these aspects is an important source of information.
The research of the actual consumption refers to its quantitative and structural
aspects, with the highlighting of the particularities determined by several factors.
Thus, the most common methods used in consumption analysis are:
1). Methods using consumption statistics, with the purpose of obtaining information
from different reports regarding consumption
2) Methods based on information obtained directly from consumers.
2. Developing the commercial sector in Romania
The promotion of the consumer society also meant the development of the
commercial sector, so during the last two decades, not few were the commercial
networks that have entered on the Romanian market, extending exponentially over
the years, by opening numerous subsidiaries in most of the counties and cities of
Romania.
Thus, their level of profitability is higher, newspapers or publications in the field
showing very high figures in this respect. According to publications such as Wall
Street or Profit, the financial results of the trade companies, supermarkets or
hypermarkets have been increasing since 2015. According to the data available on
the website of the Ministry of Finance, the top 10 modern commercial networks have
accumulated over the years 2016 – 2017, cumulative profits of over 350 million
euros, in a positive evolution.
We can mention Kaufland, Carrefour, Lidl, Auchan, Metro Cash & Carry, Mega
Image, Selgros, Rewe and Cora as the companies that have imposed themselves
on the Romanian commerce market, greatly developing the big store sector and
facilitating over time the access to various categories of products.
Among the most important features of each of these commercial networks, we
identify the following in Table 2. We take as benchmark the year 2016, because for
this year there is complete information for each of these companies:
Beyond the traditional trade, however, online commerce has grown enormously,
with official data even mentioning Romania's highest growth in Europe, 38%
(according to Ecommerce Europe). In 2017, the estimation was 2.5 billion euros,
"but in reality the value of online shopping has reached 2.8 billion euros, more than
40% higher than in 2016. Online commerce in Romania has the potential to double
the value by 2020, with the condition of investment increases and the support of

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authorities to develop digital skills among the population, along with digital
infrastructure" (according to Capital.ro).
Table 2: Results of the retails players

Number of
Number of stores Turnover Profit
employees
Kaufland 115 hypermarkets 2,13 billion euro 145 mil. euro 14.070
298 stores
(32 hypermarkets,
Carrefour 213 supermarkets, 5,6 billion euro 36,4 mil. euro 9.100
53 proximity
stores)
Lidl 200 stores 1,24 billion euro 48,3 mil. euro 4200
Auchan 33 hypermarkets 1 billion euro - 5,3 mil euro 10.000
Metro Cash
968 mil euro 22,9 mil euro 4100
& Carry
28 supermarkets
Mega Image 961 mil euro 30 mil euro 8600
40 proximity stores
Stores in 308
Profi 788 mil euro 28,1 mil euro 12.000
towns
Selgros 732 mil euro 25,2 mil euro
Source: Wall Street.ro, Profit.ro
Augmented sales, on the other hand, involve a combination of reality and digital,
with specialists identifying a high potential for development, as technology has
become very present in our lives. Although the notion is not yet so popular in our
country, augmented reality will grow more and more.
3. Case study. Research regarding the forms of sales preferred by the

population of Resita
The purpose of this study is to analyze the sales forms (retail, online and augmented
sales) preferred by the population of Resita.
The main objective of the research is to determine the preferred form of sale used
by the inhabitants of the city.
The secondary objectives of the research are:
1. identifying the main categories of products purchased by the respondents
2 establishing the main stores requested by the subjects
3. Appraisal regarding the store network in Resita
4.analyzing the satisfaction degree of the subjects regarding the prices from the
retail stores
5.identifying the categories of products purchased online
6. Identifying the stores that would use augmented sales.
In the present case, the subjects surveyed represent the population of the
municipality, compressed into a representative sample.
The method of sampling used is the quota method, ie a rational choice of individuals,
aiming to obtain at the sample level a structure by gender, age groups and

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occupations, identical to the structure of the population of the municipality, using the
usual data from the general presentation of population of Reşiţa on 01.01.2019. The
period when the study was carried out was 1st - 28 February 2019, and the total
number of respondents was 72, thus we can speak about a qualitative type
research. The questionnaire was administered personally, the sample established
being representative on gender and age, more than the criteria of income or
education. Nevertheless, the proximity of a store is likely to influence the buying
behavior of a customer.
As a form of research, the used a structured individual survey, that was based on a
questionnaire consisting of 13 questions, namely 10 questions of content and 3
questions in order to identify the subjects.
The evolution in time is difficult to carry out, considering the fact that the respondents
were selected aleatory.
The results of the qualitative studies depend highly on the level of observation of
rules, also on their organization and performance, considering:
 the number of people interviewed;
 the sampling methods used;
 the development of qualitative research;
 the presentation and interpretation of the results.
Qualitative research usually „involves interviewing a limited number of people and
seeks to reach deeper information levels related to specific subjects, the data not
being statistically representative of the studied population” (Manciu, Demyen, 2018)
from all points of view, as mentioned above.
The gender and age structure of the sample was the following:
19,76% 16,37% < 20 years

20-29 years
48,12
51,88 13,02% 30-39 years
40-49 years
50-59 years
14,88%
15,98% > 60 years
Masculin Feminin
17,49%
Figure 1: The sample structure by Figure 2: The sample structure by age

gender criteria
Note: Masculin = Male; Feminin = Source: developed by authors
Female
Source: developed by authors

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4. Conclusions of the study. Limits and future developments
The results of the study revealed the following:

- 40% of respondents have a monthly average income of less than 1400 lei,
indicating a poor purchasing power (aquisition) of goods, 45% have an average
monthly income between 1400-2300 lei, 15% have higher wages of 2300 lei, which
is a small percentage compared to the first two variants.
- Of the people questioned, most declare that main part of the income is used for
purchasing food (71%), while a much smaller percentage is allocated to the
purchase of hygienic - sanitary products (8%), clothing, household appliances or
luxury products (5%).
- If we would make an analysis of the European countries or even worldwide,
regarding the way people choose to allocate their income, we see a certain
imbalance in Romania, compared to other countries, in the idea that food products
dominate in the case of Romanian consumers, especially bread, while the
inhabitants of more economically developed countries can afford to buy luxury
goods in a larger number.
- The most frequented shops, according to the respondents' answers, are those
presented in the following diagram. We can see that Kaufland is the first one,
preferred by respondents by 24%, which is demonstrated by the figures presented
at the previous point of the paper, referring to the company’s financial results.
Carrefour Kaufland Lidl

Penny Profi Mona Lisa
C+C Agil Proximity stores
2% 9% 10%
7% 24%
4%
20%
21%
3%
Figure 3: Stores preferred by customers
Source: developed by authors
- The people surveyed prefer the main stores, especially the big commercial chains,
to the detriment of the smallest ones such as C + C, Agil or MonaLisa, considering
that the big ones are much better supplied and have a much clearer development
strategy than the smaller ones.

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- Also, in terms of price, most respondents consider that they are accessible - 40%
of the respondents, while a smaller number (17%) consider that the pricing policy is
convenient.
- More than half of the respondents are satisfied with the products bought from the
respective stores as well as with the prices, (57%), while a lower percentage (28%)
qualify prices as high or even very high (15%), declaring themselves dissatisfied.
- The online commerce, however, it is becoming more and more popular, acquiring
a higher level of confidence in the context of digitization, 68% of respondents
claiming to practice this type of commerce, but they are mostly a young population,
with greater openness to acquiring new technologies. We cannot exclude the older
population, who, though less receptive to computerization, is still interested in
progress.
- Classic trade is losing more and more land in front of online or mixed trade.
- In the online environment, the most commonly bought products remain clothing
articles, as well as household appliances, which are mentioned by respondents in
the proportion of about 35% each. The luxury products are purchased in a much
smaller number, being mentioned by only 14% of the respondents, while the
hygienic-sanitary products are purchased only in a percentage of 10%, the last one
belonging to the category of products food, in contrast to the classic commerce.
This latest trend is somehow natural, as food shortages often have short shelf-life
and transport costs are not justified if small amounts of food are concerned.
According to economic publication (Business Review), „the online shopping has
changed consumer behavior, but the influence that online commercials have on
buyers is different based on the level of income”.
References
1. Cates Max, (2015), 7 steps to success for sales managers. A strategic guide to
creating a winning sales team through collaboration, Pearson Education
2. Jobber David, Lancaster Geoff (2009), Selling and sales management, 8th
edition, Prentice Hall
3. Jobber David, Lancaster Geoff, Jamieson Barbara, (2016) Sales Force
Management, Edinburgh Business School
4. Khan Matin (2012), Sales management, LPU, Punjab
5. Kundu Surinder Singh, Sales management: an overview, university course,
available online at http://www.ddegjust.ac.in/studymaterial/mba/mm-308.pdf
6. Manciu Venera Cristina, Demyen Suzana (2018), Study Regarding The Attitude
Of Customers On The Behaviour Of The Sales Staff In The Supermarkets From
Resita, Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy
Series, Issue 5/2018
7. Noonan Chris, (1998), Sales Management, Butterworth Heinemann
8. Srivastava RK, de Run Ernest Cyril, Fam Kim Shyan, (2008), Sales
Management, Excel Books
9. Schwartz Matthew, (2006), Fundamentals of sales management, for the newly
appointed sales manager, American Management Association

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10. Stefan Bogdan Dumitru, Craciun Matei Bucur (2011), The importance of sales
management improving in the current economic context, Petroleum-Gas
University of Ploiesti Bulletin, Economic Science Series, vol. LXIII, No 4/2011
11. https://www.capital.ro/retailerii-au-deschis-mai-putine-magazine-anul-
acesta.html
12. www.profit.ro
13. http://business-review.eu/tech/online/study-the-virtualization-of-shopping-in-
romania-and-changes-in-consumer-behavior-194742
14. www.wall-street.ro
15. www.mfinante.ro

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THE EFFICIENCY OF CHURCH IMPLICATION IN SOCIAL ECONOMY
MICULAICIUC (HOLOVCSUK) Angelica

Doctoral School, Faculty of Economic Sciences, University of Oradea, Oradea,
Romania
angelica_hol@yahoo.com
Abstract: The church is reconsidering its attitude towards economy by even taking
entrepreneurial steps to this meaning, predominantly in the field of social economy.
For that matter, the Biblical texts not only avoid prohibiting this, but even advise the
church to get involved in providing for a better living for believers. The social
economy falls into place in Romania as well, as more and more ”actors” are
interested in this field. The Romanian orthodox church finds itself among these by
finding a specific ”purpose” within this activity. The present paper performs a cost-
benefit analysis of the church implication in the social economy by identifying
multiple, mostly non-monetary, benefits for the church and for the society.
Keywords: social economy; orthodox church; cost-benefit analysis.
JEL Classification: J46; J80.
1.Introduction. Religion and economy
The complexity of the religious phenomenon makes it difficult to highlight the impact
of religion on the economic life given the interactions between its elements and
between such and the results of the economic activity.
The issue of the relation between religion and economy has crossed ages of
analysis, instigating to debates on church’s role and mission in relation to the
purposes of organization and development of economic activities. The specialists
within this issue (Weber, 1958; McCleary, Barro, 2006; Azzi, Ehrenberg, 1975;
Finke, Stark, 1992; Finke, Iannaccone, 1993; Iannaccone, Stark, 1994; Iannaccone,
1991) analyze the relation between the way one religion or another see the relation
between the individual activity throughout a lifetime and the possibility of redemption
and conclude that the relation between religion and economy is bidirectional:
”religion has a two-way interaction with political economy. With religion viewed as a
dependent variable, a central question is how economic development and political
institutions affect religious participation and beliefs. With religion viewed as an
independent variable, a key issue is how religiosity affects individual characteristics,
such as work ethic, honesty and thrift, and thereby influences economic
performance” (McCleary, Barro, 2006, p.49).
Within the public conscience, the church's role is mostly spiritual, without being
related to the economic life. In fact, down the ages, the church has assumed a
multitude of roles alongside with the spiritual one: cultural, moral, educational, but
also civic, uplifting the people's standard of living. As a matter of fact, ecclesiastic
books highlight the latter role as well: ”I have come that they may have life, and have
it to the full” (John 10:10). Likewise, the parables of the talents or minas reflect the

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accountability that the man, the community and the church have regarding the good
enrichment of goods, respectively the repay for the good fulfilment of the work of
each. In their turn, the Gospels' privileged theme is the compassion towards the ill,
the poor, the needy.
According to Genesis, the Christian philosophy on labour is fractured by the human
fall into sin. If, before this event, the human was related to divinity within the process
of creator of labour, after the human fall into sin, the pattern of the labour has
changed and it became a means of obtaining whatever is necessary for living: ”By
the sweat of your face you shall it bread Till you return to the ground (Genesis 3:19).
The approach towards economy and religion is encountered yet in the XVIIIth
century with Adam Smith, whom applies the principle ”laissez-faire, laissez-passer”
to the religious life, supporting the church separation from the state and a free and
competitional religious market, similar to the economical one. In his turn, theologian
John Wesley preached of the human implication in the economic activity by advising:
”Gain all you can, Save all you can, Give all you can”. However, at the end of his life,
he realizes that the religion-economy relation is not unidirectional as, in its turn,
economy influences the religious life to the meaning of faith diminution and decrease
of religious participation, in parallel to the growth of welfare and economic progress,
reason for which he supports the need for use of gains for humanitarian purposes
(Bălan, 2010). The bidirectional relation between economy and religion is also
analysed by Laurence R. Iannaccone (1998, Introduction to the Economics of
Religion), Rachel M. McCleary and Robert J. Barro (2006, Religion and Economy).
Ștefănescu and Săveanu, (2013) consider that ”Restricting the socio-medical
catastrophes (epidemics, hunger), due to the higher living standards and to the
development of medicine, but also due to the increasing capacity of preventing and
limiting the effects of natural phenomena (earthquakes, droughts, floods), lowers the
number of believers and religious practitioners or the frequency of formal religious
practice” (p.134). Under these conditions, the church tends to turn more towards the
individual behaviour and to the private property and less to the social-economic life.
What seems to be a linking element between economy and religion is the morals,
preached by religion and partially lost by economy. ”The Holy Writ confirms two
moral momentum to labour: the man works to feed himself and to not be a burden
for the others and works to give to the poor” (Ică Marani, 2002, p. 124)..The
interpreters of the Christian doctrine present labour as a ”school of social justness”
(St. Clement of Alexandria), believing that ”laziness, and not labour, should be
regarded as dishonesty” (St. John Chrysostom), and ”the pious intent must not be a
pretext for laziness and forbearance from labour, but more so an incentive to even
more labour” (St. Basil the Great) (apud. Ică Marani, 2002, p. 215).
The economic personalism was built on this ground as a synthesis between the
economic theory and the catholic theology, the founder of which was Karol Wojtyla,
former Pope John Payl the IInd. This theory advocates for the implication of the
person in all social life spheres in the view of social self-achievement and social
integration of all persons, respectively the internalization of moral values in the
economic activity.

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When discussing Christianity, there is no unitary vision on the church implication in

economy.
By means of Pope Leon the XIIIth, Catholicism formulates in 1891 the social doctrine
of the church entitled ”Rerum Novarum”, by which it supports the catholic church's
need to involve in social and economic issues such as: the labour issue (conflicts
between labour and capital), the legitimacy of private property, the workers' right to
a fair wage and affiliation.
Orthodoxy, impressed by slavophilia, was ”doomed to look back, to condemn
rationale in the name of affection, law..., in the name of love, capitalism in the name
of rural community, ...up-to-datedness in the name of traditionalism (Ică, Marani,
2002, p38). Alongside history, the orthodox church had to adapt to the communist
regime, and after 1989, to become up-to-date by adding to the pastoral speech a
social-economic dimension as well, yet without such having priority. To this meaning,
patriarchist Daniel states that: ”Jesus Christ the Redeemer first preached the Gospel
to the crowds..., then healed the ill and only in the evening made the miracle of the
five loaves and two fish” (apud Ignat, 2013).
The relation between religion and economy approached by both economists and
theologists, is seen differently. While Weber (1958) regards the protestant ethics as
regenerating the capitalist spirit, Tomes Nigel (1985) claims that ”economics is
fundamentally atheistic. Religious beliefs, practices, and behaviour play no role in
the life of homo economicus”. The two opposite stands are counter-balanced by
theories that consider that the cohabitation of religion and economy is possible
(Dean, Fornaciari, McGee, 2003).
Eisenstadt’s thesis(1968) is also interesting to Ștefănescu and Săveanu, ”which
replaces the causality relation between Protestantism and capitalism with the idea
of religions’ transforming potential, their capacity to redefine political and social
institutions, to reformulate the economic roles or to generate attitudes that are
favourable to economic growth” (Ștefănescu și Săveanu, 2013, pp. 138-139).
Another research within the Romanian area prioritizes religions depending on the
encouragement and facilitation of the economic performance as follows: Judaism,
Protestantism (Calvinism, Lutheranism), Catholicism, Orthodoxy, Islamism (Sunnis,
Shi'a), Confucianism and Buddhism (Fudulu, 2010).
By understanding its mission, the church gets involved nowadays in social economy
activities that enable it to support the employment of disadvantaged people and
implicitly the increase of their standard of living. The church's choice towards social
economy activities is in consensus with its ideology, according to which God orders
to those who work to take care of the ones whom, due to certain reasons, cannot
make a living, such as the disabled, the ill, the refugees, the orphans and the
widowers, and to share the fruits of their work with them, and according to which the
society watches over the equitable distribution of labour results (Ică, Marani, 2002,
p. 215). Thus, unlike the liberal economy, which is mostly competitive, yet being of
the type ”bellum omnia contra omnes” (Th. Hobbes), social economy's highlights are
on cooperation, aid, which are moral Christian values as well.

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2. Cost-benefit analysis of church implication in social economy. Case study

for a mediation social enterprise on the labour market for disadvantaged
people with entrepreneurship provided by the church
During a period characterized by an extreme lack of manpower, the identification of

new manpower sources proves to be extremely beneficial. Among these sources of
human resources, we can mention vulnerable groups (disabled persons, gypsies,
alcoholics, former convicts, retired persons), the ones that usually are marginalized,
without qualifications or experience on the labour market, but that, under the support
that consists of gaining a qualification and mediation on the labour market, can
represent a significant manpower source, at least for certain fields of activity.
A church implication in the management of this situation within an organization that
would offer mediation services on the labour market for persons belonging to
vulnerable groups may prove itself extremely beneficial, much more as religion
contributes to the development of certain personal features that are desirable from
an economical point of view: honesty, diligence, tolerance, fairness, etc. (Barro,
McCleary, 2003).
By such an action, on one side, persons belonging to vulnerable groups are trained
for labour, and, on the other side, the manpower is provided by a series of activities
without warping the church’s mission as long as a number of persons would be
drawn out from poverty by gaining a safe and stable wage income.
Religions' economic theory tends to adopt and apply, within the religion study,
models of analysis that are specific to economy: the model of rational choice, the
theory of public choice, the theory of games and, not least, the cost-benefit analysis
(the latter mostly to assess the non-economic costs and benefits of certain activities).
For the purpose of estimating the opportunity of an activity, of a policy or of a project,
the cost-benefit analysis method may successfully be used, as it consists of
referencing potential gains to the costs assumed by the activity.
The application methodology of this method implies, for each identified alternative,
the quantification of costs and benefits, their comparison, the assessment of risks
and the decision-making regarding the implementation of an alternative. If, in the
case of economic costs/ benefits, there is the possibility to highlight them in terms of
value, in the case of non-economic costs/ benefits, they cannot be quantified so
easily.
As of church's implication in social economy, we can also discuss the economic and
non-economic costs/ benefits.
Usually, social enterprises are microenterprises (from 0 to 9 employees and at least
one of indicators ”net annual turnover”, respectively ”total assets”, is lower than the
EUR 2 mil threshold, equivalent in RON) or, sometimes, small enterprises (between
10 and 49 employees and at least one of indicators ”net annual turnover”,
respectively ”total assets”, frame into the EUR 10 mil threshold equivalent in RON).
(Law no. 346/2004).
If we consider the case of a mediation services enterprise on the labour market for
disadvantaged people (disabled persons, alcoholics, former prisoners, retired
persons), this implies:

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- incorporation expenditure (Articles of incorporation, name reservation, social

capital, public notary fee for signature specimen) of approximately RON
1500;
- expenditure for the procurement of an office, be it by lease, purchase,
construction (with the possibility to denominate offices for social enterprises
by the public authorities) of approximately RON 12.000/ year (monthly rent
of RON 1000);
- expenditure for equipment (furniture, 2 computers, 2 printers, labour market
mediation software, 1 vehicle), of approximately RON 23.000 (depreciable
in 10 years, annual depreciation value of RON 2.300);
- expenditure for utilities (water, power, heat, internet, telephone),
approximately RON 6000/ year;
- wage expenditure (1 manager, 2 social assistants, 2 psychologists, at least
two of them with motor impairment, respectively 40%1), approximately RON
240.000/ year;
- advertising expenditure, approximately RON 2400.
To such the non-economic costs are added, respectively the community's perception
on church's deviation from its role of granting religious services, advertising injury of
the church involved in non-spiritual activities and even the loss of certain
parishioners whom are less receptive to the church’s innovating efforts.
As of income, such mainly results from:
- provided services (approximately 25% of the annual wage of the recruited
person), an average of RON 3900 per person (RON 1300 net monthly wage
* 12 months * 25%) if 5 persons are recruited in a month, the income for the
60 persons recruited on an annual basis will be of RON 234.000
- subsidies for employing disabled persons (RON 2250/ month/ person), RON
54.000 (only for the first year).
- facilities provided by the social economy law: gratuitousness for the issuing
of the social mark and the registration with the social enterprise directory,
free counselling upon the incorporation and/ or development of business,
granting of areas and/ or fields within the public field, support for the
promotion of executed and/ or supplied products, provided services or
executed works within the community, as well as for the identification of
certain outlets of such, other facilities and tax exempts granted by the local
public administration authorities (Social economy law, 2015). These facilities
may decrease the costs by approximately 10%, respectively by RON
26.420, yet without having the certainty of achievement of such facilities
(reason for which I will not give them a numeric value).
The non-economic benefits are added as well, respectively the decrease of poverty
within parishioners, church appreciation in terms of the new assumed activities,
gaining certain parishioners, moral value added to the economic activity, as well as
providing the market with deficit goods (in this case, manpower).
1
Acc. to the social economy law, at least 30% of the employees must belong to vulnerable
groups

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COSTS
Economic costs:
- C1 Expenditure for the incorporation of the social enterprise RON 1.500
(only for the first year)
- C2 Expenditure for the procurement of spaces (lease) RON 12.000
- C3 Expenditure for equipment RON 2.300
- C4 Expenditure for manpower RON 240.000/ year
- C5 Utilities RON 6000/ year
- C6 Marketing RON 2400/ year
Total: ∑ (C1; C2; C3; C4; C5; C6) = RON 264.200
Non-economic (social) costs
- CS1 Church's deviation from its role of granting religious services
- CS2 Advertising injury of the church involved in non-spiritual activities
- CS3 Loss of certain parishioners
BENEFITS
Economic benefits
- B1 Income from provided services RON 234.000
- B2 Subsidies for the employment of disabled persons RON 54.000 (only for
the first year)
- B3 Decrease of pressure on the social services system
Total: ∑ (B1; B2; B3) = RON 288.000
Non-economic (social) benefits
- BS1 Decrease of poverty within parishioners
- BS2 Church appreciation in terms of the new assumed activities
- BS3 Gaining certain parishioners
- BS4 Moral value added to the economic activity
- BS5 Providing the market with deficit goods
- BS6 Satisfaction of provided work for persons within vulnerable groups
- BS7 Increase of occupational degree
It can be noticed that the income slightly exceeds the expenditure; the differences
could be greater if the facilities provided by the Social economy law are to be used.
On the other side, there already exists the possibility to use a professional
management that frames into the percentage of employees whom are outside
vulnerable groups and whom may provide for a sustainable and profitable growth of
social economy enterprises and whom may be capable to handle the market
competition. Given that the vulnerable persons represent a significant source of
manpower, it may be estimated that the activity of this organization may grow by
offering, on one hand, new job positions, but, on the other hand, by intermediating
job finding for vulnerable persons and implicitly the increase of the standard of living
and the decrease of the feeling of uselessness among such.
On the other hand, the non-economic benefits are multitudinous and more valuable
I would say. The enrichment of the economic activity with moral values, the
replacement of the feeling of uselessness with the satisfaction of work for vulnerable

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persons, the improvement of church image upon the involvement in economic

activities that contribute to the growth of the parishioners' standard of living, the
assumption of certain social beneficial activities by the contribution to the decrease
of pressure on social services systems, the increase of occupational degree and
market provision with deficit goods are equally desirable aspects for any economy.
I have analysed the case of an enterprise providing labour market mediation services
for vulnerable persons considering that it is a type of activity that is seldom met in
the economic area, but that is extremely beneficial for potential beneficiaries, as well
as for employers, especially within a period characterized by the lack of manpower
in most of the fields.
3.Conclusions
The church reconsiders its attitude towards economy, and the social economy fully
serves the humanitarian purposes and objectives of the church. Church's implication
in economy brings advantages to both sides, both to the church and to the economic
life, but mostly to the vulnerable persons whom, being framed into labour by the
support of the church, may exploit their potential and provide for a better life by own
means.
The church entrepreneurship may bring innovative ideas to the social economy
space, given that the priest deeply knows the needs and possibilities, the existing
opportunities within a parish. Moreover, the priest benefits from the power of his
words during the religious service to empower the Christians to a successful
enterprise.
The cost-benefit analysis reflects the fact that the activity of a social economy
enterprise may be efficient and profitable if it is organized based on solid economic
principles, if it identifies outlets for the provided goods and services and if it produces
quality goods and services that are comparable to the ones produces within the
liberal economy - in other words – if it provides for competitiveness.
I consider that the analysis on the company that provides mediation services on the
labour market is a starting point to a long line of suggestions of social economy
enterprises that the church could successfully undertake, thus contributing to the
increase of the occupational degree and decrease of poverty within vulnerable
persons and to the creation of an increasingly better image within the community.
References
1. Azzi, C., Ehrenberg, R. (1975). “Household Allocation of Time and Church
Attendance.“ Journal of Political Economy. February, 83, pp. 27–56
2. Barro, R., J., McCleary, R., M. (2003). “Religion and Economic Growth.”
American Sociological Review. October, 68, pp. 760 –781.
3. Bălan, S. (2010). ”Viaţa religioasă şi comportamenul economic”, Cogito:
Multidisciplinary Res. Journal,
4. http://cogito.ucdc.ro/nr_3/9%20%20VIATA%20RELIGIOASA%20SI%20COMP
ORTAMENUL%20ECONOMIC%20_rom_.pdf

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5. Eisenstadt, Sh., N. (1968). The Protestant Ethic and Modernization: a

Comparative View, New York: Basic Books
6. Finke, R., Iannaccone, L., R. (1993). “Supply-Side Explanations for Religious
Change.” The Annals of the American Academy of Political and Social Sciences.
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7. Finke, R., Stark, R. (1992). The Churching of America 1776-1990. New
Brunswick, NJ: Rutgers University Press
8. Fudulu, P. (2010). Compatibilitatea marilor religii cu performanța economică. O
decriptare economică a dogmelor, București, Editura Universității București
9. Iannaccone, L., R. (1991). “The Consequences of Religious Market Structures:
Adam Smith and the Economics of Religion.” Rationality and Society. April, 3, pp.
156 –177.
10. Iannaccone, L. (1998),” Introduction to the Economics of Religion”, în Journal of
Economic Literature, vol. 36, No. 3, pp. 1465-1495.
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‘Secularization’ of Europe.” Journal for the Scientific Study of Religion. March, 33,
pp. 76 – 88.
12. Ică,I., Marani, G. (2002). Gândirea socială a bisericii. Fundamente – documente
– analize – perspective, Sibiu, Ed.Deisis
13. Ignat, A. (2013). Biserica creștină și provocările economice. II. O viziune istorică
în Biserica creștină, București, Editura Universitară
14. Kathy Lund Dean, Charles J. Fornaciari, James J. McGee, ”Research in
spirituality, religion, and work: Walking the line between relevance and
legitimacy”, Journal of Organizational Change Management, 2003, 16 (4), 378-
395.
15. McCleary, R.M., Barro, R.,J.(2006), ”Religion and Economy”, în The Journal of
Economic Perspectives, vol. 20, No. 2, pp. 49-72.
16. Ştefanescu, F., Săveanu, S. (2013). „Religiosity and Economic Behaviour. An
Exploratory Analysis of the Hungary-Romania Cross-Border Area”. Journal for
the Study of Religions and Ideologies, nr. 12 (35), p. 132-157,
http://jsri.ro/ojs/index.php/jsri/article/view/709/592
17. Tomes, Nigel, “Religion and the Earnings Function”, American Economic Review,
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18. Weber, Max, The Protestant Ethic and the Spirit of Capitalism, (London: Allen &
Unwin, 1958)
19. Legea nr. 346/2004

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SUSTAINABILITY REPORTING PROCESS: BENEFITS, LIMITS AND

ACHIEVMENTS
ROȘCA Paula-Carmen, BÂC DORIN-PAUL

University of Oradea, Oradea, Romania
paula.rosca07@gmail.com
dbac@uoradea.ro
Abstract: It’s universally accepted that the private sector is playing a great role in
the modern society, contributing to the economic development of the community it
serves. More than that, companies have a strong influence on the life of their
consumers, their suppliers, their employees and on the communities in which they
operate. Business organizations have a powerful impact on society’s well-being
through the working conditions they are offering, training provided to employees,
health coverage, payroll and taxes paid to local authorities, quality of the products
and services provided to the population, environmental impact of their activity and
so on. In brief, apart from the economic outcome and the spill over effect of their
activity, they also have an environmental and social footprint. Nowadays, many
companies are aiming to achieve economic performances while placing greater
emphasis on social and environmental objectives, turning into sustainable
companies. The first steps have been made by the biggest corporations in the world
who started to report on their performance in terms of sustainability, mainly due to
the pressure exerted by the society, by the governments, by the investors and NGOs.
They are focusing on sustainability as a mean of creating value for shareholders and
managing the interests of other stakeholders, including employees, suppliers,
governments, creditors and societies at large. Their purpose evolved and it’s not just
ensuring long term profitability and competitive advantage but also to contribute to
the well-being of the society, the planet, and its inhabitants. The active engagement
of corporations is essential if the world wants to achieve changes that are required
in order to align the planet on the path of sustainability. But how can we know if it’s
true and how can their performance be measured and evaluated? In this paper we
aim to emphasize the role of measuring sustainable performances of the company
and mandatory reporting and audit. Our purpose is to identify the global reporting
trends for sustainability performance for the largest companies in the world and also
to identify the limits of current reporting process. Another objective is to determine
the Romanians reporting rate according to GRI Standards compared to other
countries from the south-east Europe.
Keywords: sustainability; reporting; performance; GRI; corporations.
JEL Classification: Q01, M14, G30.
1. Introduction
Applying the concept of sustainable development (SD) to the private sector, the
collocation corporate sustainability (CS) emerges. According to Figge et al. (in

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Morioka, et.al., 2018), in order to enable CS, SD principles must be incorporated

into the business. In this way, environmental and social objectives will stem from
the business strategy itself.
Integrating sustainability into the business is nowadays a necessity. Why? Hussain,
Rigoni, & Orij (in Molla, Ibrahim & Ishak, 2019) considers sustainability to be a
pressing issue for the companies all over the world in order to gain a competitive
advantage in a resource constrained environment. More than that, the increasing
rate of population, urbanization and industrialization have severe implications
regarding the economic, social, and environmental conditions of different developing
countries. In order to respond to these challenges, companies need to adopt
sustainability practices in their businesses (San, 2016).
Investments in socio-environmental initiatives are now seen also as an opportunity
for innovation and for increasing competitiveness (Morioka, et.al. 2018).
Furthermore, Margolis & Walsh (in (Molla, Ibrahim & Ishak, 2019) asses that
companies are achieving also other benefits from integrating sustainability in the
business. These benefits include: enhanced risk management, new customers,
access to capital, enhanced productivity and brand value, cost optimization and
good reputation. As a company, having a good performance in terms of
sustainability has an important role in reducing corporate scandals.
Appart from these opportunities, companies have to take full responsibility for their
actions (Morioka, et.al., 2018). Some investors and shareholders, clients, the mass-
media, local communities, employees, environmentalists or NGOs consider that
companies should be more responsible to all of their stakeholders in addition to just
earning profits (Searcy, 2012, Bădulescu, Bungău & Bădulescu 2015).
As a result, corporate sustainability matter has now become an important concern
for companies than it was ever before, a fact reflected also in Global Risks Report
2016 of the World Economic Forum (Molla, Ibrahim & Ishak, 2019).
Moving forward, authors (Cooper & Edgett, Ehrenfeld in Morioka, et.al. 2018) argue
that firms can only manage what they can measure. In this approach, we consider
that all the business organizations that claim to be sustainable (but not only them)
should use a system capable of measuring sustainability performance and report
their results year after year, as they do with their financial ones. But this is not a new
idea. Actually, nowadays, stakeholders are increasingly demanding for more
transparency and more disclosures not just on economic performance but also on
the company’s environmental and social practices (Waddock, 2003). Since the
financial crisis, corporate reporting is subject to the close scrutiny of regulators,
policy makers, and other reports’ users. Investors are asking for more accurate and
reliable financial and nonfinancial information on different KPIs such as corporate
governance, business models that create sustainable performance, risk assessment
and other issues of strategic and significant importance to the stakeholders. In brief,
investor confidence and public trust in corporate reporting are the factors that
determine the perceived usefulness of corporate reports (Brockett & Rezaee 2012).
This has been the main driver for developing corporate sustainability reporting tools
(SRTs), which can be find in the literature as: corporate social responsibility (CSR)
reporting, triple bottom line (TBL) reporting, sustainable development (SD) reporting,

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non-financial reporting or environmental, social and governance (ESG) reporting

(Siew, 2015, ). Thus, as business sustainability matters gain more attention and
more companies in the world issue these types of reports, Brockett & Rezaee 2012)
argue that the various types of sustainability and CSR reports should converge under
one globally accepted and practiced caption, preferably “sustainability reporting.”
They also state that this type of reporting serves two purposes: internal purposes
(used for managing and reporting on the level of sustainability performance,
benchmarking and evaluation) and external reporting (is used for decision-making
purposes by all stakeholders and also to ensure compliance with all the applicable
standards, laws, rules and regulations).
Several organizations, international standard-setters and regulators have suggested
ways for improving the quality, reliability, usefulness, transparency and
comprehensiveness of corporate reporting. According to Brockett & Rezaee (2012,
p.18), “reporting business sustainability has gained significant attention and
acceptance throughout the world in recent years due to support and promotion from
GRI, the Prince of Wales’s Accounting for Sustainability Project, the International
Integrated Reporting Committee, and the IFAC, among other organizations”.
Nowadays, GRI sustainability reporting guideline is the most widely and
internationally accepted, recognized and extensively used guiding principle for
measuring and reporting the sustainability practices by the companies and
researchers (Molla, Ibrahim & Ishak, 2019).
The GRI (2011) defines sustainability reporting as “the practice of measuring,
disclosing, and being accountable to internal and external stakeholders for
organizational performance towards the goal of sustainable development.” The
emerging issues in sustainability reporting, according to GRI, are the three I’s:
integration, implementation and integrity’ (Brockett & Rezaee, 2012, p.17).
2. The relevance of disclosing nonfinancial information
2.1 A short history of corporate sustainability reporting

The beginning of sustainability reporting can be traced back to the 1960s and 1970s
in Europe and slightly later in the US when the organizations started to recognize
their role in the society beyond profit maximization. The sustainability movement and
reporting in the United States dates back to the first Earth Day held on April 22, 1970
(Brockett & Rezaee, 2012). After that, the movement gained momentum with a
United Nations report issued in 1987, known as the Brundtland Report which
promoted sustainability as a form of balancing economic, social and environmental
matters and provided the most common definition for SD (Bâc, 2013). Also, the
acceptance of corporate social responsibilities in countries like France and the
Netherlands encouraged the introduction of environmental reports in other countries
such as Germany, Austria and Switzerland during the 1970s. The country that
adopted for the first time a mandatory sustainability reporting law was Finland, in
1997 (for state owned corporations) (Ioannou & Serafeim, 2017). Other countries
adopting similar laws are China, Denmark, France, Germany, Greece, Indonesia,
Australia, Austria, Canada, Italy, Malaysia, Netherlands, Norway, Portugal, Sweden,

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and the UK. During the 1990s, reporting financial and nonfinancial KPIs gained some
acceptance through the introduction of values reporting, with a primary focus on
social, environmental, and animal protection issues (Deloitte in Brockett & Rezaee,
2012). In 1999, the United Nations Environment Programme (UNEP) joined with
Ceres as a partner in the GRI project with the purpose of developing a sustainability
information disclosure framework. The first version of GRI Guidelines was published
in 2000 aiming to offer support for companies in creating sustainability reports that
integrate social, environmental and economic impacts of business (Brockett &
Rezaee, 2012).
In 2010, the Securities and Exchange Commission (SEC) issued a report named
“Commission Guidance Regarding Disclosure Related to Climate Change,” which
required public companies to disclose the risks (material, financial and reputational)
associated with global climate change. During the same year, the International
Integrated Reporting Committee (IIRC) was formed with the primary goal of creating
a globally accepted framework in order to standardize reporting on sustainability
performance. The International Organization for Standardization (ISO) developed at
the end of 2010 “ISO 26000” guidelines for social responsibility reporting which are
focused primarily on the value and relevance of public reporting on social
responsibility performance to internal and external users.
In 2011, the Singapore Stock Exchange (SGX) launched a “Sustainability Reporting
Guidance” framework and required its listed companies conduct business in a
sustainable manner and also to disclose accountability for their operations (Green
Consult, 2012). Also, in order to measure companies' performance in sustainability,
a lot of stock exchanges created sustainability indices. The pioneer was the New
York Stock Exchange, which created the Dow Jones Sustainability Index (DJSI) in
1999. Following the same trend, the London Stock Exchange created the
FTSE4Good (Financial Times Stock Exchange) in 2001, and the BSE Values from
Johannesburg JSE (2003) followed by BM & FBOVESPA (2005) which became the
third and fourth largest stock exchange in the world that implemented a Corporate
Sustainability Index. Currently, 18 stock exchanges use global sustainability indices
(Albuquerque da Silva et al., 2019).
2.2 Why to report? The necessity and the benefits of CS reporting

Why would companies disclose nonfinancial information related to their business
activity to stakeholders? One reason relates to the realization that nonfinancial
performance measures often present a leading indication for predicting and
improving future financial results. For example, large companies (e.g, DuPont, Mobil,
Allstate, Gap, Inc., British Petroleum-Amoco) recognize the potential comparative
advantages that can be generated by publicly disclosing goals related to both
nonfinancial and financial performance and then reporting on the achievement or the
progress made over time. Another significant reason is showing external
stakeholders the extent to which their enterprise risk management processes are
effective (Ballou&Heitger, 2005).
Brockett & Rezaee (2012) presented three important ways that sustainability
development and reporting may affect long-term economic performance and

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shareholder value. First, by adopting sustainable practices, management can be

prepared for inevitable regulations or laws. Second, “sustainability initiatives are
generally viewed positively by investors and other stakeholders as the evidence of
management commitment to long-term sustainable economic performance, social
responsibility, and customer satisfaction create an edge over competitors.” When
two firms report the same profitability, investors typically invest in the one that is
more environmentally and socially responsible. Finally, employees, suppliers,
customers and other stakeholders are generally inspired by environmentally
friendly, socially responsible and ethically driven companies. They realize that
management concentration on sustainability performance is incorporated into
earnings management activities that will likely create short-term gains and generate
sustainable value over time (Brocket & Rezaee, 2012,p. 87).
From another perspective, Zenya & Nystad (2018) state that companies opt for a
sustainable business strategy due to intrinsic and extrinsic reasons. On one hand,
the intrinsic incentive is that sustainability is good for business because it leads to
increased turnover through product innovation, higher stock prices and reduced
costs through energy saving. On the other hand, the extrinsic reasons are related to
the positive impact they can have on the world–e.g. some firms have taken measures
to reduce their waste to minimise their ecological footprint and not harm the
environment and others have created jobs in conflict areas.
Although regulations and best practices regarding business sustainability vary
significantly worldwide, one global trend is emerging: investors’ need for more
transparent and reliable sustainability information. Sustainability reports can provide
investors and the capital markets with relevant information regarding performance.
An integrated reporting of indicators, material flows and integrated accounts is
necessary to provide persuasive information to investors and stakeholders in order
for them to make sound investment decisions (Shields & Šolar, 2007). “The most
persuasive information is reliable, useful, transparent, timely, and relevant to all five
dimensions of performance” (Brocket & Rezaee, 2012). Along with the need to
address stakeholder requirements which is a reason widely recognized in previous
researches, Searcy (2012) considers that additional corporate motivations could
include: improved reputation, cost savings, improved employee motivation and
retention, enhanced competitiveness, and reduced risk, among others. However,
many authors have moved from a focus on whether or not corporations should
engage in sustainability to how it can be done in practice (Searcy, 2012).
2.3 The limits and critics of current reporting

Although reporting on sustainability aspects is essential, there are authors that do
not agree with the current status of reporting, framework, methods or applicability.
For example, Siew (2015) concludes that much of corporate sustainability reporting
can be viewed as a way of hiding actual practices. According to Milne and Patten (in
Siew, 2015), the proclaimed sustainability practices of some corporations merely act
as ‘façade to cover the “back stage” activities from a concerned society. They
consider that the ESG assessments based on such reporting is failing to truly
distinguish the leaders from the laggards.

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Siew (2015) concluded based on his research that numerous studies (reporting
(Poelloe, 2010; Derwall et al., 2004; Gompers et al., 2003; Opler and Sokobin, 1995;
Orlitzky et al., 2003; Bauer et al., 2006; Hamilton et al., 1993; Angel and Rivoli, 1997)
examining the link between environmental, social and corporate governance (ESG)
practices as reported and corporate financial performance have yielded mixed
conclusions, probably due to the inadequacy of the current framework.
Another limit of sustainability reporting was identified by Ballou & Heiger (2005) who
argue that despite the fact that these reports potentially are a very effective tool, the
concern is that there are no generally accepted standards for how these reports
should be prepared (although GRI standards are a possibility) and, thus, a lack of
auditing associated with many of the reports issued. As a result, there aren’t many
barriers to companies that wish to misrepresent the information within the reports.
Going forward, Isaksson & Steimle (2008) on their study on the cement industry,
lead to the conclusion that the GRI guidelines are not sufficient to make sustainability
reporting relevant and clear. They consider that the guidelines are not sufficient for
assuring that a report answers the questions of how sustainable a company is and
how quickly it is approaching sustainability. Within the GRI guidelines the needs of
the customers are not considered sufficiently. This points at an important area where
business excellence ideas can support sustainability reporting. They proposed, for
instance, to overcome this gap by including the concept of cost of poor quality into
sustainability reporting guidelines.
Another critic addressed to the current sustainability reporting process is that is not
mandatory everywhere, by law and not under a global standard and unanimously
accepted framework. According to Corporate Knights report (2016) mandatory and
prescriptive sustainability disclosure requirements work and countries that have
them lead and those that don’t, lag. The argument is based on their experience
measuring the state of sustainability disclosure, starting with 2011; at that time the
conventional wisdom was that the best way forward was to issue principles-based
guidance; however, 5 years later they found evidence and concluded that the “report
what you feel you like” approach in the absence of minimum mandatory standards
is not a recipe for useful reporting. `With the exception of Switzerland (which is
affected by its European context), all of the top 10 exchanges are domiciled in
countries with mandatory sustainability disclosure requirements, and the converse
holds for the bottom 10 exchanges (with the exception of the Shenzhen Stock
Exchange, likely due to enforcement issues)”. In view of the fact that most highly
ranked stock exchanges have at least one mandatory, prescriptive and broad policy
instrument designed to regulate sustainability disclosure, their recommendation is
that policy-makers should consider adopting such policies or convert existing
voluntary policies into mandatory ones that provide specific and itemized disclosure
requirements (Corporate Knights).
Ioannou & Serafeim (2017) are however, more sceptical and stated in their working
paper that it is not clear how such mandatory disclosures might affect companies.
On the one hand, increased transparency, to the extent that it is achieved through
mandatory reporting laws and regulations, could discipline companies and motivate
them to do better regarding socio-environmental dimensions of performance. On

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the other hand, it could also generate negative externalities as companies with
superior sustainability disclosure will have to exert greater efforts and possibly incur
higher costs to distinguish themselves from the rest of the companies in the period
following the regulation. In other words, mandatory reporting could result in a „costly
pooling rather than a separating equilibrium with respect to the value of
sustainability disclosures, and can thus eventually destroy shareholder value”
(Ioannou & Serafeim, 2017, p.2).
3. An overview of the progress made on corporate sustainability reporting
In order to measure the progress made on corporate sustainability reporting, we

analyzed a report from the Governance and Accountability Institute and also audit
reports from KPMG from recent years. We gathered the data and summarized the
evolution regarding the number of companies reporting over the last years. The
companies analyzed were from 3 different groups: G250 (top 250 companies by
revenue in Global Fortune 500), N100 (top 100 companies from a selection of 45
countries) and S&P 500 (the companies included in the S&P index, usually large
public US companies). A In 2000 only 44 organizations followed the GRI guidelines
to report some information regarding sustainability, whereas in 2010, their number
grew to 1,973 (Brocket & Rezaee, 2012). As of November 2019, there are 33.844
GRI reports available from 14.252 organizations from all over the world
(https://database.globalreporting.org/). We also used GRI database to identify the
progress made on the reporting process using these standards.
100 95 93 92 93
83
80 71 73 75
64 64
60 53
45 41
40 35
24 28
20
0
1999 2002 2005 2008 2011 2013 2015 2017
N100 G250
N100: top 100 companies from the 45 countries analysed (a total of 4500 companies)
G250: top 250 companies by revenue listed in Global Fortune 500
Figure 1. Sustainability Performance Reporting among companies between 1999
and 2017 (%)
Source: adapted by the authors based on the data available in KPMG International
(2015&2017)

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More and more companies are reporting on sustainability and the numbers of those
using the GRI Standards continues also to grow. According to KPMG (2017), 93%
of the world’s largest 250 corporations report on their sustainability performance and
most of them (74%) use the Global Reporting Initiative guidelines. Based on their
research done on G250 (top 250 companies by revenue in Global Fortune 500) and
N100 (top 100 companies from a selection of 45 countries), there is an increasing
tendency for sustainability reporting for both groups (Figure 1).
In a different research, the G&A Institute reveals that 85% of S&P 500 Index
Companies published sustainability reports in 2017 and the percentage of those who
are reporting is higher and higher each year (Figure 2) (G&A, 2018, https://www.ga-
institute.com/press-releases/article/flash-report-85-of-sp-500-indexR-companies-
publish-sustainability-reports-in-2017.html?type=123).
Reporters Non-Reporters
25 19 18 15
28
47
80
75 81 82 85
72
53
20
2011 2012 2013 2014 2015 2016 2017
Figure 2. The Evolution of Sustainability Reporting for S&P 500 Companies (%)
Source: Governance and Accountability Institute, Inc. (2018) available at
https://www.ga-institute.com/press-releases/article/flash-report-85-of-sp-500-
indexR-companies-publish-sustainability-reports-in-2017.html
In the following table (Table 1) we made a comparison between 6 south-eastern

European countries, part of EU, in term of economic development, business
demography and C.S reporting activity. For economic prosperity, we used the
GDP/capita indicator (EUR) for 2018 (the most recent data available) while for
researching business demography we establish to reveal the results of 3 indicators:
number of companies with more than 250 employees, the average of persons
employed (only those with more than 250 employees were taken into consideration)
and their turnover (million euros). In terms of timeframe, in the table are reflected
the results for 2017 as there is no available data for 2018 yet. Moving forward to
sustainability reporting statistics, we used the GRI database to find out the numbers
of large and multinational companies reporting and the total number of reports
published by November 2019; we also calculated the reporting rate for each country
based on the numbers of reporters and the number of total companies (for GRI

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reporters we searched for large and multinational companies and for total large
companies, we selected the range >250 employees).
Table 1. A comparison between south-eastern European countries

GDP/ca No of No of
Persons Reporters
p companies Tornover sustaina
Country employed/
2018 >250 (mil EUR) bility
company no %
(EUR) employees reports
Bulgaria 7,980 675 750 40.600 28 12 2
Croatia 12,560 416 761 32.969 110 23 6
Romania 10,420 1663 848 123.805 94 33 2
Slovenia 22,080 233 740 33.067 74 16 7
Slovakia 16,470 581 776 84.240 73 11 2
Hungary 13,690 935 904 127.743 294 74 8
Source: created by authors based on the data available at
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do and at
https://database.globalreporting.org/search/
What we want to emphasize is that although Romania has the biggest number of
large companies from the region and ranks second as the number of persons
employed by these companies, it has the lowest reporting rate (as well as Bulgaria)
with only 2% of companies disclosing sustainability practices based on GRI
guidelines. For 2019, only 4 companies published their report and only 3 were
according to GRI-Standards while the other one was a non-GRI report. Romanian
law regarding sustainability reporting has changed in 2018 (O.M.F.P. Nr.
3.456/2018, Art. 7, 8) and according to the new regulations, all entities that exceed
the criteria of having an average number of 500 employees, must include in the
administrators report a non-financial statement containing information on at least
the environmental, social and personnel aspects, human rights, corruption and
bribery aspects. However, the law is vague and does not mention a standard
procedure on how to report these aspects, how will be they audited and does not
enforce companies to apply to GRI standards or another framework that would allow
comparisons or progress measurements.
4. Conclusions
Our present research emphasizes the progress made on sustainability reporting, a

process that we consider essential for the current business environment which
requires more transparency and reliability for all the stakeholders involved. In order
to align the planet on the sustainability path, companies and especially big
corporations are considered to be an essential stakeholder whose actions have a
big impact on the environment, on the economic development and on the well-being
of the community. Reporting on the sustainability performances is one step forward
as in this way, the sustainable development practices are accessible, available, can
be widely spread and the probably the most important aspect is that performance
can be measured so that actions and decisions for continuous improvement can be

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taken. Despite the fact that there are unanimously accepted standards for reporting,
only a small percentage of the companies actually use them and not in all the
countries reporting is mandatory by law. Our research is limited and is mostly
quantitative as we only researched and measured numbers of reports, reporters
from different groups but we didn’t analyse qualitative aspects such as the content
and requirements of the standards, the quality of the reports submitted by
companies, indicators used for measurement and so on. Further researched could
take into consideration these aspects of reporting and create for example,
benchmarking between companies from the same industry in terms of sustainability.
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A COURNOT-BERTRAND MODEL USING VARIOUS PRODUCTS
RUSESCU Ciprian
Economic Cybernetics and Statistics Doctoral School, Bucharest University of
Economic Studies, Bucharest, Romania
rusescuciprian18@stud.ase.ro
Abstract: Imperfect competition represent a known issue on modern economic
analysis. Monopoly case classical induce a worse solution for consumer side but in
the oligopoly competition scenario it will be possible to obtain a solution close to
perfect competition situation. In this case, two of the most well-known game theory
models in imperfect competition are Cournot model, respectively Bertrand model.
First one offers an output equilibrium solution, while the second one, advocating for
price competition, highlights an equilibrium solution in terms of price. Alongside
these two models, in the last period, we can also note an increasing interest for the
Cournot-Bertrand mixed scenario. All these three behavioral types can be identified
in the real market. This paper aims to analyze a duopoly market, with linear demand
and cost functions, as well as product differentiation characteristics, where a Cournot
behavior is adopted by one firm and a Bertrand behavior by the other one. Both firms
manage to survive on the market and a stable equilibrium will be manifested if there
is sufficient product differentiation. In a very low product differentiation / very high
product homogeneity scenario instead, the adjustment process proves to be a
divergent one, undermining the equilibrium stability. In a homogenous products
context, the Cournot-type firm will produce the perfectly competitive output level and
the Bertrand-type competitor will leave the market. The selling price will match the
marginal cost and duopoly profit will be null. Even with just one firm on the market,
the basic threat of a Bertrand – type potential competitor, warrants a very prudential
behavior while also further ensuring the perfect competitive outcome level. The
paper is looking to also analyse in detail the existence of Nash equilibrium point, its
local stability and uniqueness, as well as the product differentiation impact on this
equilibrium and players surviving potential on the market. The final part of the paper
contains a simulated study case for price, quantity and profit evolution for various
values of model parameters.
Keywords: Cournot-Bertrand model; product differentiation; oligopoly theory.
JEL Classification: C72; D01; D43; L13.
1. Introduction
The starting point of oligopoly theory is the Cournot classic model (1838), who
derived the Nash equilibrium in a static duopoly game with firms producing perfectly
homogeneous goods, choosing simultaneously the output level, in market’s demand
and price full awareness scenario. At an equilibrium scenario, the price level
becomes lower than the monopoly case, but higher than marginal cost. Bertrand
(1883) analyzed the same game as his predecessor, choosing the price strategy

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instead of output one. He has discovered another Nash equilibrium, price matching
the marginal cost and the firms profit being zero. These basic models highlights the
idea that the choosing of price or output as strategic variable, in an oligopoly with
strategic interaction, has a huge impact on the Nash equilibrium
In the last decades, an increasing interest on the static Cournot-Bertrand model has
been manifested. As per its name, the model consider one firm competing in output
(Cournot type) and another one, competing in price terms (Bertrand type). Singh and
Vives (1984) proved under certain conditions of demand and cost, if two firms can
choose to compete in output or price the dominant strategy for both is to compete in
output rather than price (Cournot case), in substitute products scenario. Lately,
Häckner (2000), Zanchettin (2006), Arya et al. (2008), and Tremblay et al. (2009)
explain how exeactly technological and institutional conditions as well as demand
assymetries can modify firm profits, optimality being reflected in Bertrand or Cournot-
Bertrand model.
Considerind the wide range of theoretical possibilities, Kreps and Scheinkman
(1983) assert that firms decision to compete in output or price terms is lastly an
empirical question. In the real world, all three behavior’s type (Cournot, Bertrand,
and Cournot-Bertrand) could be found. Hotels set prices, while flower producers set
quantities. In the Japanese electronic industry, Sanyo set prices whilst Panasonic
set quantities (Sato, 1996). From this point, any future research on the Cournot-
Bertrand model will be warranted and could also improve actual understanding of
oligopoly markets.
Tremblay and Tremblay (2011) investigate the Cournot-Bertrand model, some
interesting ideas emerging from their research: in homogeneous products case,
Cournot-type firm produces the perfect competitive level of market output, whilst
Bertrand-type firm leaves the market. The mere threat of a Bertrand-type potential
competitor, ensures the perfectly competitive outcome, demonstrating the dramatic
effect this one can have on the market power.
The next paragraphs will cover the impact of product differentiation degree on a
Cournot-Bertrand static equilibrium model, highlighting certain interesting aspects
such as stability, market surviving potential and also product differentiation influence
on Nash equilibrium theory. The principles of the related mathematic model are also
analised.
2.The Model
The used scenario presents two producers, i and j, competing on the same market,
establishing simultaneously their own action paths. First one decides to adopt a
Cournot behaviour, competing in quantity terms,whilst the second adopt a Bertrand
behaviour, competing in terms of price. The common aim is to maximize their own
satisfaction / profit, whilst fully aware of market conditions.
The products may differ by few features and producers can have a high appetite for
variety, as per Beath and Katsoulacos (1991). For example, we can mention the real
scenario of consumer dilemma, where ask to choose to spend his money in a fast –
food or in a coffee shop. Those one may differ in geographic location, quality of

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services, atmosphere and despite the fact that consumers will always prefer a certain
type of service over the other one, he decide to try both services in a certain time
period.
We consider the substitutes products scenario, where above mentioned kind of
differentiation can be translated into a linear demand system, as per Dixit
(1979),Singh & Vives (1984), Beath & Katsoulacos (1991), Imperato et all (2004),
Tremblay (2011) have already mentioned.
The inverse demand functions are:
= − −
= − − → = a− −d∗
where a>0 and d ϵ [0, 1]. If d=1, homogeneous products case can be identified whilst
each one acts as monopolists when d=0. More precisely, d is an index, whose value
is inversely proportional with differentiation degree (differentiation diminishes at d
value increases). It also reflects the nature of the products, positive values being
specific for substitute products, negatives values for complements scenario, whilst
zero values highlights independent products. Demand function decreases in each
product’s price, but increases/decreases in competitor’s price, in
substitute/complement products scenario.
In current model, the demand system in strategic variables, q1 and p2 is:
= a − ad + 1 − +
== a− −d
(see Apendix A)
Cost of production is considered to be linear and identical for both firms c, also
= − , ∀ = 1,2 , ∈ 0;
matching marginal cost. Thus, the profit function for firm i is:
Marginal profit expressions represent the starting point in the best-reply functions
determination
∶ = + ∶ = −
!"#$" % $& ' ()* "! #)*
# #
and further to Nash equilibrium values revealing :
2− −2 + + 2+ − − +
+
∗
= ∗
4−3
2− − + 2+ −2
=
4−3

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a−c 2−d
∗
= ∗
4−3
a−c 2−d−
=
4−3
a−c 2− 1−
∗
= ∗
4−3
a−c 2−d−
=
4−3
test the Nash equilibrium stability: | | > | |, 1ℎ3 3

We further use Dixit’s necessary and sufficient stability condition (1986), in order to
= '6 8 = ,
4'5 4 ' 56
476 479 47:
, ; = 1,2
Conclusion: equilibrium is stable ∀ d ∈ <0; ? @ ? ≈ 0,78 . More specific, in

√ >$ √ >$
a differentiated products scenario, the degree of differentiation must be high enough

to assure the equilibrium stability (situation reflected by Figure 1, highlated at
intersection area of the two isoprofit curves), otherwise we are moving in an
instability area, where the adjustment process does not converge to the equilibrium
point (see Figure 2).
Figure 1: Isoprofit and best – reply functions in the Cournot – Bertrand dupoly
Source: own processing

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Figure 2: Best – reply functions and equilibrium’s instability in the Cournot –

Bertrand model
In Figure 2 , if we start our analyze at a point such as p2′, his competitor's best reply
is to produce at the output level that corresponds to point A . In response to firm 1's
producing decision, firm 2 sets price at level B. First player’s reaction will be to
produce the output reflected in point C, the second will react again via D level price
and so on. According to the graphic, can be easily obseved that the trend „push”
each player’s response further away from the best-reply function’ intersection point;
the equilibrium becomes unstable because the adjustment process prouve to be a
We will further analyze the perfectly substitutes products case (d=1). Whereas ∗ =
divergent one (i.e., it moves from A to B, to C, to D, etc.).
, ∗ = , the selling price will be identical for both products, also matching marginal
cost. We obtain ∗ = a − c, ∗ = 0, so firm 1 produces the perfectly competitive level
of output, whilst firm 2 leaves the market (produces zero output). However, we can
Bertrand and Bertrand models ( ∗ = a − .Thus, the profit becomes ∗ = 0, ∗ = 0,

highlight that the perfectly competitive market output level is identical in Cournot-
so notwithstanding the output produced by both players, they win nothing in current
scenario.
Nash equilibrium can be mathematically expressed by player i scenario of profit
% ∗ , 8∗ ( ≥ % , 8∗ ( ∀ , ; = 1,2
maximization, regardless player j behavior, as per below below:
D 8 ∗ ∗
% , 8 ( ≥ 8 % ∗ , 8 ( ∀ , ; = 1,2

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Proposition: ∗
= ∗
= and ∗
= − , ∗
=0 defines the only Nash equilibrium.
= , , = , .
< 0, F)' <
Proof: we consider the general demand system
F7* F7
F)
Demand functions are differentiable, each having negative slopes
* '
0 , substitutes products scenario being considered > 0, F)' < 0 . If HI =
F7* F)
F7' *
perfectly competitive output level, we further analyze the following possible
situations:
 > HI . Considering the negatively sloped demand function, current

output level leads to negative profits for first player (p( > Qpc) < c). A better
< HI . Zero output level produced by second player, also negative slope
alternative would be leaving the market and earn zero profit.

demand function leads to p( < Qpc) > c. This time, second player best
response , would be = p( < Qpc) – ε > c(ε > 0), actual scenario offering
> offer firm’s 1 the chance of increasing its production and win
the possibility of earning positive profit ( > 0) for both firms. On the other
side,
extra profit,by supplying the entire demand at . No residual demand will
remain for firm 2, a strong enough incentive to further decrease its price;
< . Firm 2 earns negative profit, then will decide to leave the market and
raising and lowering p2 actions will continue until = Qpc and = c;

> . As we have mentioned previously, firm 1’s best reply to

obtain zero profit;
 > c is to
produce all market’s requested output at p2, such that < Qpc. In return, will
became profitable for firm 2 to decrease price level. The process of output
= HI J = . Was already demonstrated that first firm cannot

increasing and price reducing will continue until = Qpc and = c.
increase its profit in ≠ HI case, and neither second one, if ≠ . Any


action path players would choose, would lead to not a higher profit level then
the one expected from its current strategy, therefore they are not stimulated
to modify the quantity/price triggering the unique Nash equilibrium point.
All previous analysis are meant to highlight the dramatic effect that a potential
competitor can induce in a market. The mere threat of a price competitor offering a
homogeneous product, ensures that a monopolist will adopt a perfectly competitive
firm’s behavior. Briefly, the potential competitor fully annihilate market power.
We further analyze, via graphical representation, the price/quantity/profit sensitivity
to the changes in the product differentiation levels (d parameter values) in a Nash
equilibrium scenario. Starting from Appendix B tabled values and also customizing
parameters a and c (a=90 EUR, c=50 EUR) we gradually increase product
homogeneity degree by ratio of 0.05 (from independent products case (d = 0) to
homogeneous products scenario (d = 1))

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Figure 3:Nash equilibrium price evolution (player i) Figure 4:Nash equilibrium

price evolution (player j)
Source: own processing Source: own processing
Figure 5:Nash equilibrium quantity evolution(player i) Figure 6:Nash equilibrium

quantity evolution(player j)
Figure 7:Nash equilibrium profit evolution(player i) Figure 8:Nash equilibrium

profit evolution(player j)

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3. Conclusions
In independent products scenario (d = 0), a and c coefficients are identical, following

different trendlines as the level of products differentiation decreases, although their
sum remains unitary, as ?$+& ' + ?$+& ' = ?$+& ' + ?$+& ' = 1. As a>c, we
$&$ & ' !& L !#$& ' $& L $&$& ' !&$ & '
assist at the gradual price decrease, from a and c average value of 70 EUR, down
to marginal cost level of 50 EUR;
As for the quantities triggering the equilibrium scenario, different behaviours
can be observed in (0;1) interval. First player level of output will decrease slowly from
its 20 EUR initial value ( tangible in independent good case), down to 18,16 EUR, as
≈ 0,37 ; once d
M$ √M
+
long as the product differentiation degree is not higher than
value passes through < + ; 1N area, the trend will become ascending, triggering
M$ √M
the perfectly competitive 40 EUR output level in the absence of product

differentiation. The explanation is mathematical as well ( Appendix C), highlighting
=−
∗O P$Q +& ' $ #!?
?$+& ' '
the fact that for the unique critical point ( minimum point as
well) beeing previously mentioned. Second player will gradually decrease the output
level down to zero value, once the product homogenity level starts to increase, the
downward trend mentaining in all [0;1] area.
Profits for equilibrium scenario follow a downward trend each, from 0.25 (a-
=
c)2 down to zero value in homogeneous products case. One more time, math
∗R
principles offer the key of this behaviour’s understanding, as
, =
$ "$ ' $& %?$+& ' (%M& L$S& ' $?&!?( ∗R $ "$ ' #! $# ?$+& ' +& ' $?&!?
?$+& ' ' ?$+& ' '
, strictly
negative expression reflecting decreasing functions (Appendix D). Furthermore the
graphical analyse highlights the decreasing trend of profits, from 400 EUR down to
the breakeven point (zero profit).
References
1. Arya, A., Mittendorf, B., Sappington, D.E.M. (2008) Outsourcing, vertical
integration, and price vs. quantity competition. Int. J. Ind. Organ. 26, 1–16.
2. Beath, J., Katsoulacos, Y. (1991) The Economic Theory of Product Differentiation.
Cambridge University Press, Cambridge
3. Bertrand, J., Review of Théorie Mathématique de la Richesse Sociale and
Recherches sur les Principles Mathématique de la Théorie des Richesses. Journal
des Savants (1883), pp. 499–508.
4. Cournot, A. (1838) Researches into the Mathematical Principles of the Theory of
Wealth, Paris: L. Hachette.
5. Dixit, A. (1979) ”A model of duopoly suggesting a theory of entry barriers”. Bell
Journal of Economics, Vol. 10, pp. 20–32.
6. Dixit, A. (1986)”Comparative statics for oligopoly” International Economic Review,
Vol. 27, pp. 107–122.

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7. Hackner, J. (2000) ”A note on price and quantity competition in differentiated

Oligopolies”, Journal of Economic Theory, Vol 93, pp. 233–239.
8. Imperato, A. et all., Reglarea Cibernetica in Sistemul Pietei Bunurilor si Serviciilor.
Editura ASE, 2004
9. Kreps, D. and Scheinkman, J. (1983). ‘Quantity precommitment and Bertrand
competition yield Cournot outcomes’, Bell Journal of Economics, 14 (2), pp. 326–
337.
10. Sato, T. (1996) On Cournot-Bertrand mixed duopolies. Jpn. Econ. Rev. 47
(4),412–420.
11. Singh, N., Vives, X. (1984) “Price and Quantity Competition in a Differentiated
Duopoly,” Rand Journal of Economics, Vol. 15, No. 4, pp. 546-554.
12. Tremblay, V.J., Tremblay, C.H., Isariyawongse, K. (2009) Endogenous Timing
and Strategic Choice: The Cournot-Bertrand Model. Working Paper. Oregon State
University.
13. Tremblay, C.H., Tremblay, V.J.(2011) “The Cournot-Bertrand Model and the
Degree of Product Differentiation,” Economics Letters, Vol. 111, No. 3, pp. 233-235
14. Tremblay, C.H., Tremblay, M.J., Tremblay, V.J. (2011) ”A general Cournot–
Bertrand model with homogenous goods”, Theoretical Economics Letters 1, 38–40.
15. Zanchettin, P. (2006) ”Differentiated duopoly with asymmetric costs”, Journal of
Economic Management Strategy, Vol 15, pp. 999–1015.

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Appendix A
= − −
= − − − − =
− − + +

= − − → = a− −d
= − + − 1−
= − = [a − ad + − 1− − U = − − + +
− = −1 + − + −
= − =a − − − + + = − + − + −
+
=2 − 1 + a − ad + d −c = 0
45*
= +
!"#$" % $& ' ()*
V
4)* # #
= −2 +a−d +c = 0 = −
45' "! #)*
V
47'
By substitution:
c + ad − a 2 1 − a+c d
+ = − → 2 +2 −W +4 1−
d d 2 2
= + −
− a−c +2 − a−c 2−d

4−3 =− + =2 −2 → ∗
= =
4−3 4−3
= − = = =
"! # "$ $# ?P$+P& ' !?Q$+Q& ' $ P!P& ' ! Q&$Q& ' % "! Q$P& ' $ Q& ' $P&!Q&(
?$+& ' ?$+& ' ?$+& '
→ =
% "! Q$P& ' $ Q& ' $P&!Q&( ∗ P% $&$& ' (!Q !&$ & '
?$+& ' ?$+& '
= a− ∗−d ∗
4−3 −a 2−d− − 2+ −2 − 2 − −2 +
=
4−3
4−3 =4 −3 −2 + + −2 − +2 −2 + +2 −

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4−3 = 2 −2 − + − + =2 − − − − −
a−c 2−d−
∗
=
4−3
= a − ad − ∗
1− +d ∗
a−c 2−d
= a − ad − 1−
4−3
a 2−d− + 2+ −2
+
4−3
4−3 =4 −3 −4 +3 +
−2 + +2 − +2 − +
−2
+ ++2 − − +
+2 + −2 +
=2 +2 −2 − + +
+ − − +
4−3 = 2− −2 + +
+ 2+ − − +
2− −2 + +
+ 2+ − − +
∗
=
4−3
2− −2 + +
+
2+ − − +
a−c 2−d
= ∗
− ∗
=
4−3 4−3
a−c +
−2 − +2 2− a−c [ d−2 − d−2 U 2−d
= =
4−3 4−3
a−c 2− 1−
∗
=
4−3
2− − + + −2 a−c 2−d−
= ∗
− ∗
=
4−3 4−3
a−c − − +2 2− −
=
4−3
a−c 2−d−
∗
=
4−3
= = , ∗= ∗= and ∗ = ∗ = ?
∗ ∗ P!Q P$Q "$ '
= = , ∗ = − , ∗ = 0 and ∗ = ∗ = 0.
If d=0 then
∗ ∗
If d=1 then

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Appendix B
Table 1: Simulation of price, quantity and profit evolution
d
0 0.5*a+0.5*c 0.5*a+0.5*c
0.05 0.487195*a+0.512805c 0.48779*a+0.51221c
0.1 0.473804*a+0.526196*c 0.476071*a+0.523929*c
0.15 0.459854*a+0.540146*c 0.464717*a+0.535283*c
0.2 0.445361*a+0.554639*c 0.453608*a+0.546392*c
0.25 0.430328*a+0.569672*c 0.442623*a+0.557377*c
0.3 0.414745*a+0.585255*c 0.431635*a+0.568365*c
0.35 0.398589*a+0.601411*c 0.420509*a+0.579491*c
0.4 0.381818*a+0.618182*c 0.409091*a+0.590909*c
0.45 0.36437*a+0.63563*c 0.3972*a+0.6028*c
0.5 0.346154*a+0.653846*c 0.384615*a+0.615385*c
0.55 0.327041*a+0.672959*c 0.371059*a+0.628941*c
0.6 0.306849*a+0.693151*c 0.356164*a+0.643836*c
0.65 0.285316*a+0.714684*c 0.339433*a+0.660567*c
0.7 0.262055*a+0.737945*c 0.320158*a+0.679842*c
0.75 0.236486*a+0.763514*c 0.297297*a+0.702703*c
0.8 0.207692*a+0.792308*c 0.269231*a+0.730769*c
0.85 0.174147*a+0.825853*c 0.233288*a+0.766712*c
0.9 0.133121*a+0.866879*c 0.184713*a+0.815287*c
0.95 0.079207*a+0.920793*c 0.11412*a+0.88588*c
1 c c
d
0 0.5*(a-c) 0.5*(a-c) 0.25*(a-c)2 0.25*(a-c)2
0.05 0.488416*(a-c) 0.48779*(a-c) 0.237954*(a-c)2 0.237939*(a-c)2
0.1 0.478589*(a-c) 0.476071*(a-c) 0.226757*(a-c)2 0.226643*(a-c)2
0.15 0.470439*(a-c) 0.464717*(a-c) 0.216333*(a-c)2 0.215962*(a-c)2
0.2 0.463918*(a-c) 0.453608*(a-c) 0.206611*(a-c)2 0.20576*(a-c)2
0.25 0.459016*(a-c) 0.442623*(a-c) 0.197528*(a-c)2 0.195915*(a-c)2
0.3 0.455764*(a-c) 0.431635*(a-c) 0.189026*(a-c)2 0.186309*(a-c)2
0.35 0.454233*(a-c) 0.420509*(a-c) 0.181052*(a-c)2 0.176828*(a-c)2
0.4 0.454545*(a-c) 0.409091*(a-c) 0.173554*(a-c)2 0.167355*(a-c)2
0.45 0.45689*(a-c) 0.3972*(a-c) 0.166477*(a-c)2 0.157768*(a-c)2
0.5 0.461538*(a-c) 0.384615*(a-c) 0.159763*(a-c)2 0.147929*(a-c)2
0.55 0.468876*(a-c) 0.371059*(a-c) 0.153342*(a-c)2 0.137685*(a-c)2
0.6 0.479452*(a-c) 0.356164*(a-c) 0.14712*(a-c)2 0.126853*(a-c)2
0.65 0.494053*(a-c) 0.339433*(a-c) 0.140961*(a-c)2 0.115215*(a-c)2
0.7 0.513834*(a-c) 0.320158*(a-c) 0.134653*(a-c)2 0.102501*(a-c)2
0.75 0.540541*(a-c) 0.297297*(a-c) 0.127831*(a-c)2 0.088386 (a-c)2
0.8 0.576923*(a-c) 0.269231*(a-c) 0.119822*(a-c)2 0.072485*(a-c)2
0.85 0.627558*(a-c) 0.233288*(a-c) 0.109288*(a-c)2 0.054435*(a-c)2
0.9 0.700637*(a-c) 0.184713*(a-c) 0.09327*(a-c)2 0.034119*(a-c)2
0.95 0.812379*(a-c) 0.11412*(a-c) 0.064346*(a-c)2 0.013023*(a-c)2
1 a-c 0 0 0

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Appendix C
− 2− X ∗ − 4−3 − 2− −6
∗
= → ∗O
= = −
4−3 X 4−3
−4 + 3 + 12 − 6 − 3 − 12d + 4
= − =−
4−3 4−3
3 − 12d + 4 = 0 has ∆= 96 → = ]ℎ3J

M± √M
Ecuation , +
3 − 12d + 4 > 0 ∀ ∈ [0; <0 ∀ ∈ [0;
M$ √M ∗O M$ √M
&^ _;
àaab V +
→V +
→
3 − 12d + 4 ≤ 0 ∀ ∈[ ; 1U ≥0 ∀ ∈[ ; 1U
M$ √M ∗O M$ √M
+ +
↓ ∀ ∈ [0;
∗ M$ √M
V +
↑ ∀ ∈[ ; 1U
∗ M$ √M
+
a−c 2−d− X ∗
∗
= → ∗O
=
4−3 X
− 1−2 4−3 − 2− − −6
= a−c
4−3
−4 + 3 − 8 + 6 + + 12 − 6 −6 +
= −
4−3
− 3 − 4d + 4
=−
4−3
Ecuation 3 − 4d + 4 = 0 has ∆< 0 → 3 − 4d + 4 > 0 ∀ ∈ [0; 1U ]ℎ3J ∗O

<
0 ∀ ∈ [0; 1U → ∗ ↓ ∀ ∈ [0; 1U.

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Appendix D
a−c 2− 1− X ∗
∗
= → ∗R
=
4−3 X
= a
[−2 2 − 1− + 2−d −2 U 4 − 3 −2 2−d 1− 4−3 −6
−c
4−3
= a
−2 2 − [ 1− + 2d − U 4−3 −2 2−d 1− 4−3 −6
−c
4−3
−2 2 − 4−3 [ 1+2 −2 4−3 + 2−d 1− −6
= a−c
4−3
= a
−2 2 − 4−3 4+8 −8
−3 −6 ++6 ?
− 12 + 12 +
+6 −6 ?
−c
4−3
−2 2 − 4−3 6 + −5 −4 +4
= a−c
4−3
If we derivate term 6 +
−5 − 4 + 4, we obtain 18 − 10 − 4 → ∆= 388 →
=
S±√h>
, i
⎧ 5 + √97
⎪18 − 10 − 4 < 0 ∀ ∈ [0;
&^ _;
àaab 18
⎨ 5 + √97
⎪18 − 10 − 4 ≥ 0 ∀ ∈[ ; 1U
⎩ 18
⎧ 5 + √97
⎪6 −5 −4 +4 ↓ 0 ∀ ∈ [0;
+
→ 18
⎨ 5 + √97
⎪6 +
−5 −4 +4↑0 ∀ ∈[ ; 1U
⎩ 18
If we note f(d) = 6 + − 5 − 4 + 4, we have f(0)>0, f( i )>0, f(1)>0, meaning that

S!√h>
6 + − 5 − 4 + 4 > 0 ∀ ∈ [0; 1U → ∗O < 0 ∀ ∈ [0; 1U → ∗ ↓ ∀ ∈ [0; 1U

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a−c 2−d− X ∗
∗
= → ∗R
=
4−3 X
2 2−d−−1 − 2 4 − 3 −2 2−d− 4−3 −6
= a−c
4−3
2 2−d− 4−3 −4 + 3 − 8 + 6 + + 12 − 6 − 6 +
= a−c
4−3
2 d+2 1−d 4−3 3 −4 +4
= − a−c
4−3
Equation 3 − 4d + 4 = 0 has ∆< 0 → 3 − 4d + 4 > 0 ∀ ∈ [0; 1U ]ℎ3J ∗O

<
0 ∀ ∈ [0; 1U → ∗ ↓ ∀ ∈ [0; 1U.

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MIGRATION OF LABOR FORCE IN BIHOR COUNTY
STAN Lavinia
Doctoral School of Economic Sciences, University of Oradea, Oradea, Romania
lavilavi2011@yahoo.com
Abstract: Migration is a global reality that influences multidimensionally the
countries, assuming important implications at demographic, economic, social level.
Migration is often carried out from countries with significant increases in
demographics to those areas that have declined demographics.This population
movement has advantages and disadvantages for both countries of origin and
destination countries.The multiple faces of this phenomenon have been extensively
studied over time at the international level. Although in the past the migration trend
was to leave Europe for other areas, such as America and Russia. Nowadays, the
number of immigrants arriving in Europe is overwhelming. They are looking for
opportunities for career, study and access to health systems that conform to a
superior level of economic development. Most people think they will get rid of
poverty.The purpose of this article is to illustrate the evolution of labor force migration
at the level of Bihor County, both at international and internal level. The international
migration at this county level was made in a majority proportion after the fall of the
communist regime. The reasons for which most people decided to leave the county
and, implicitly, Romania are diverse, but especially the desire to have a better life,
characterized by freedom of expression and various benefits. Domestic migration
was predominantly made to rural areas. Agriculture being one of the main sectors
that sustained subsistence. The wage earning is higher in this sector, a favorable
and encouraging aspect for those who have decided to migrate to different areas.
County authorities, such as the County Agency for Employment, have encouraged
labor mobility to reduce unemployment by awarding various bonuses consisting of
money for those who have taken jobs further away from their home town or
residence.
Keywords: migration; migrants; labor.
JEL Classification: F22; F24; Q14.
1. Migration-conceptual delimitation
Cambridge Business English Dictionary defines migration as "the process of a

person or people traveling to a new place or country, usually in order to find work
and live there temporarily or permanently"
(https://dictionary.cambridge.org/dictionary/english/migration). All the definitions
attributed to migration converge towards the idea of changing home or residence for
an indefinite or limited time.
"The UN Migration Agency (IOM) defines a migrant as any person who moves or
has moved across an international border or within a state away from his or her

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habitual place of residence, whether movement is voluntary or involuntary, what are

the causes of the movement, or what the length of stay is " (United Nations).
Considering the area in which the migration takes place, it can be internal, within
the same state and international, when the movement of individuals is carried out
from one country to another. Migration can also be voluntary when people choose to
go for the opportunities offered by the state in which they will settle and force, when
governments expel people in the event of military conflicts, in the event of
disturbances in the political area and transport forced of the slaves or those who
were in detention. The great migration across the Atlantic made from Europe to the
American continent is considered to be the largest migration throughout history. It
began in 1840 with massive movements from Ireland and Germany. It is estimated
that about 37 million people arrived in the United States between 1820-1980. Other
massive migrations took place from the European side to Asian Russia during the
period 1801-1914, cumulating about 7.5 million people. Also, between the 16th and
19th centuries, the largest migration of slaves occurred through the Europeans who
sent about 20 million African slaves to America. Most migrations were associated
with famine, violence, property destruction, and increased mortality. During the
Second World War, the most expulsive expulsion imposed by Nazi Germany, which
deported nearly 10 million people, was recorded. (Encyclopaedia Britannica, 2016)
The total population of global migrants was 258 million in 2017, accounting for 3.4%
of the world's total earth population, and managed to send remittances worth 466
billion dolars to home countries, which in a large proportion falls within the low or
middle income countries. 48.8% of all migrants were female and 14% were children.
Comparing these data with those for the year 2000, when 173 million migrants
registered, there is a galloping increase of the migration phenomenon (UN DESA,
2018).
2. Advantages and disadvantages of migration
The world economy implies the existence of producers and consumers among whom
the same categories of products are traded, with the indication that they are in
distinct areas of the world (Florea, 2006). Hence the need to get in the proximity to
carry out such transactions, migration is a way to make different exchanges feasible.
Ştefănescu Fl. (2010) argues that migration is influenced by several factors such
as:
 differences in the economic development process of different regions of the
world;
 the surplus of labor force in the less developed areas and the need for labor
force in economically developed areas;
 to emphasize the role of interdependencies between states that involve the
intensification of various exchanges
 changes to the social and political environment at the international level;
 various psychosocial factors such as: the curiosity to discover new cultures
and lifestyles, the need for professional achievement, the reunification of
families etc.

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Migration implies a number of advantages and disadvantages for both the country of
origin and the destination country.
For the country of origin we can list the following advantages:
 less pressure on social assistance funds;
 decreases the unemployment rate,
 the remittances sent by those abroad have contributed to the economy of
the country they left;
The disadvantages for the country of origin may be as follows:
 leaving specialists for education to whom important funds have been
allocated;
 migration of young people, who are the main engine within an economic
system;
 decrease in birth rate;
 the impossibility of recovering money invested in the education and training
of migrants;
 poor workforce;
For destination countries we can list the following benefits:
 specialists already trained in other countries are enrolled in their territory;
 increases competition on the labor market as salary costs decrease;
 receive young labor force, ready to cope with technological and
informational progress;
Disadvantages for destination countries can be:
 the native population feels a severe pressure, perhaps even a threat due to
the employment of foreign labor;
 divergences and tensions caused by cultural differences;
3. Migration movement in Bihor County
As stated in the Local Action Plan for Education (PLAI) drafted by the Bihor County
School Inspectorate (2018) for the period 2016-2020, a maximum number of 1789
emigrants was recorded in 1991. We consider that this high value of the emigrants
registered in Bihor County was caused by the fall of the communist regime in
Romania in 1989. A period characterized by important changes at the level of
political ideology, restriction of the freedom of expression of personal opinion, certain
restrictions on food. Analyzing the data provided by the National Institute of Statistics
(2014), during the period 1989-2012, we can see a decrease in the stable population
of Romania with over 3.1 million inhabitants. Migration being the main factor that
caused the negative growth of the resident stable population to 77%.
Table 1: Situation of population emigration in Bihor County, 1975-2017

Years Number of emigrants
1975 379
1991 1789
2001 317
2007 714
2009 219

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Years Number of emigrants

2012 423
2013 477
2015 316
2016 918
2017 1127
Source: Bihor County School Inspectorate (2018)
Figure 1 shows that the number of emigrants in Bihor County has been on an upward
trend since 2015, reaching 1127 emigrants in 2017. (Bihor County School
Inspectorate , 2018). We believe that this accelerated increase in the number of
emigrants is caused by multiple factors such as: the minimum wage in the economy
considerably lower than in other EU countries, the possibility of having access to a
quality medical system, the opportunity to study in abroad through various
educational programs.
Figure 1: Migratory Population in Bihor County, 1975-2017

Source: Bihor County School Inspectorate (2018)
Between March and June 2018 we conducted a cross-sectional study on the

unemployment structure in Bihor County during 2006-2016. We conducted the
research at the Bihor County Agency for Employment. The County Agency for
Employment (AJOFM) Bihor has its headquarters in Oradea, on Transilvaniei Street,
no. 2, under the subordination: Local Agency Oradea, Alesd Work Point, Beiuş Work
Point, Marghita Work Point, Point working Salonta. From the data provided by the
County Agency for Employment, it appears that in 2017, 609 people were looking for
a job in European Union countries, addressing to the agency, by various means,
directly, e-mail or by phone. The most sought after destinations for finding a job were:
Germany, Great Britain and Denmark. The people in question are graduates of
secondary, vocational, high school schools. By focusing especially on jobs in

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agriculture, construction, hotel industry etc. While post-graduate and university

graduates registered a lower share.
As can be seen in Table 2, the statistics provided by the National Institute of Statistics
show that from 2012 to 2015, the number of immigrants from Bihor who have
changed their habitual residence follows a downward trend. In 2012, 4796
immigrants from Bihor County changed their habitual residence, unlike in 2015,
when there were 3805 immigrants in the same situation. However, there is a gap of
137 migrants between 2015 and 2016, who have changed their habitual residence
compared 2015. The numer of male who migrated internationally by changing their
habitual residence registered in Bihor County was higher than the number of
immigrant women throughout the analyzed period.
Table 2: Immigrant flows internationally by gender with change of regular residence

in Bihor County
Years Total Masculin Feminin
2012 4796 2676 2120
2013 4403 2414 1989
2014 3898 2017 1881
2015 3805 2098 1707
2016 3939 2261 1678
Source: National Institute of Statistics (2016,2018)
Analyzing the international flows, by gender, with the change of domicile in Bihor
county, I noticed that the number of immigrants who changed their domicile has been
increasing since 2010, when 130 people were in this situation, among them which
75 men and 55 women. The rising trend has been maintained until 2012. In 2013
there is a relatively strong decrease of the immigrats who have changed their
domicile in the county of Bihor, 123 of whom 57 men and 66 women. Starting in
2015, their number is again increased to 132, reaching the value of 152 immigrants
who have changed their domicile in Bihor county registered in 2016. The number of
immigrant men was higher than the number of immigrant females who had decided
to change their domicile was higher during the analyzed period, except for the years
2013 and 2014. National Institute of Statistics (2016,2018).
Table 3: Internal migration caused by home change, by area

Bihor The balance of internal
Arrive Leave
County migration
In In In In In In
Years Total urban rural Total urban rural Total urban rural
areas areas areas areas areas areas
2007 10472 4113 6359 9545 4635 4910 927 -522 1449
2008 10348 3973 6375 9756 5002 4754 592 -1029 1621
2009 8174 3256 4918 7697 3708 3989 477 -452 929
2010 12071 4658 7413 11260 5646 5614 811 -988 1799
2011 8273 3142 5131 7879 3880 3999 394 -738 1132
2012 9766 3503 6263 9273 4640 4633 493 -1137 1630
2013 8545 3406 5139 8068 3864 4204 477 -458 935

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Bihor The balance of internal

Arrive Leave
County migration
In In In In In In
Years Total urban rural Total urban rural Total urban rural
areas areas areas areas areas areas
2014 9366 3669 5697 8797 4322 4475 569 -653 1222
2015 9285 3613 5672 9070 4344 4726 215 -731 946
2016 10088 3803 6285 9690 4714 4976 398 -911 1309
2017 9823 3800 6023 9247 4495 4752 576 -695 1271
Source: Bihor County Department of Statistics (2010)
By performing a comparative analysis of the data outlined in Table 3, we note that

at Bihor County the number of those who arrived in rural areas was higher than those
arriving in the urban environment throughout the analyzed period. In 2010 there were
12071 persons arriving in this county, of which 4658 in urban and 7413 in rural areas
(Bihor County Department of Statistics , 2018).
We believe that the overwhelming proportion of those who decide to move to the
rural areas of Bihor County is due to the increase in labor productivity in the
agriculture sector. The volume of turnover in agriculture registered an upward slope
of approximately 78% during the period 2008-2012. ”The gross average earnings in
January 2018 was 3358 lei/person per total, and by activities:
 agriculture, forestry, fish farming - 3479 lei
 industry and construction -3193 lei
 services – 3505 lei
Net average earning in January 2018 was of 2009 lei/person per total, and by
activities:
 agriculture, forestry, fish farming - 2067 lei
 industry and construction -1923 lei
 services - 2087 lei” (Bihor County School Inspectorate , 2018, p. 35)
Following the statistics provided by Bihor County Department of Statistics, we can
see that there have been years like 2008, 2010 and 2012 when the number of those
who left Bihor County in the urban area was slightly increased compared to the
number of those who decided to move home or reside in rural areas. This may be
due to increased opportunities to find a job in the urban environment due to the
strong growth of industry in the major cities of the country. However, in recent years,
the trend is to move to rural areas, where they have the opportunity to fit more easily
into the agriculture, forestry or fish farming sectors, in order to obtain more consistent
incomes.
In 2017, the County Agency for Employment applied measures to stimulate labor
mobility by awarding a non-taxable employment bonus to registered unemployed
who have taken up employment more than 15 km away from their domicile or
residence who had before. While people who have taken up a job more than 50km
away from their home or residence and have settled in the locality where they
obtained their job, installation premium, non-taxable. This aid is intended to stimulate
the workforce in order to improve mobility, to ensure payment of initial expenses at
the new location where they have established their domicile or residence. Those

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persons who have acquired a job more than 50 km from their place of residence or
residence, while changing their domicile or residence which they have been granted
a non-taxable relocation premium of the unemployment insurance budget equal to
75% of the total cost of living in the new location established as home or residence,
but not more than 900 lei (County Agency for Employment, Bihor)
4. In conclusion
Since ancient times, migration has taken place in its various forms, with advantages
and disadvantage for both countries of origin and destination countries. That is why
different categories of specialists investigate the changes that migration generates
at a socio-economic, demographic level.
International migration in Bihor County has been overwhelmingly since the fall of the
communist regime. The desire to have a better life was the main impetus for leaving
the country after that long period characterized by restrictions, censorship,
precarious medical systems and so on. Internal migration in the same county was
made predominantly to rural areas. The arrived people sought jobs in the agriculture,
forestry and fish farming sectors, which expanded at a high rate, providing them with
a higher salary gain than in other sectors, and those who went to other counties have
oscillated between urban and rural areas. This phenomenon of internal migration,
characterized by a good labor force movement, has been encouraged through
various programs implemented by the County Labor Office, Bihor, through the
various incentives offered to persons willing to change their domicile or residence for
a place new work.
References
1. Bihor County Department of Statistics (2018) Internal migration caused by home
change, by area, [Online], Available: http://www.bihor.insse.ro/.[8 Apr 2019]
2.Bihor County School Inspectorate (2018) Migratory Population in Bihor County,
[Online], Available:https://www.isjbihor.ro/download/mielut/PLAI%20%20BIHOR-
2018%20ACTUALIZAT%202018.pdf.[5Apr2019]
3.Cambridge Business English Dictionary,(2011) Cambridge University Press,
[Online], Available:https://dictionary.cambridge.org/dictionary/english/migration [15
March 2019]
4. Encyclopaedia Britannica, I. (2016).Human Migration, [Online], Available:
https://www.britannica.com/topic/human-migration
5. Florea, A. (2006) Economie mondială, Editura Universității din Oradea, Oradea.
6.National Institute of Statistics (2014) [Online], Available
http://www.insse.ro/cms/files/publicatii/pliante%20statistice/Migratia_internationala_
a_Romaniei_n.pdf. [8 Apr2019]
7.National Institute of Statistics (2016,2018) [Online],
Availablehttp://www.insse.ro/cms/ro/tags/repere-economice-si-sociale-regionale[28
8.Ștefănescu Fl. (2010) Evoluții economice și demografice în spațiul european,
Editura Universității din Oradea Oradea.Apr 2019]

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9. UN DESA. (2018).Global Migration Indicators, [Online], Available

https://publications.iom.int/system/files/pdf/global_migration_indicators_2018.pdf
[5Apr2019]
10. United Nations. (n.d.).Migration, [Online], Available
https://www.un.org/en/sections/issues-depth/migration/index.html [7 Apr2019]
11. County Agency for Employment, Bihor

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THE ECONOMIC EFFICIENCY FOR A SUPER-INTENSIVE IRRIGATED

BLUEBERRY CULTURE
VENIG Aurora1, VENIG Adelina2

1
Agriculture-Horticulture Department, Faculty of Environmental Protection,
2
Institution of the Prefect, Bihor County, Oradea, Romania
Venig_aurora@yahoo.com
Adelina_venig@yahoo.com
Abstract: Fruit growing is one of the main horticultural branches and deals with the
research, study and knowledge of the organic and ecological peculiarities of the fruit
species, aiming to establish appropriate technological measures in order to obtain
high, constant and high quality crops. Fruit tree culture is important from the
economical and social point of view. The tree culture is the main source of the
existence, significant part of the population of the country is working directly in the
plantations of trees, in the fruit-processing industry, in the fruit trade, in the transport
enterprises and in the machinery industries, insecticides, packs, etc. Fruit plantations
represent an investment with long lifetime exploitation, so mistakes in setting up are
not acceptable, as they are practicable and are spread over the entire exploitation
period. In Romania, horticulture continues to hold a particularly important status,
although it goes through one deep process of property restructuring and exploitation
system. The performance of the horticultural sector has been low. Lack of
competitiveness is reflected by low productivity, low economic growth and a balance
deficit agro-food trade, given that agriculture and horticulture are failing to keep the
step with the increasing demand for food, driven by rapid general economic growth,
and unable to cope with foreign competition, especially in the European Union. This
paper is intended to be a technical (theoretical and practical) basis on establishment
and maintenance of the species studied (blueberry), including economic efficiency
as well as special references to the studies carried in Bihor County, both results and
concrete references on how to set up and maintain plantations, under the climatic
conditions in Bihor County area, as well as calculation the economic efficiency of
these in the following years until harvest. It can be a starting point for preparing
young people to better understand the principles of super-intensive culture systems
and their economic significance and efficiency.
Keywords: harvest; economic efficiency; fruit productivity; super-intensive culture
system; horticulture.
JEL Classification: Q19.
1. Introduction
From a geomorphologic point of view, the studies were carried out in the part of the
Northern group of the Western Carpathians. The research area belongs to the Bihor
Mountains group, more precisely the Crișul Negru Depression. The dominant reliefs

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in the area are piedmont hills. The studied area is in the climatic formula after Koppen
C.f.b.x. - moderate continental temperate climate with warm summers and relatively
mild winters, with precipitations spread throughout the year.
From the vegetation point of view, the studied perimeter falls within the area of
quercinee and deciduous forests. The forests in the area are made up of the
following species: Querqus robur, Fagus silvatica, Carpenus betulus, Fraxinus
excelsior, Acer campestre, etc. Natural grass vegetation is represented by Cynodon
dactylon, Lotus corniculatus, Trifolium sp., etc. The natural vegetation of the crop
(weeds) is represented by Setaria glauca, Setaria viridis, Agropyron repens,
Amaranthus retroflexus. Under conditions of relief, climate, vegetation, the soil type
encountered in the studied territory is districambosoil.
1.1. Land organization and arrangement

The land organization and arrangement is aimed at ensuring the conditions of
mechanization (Venig A., 2006), fast transportation and the possibility of applying a
high and simple technological level, mainly: land partitioning, establishing the
network of roads and return areas. (Santerre A.,2018) The area actually planted is
10,000 square meters. There are used 3 blueberry varieties. The planting distances
are 1m on the row and 2,5m between the rows. The plantation was set up in 2012
and is super-intensive.
1.2. Assortment and need for planting material

Blueberry is a bushy species with a strong dynamics in recent years (Charles B.,
2014), growing more and more in many countries, due to the high demand on the
market that is growing in Europe. Blueberry is well suited both in plains, but
especially in hill and mountain areas, being a rustic species resistant to strong winter
frosts and foliar diseases with fewer pathogens than other more sensitive
species.(Botez et al, 1984).
In a correct crop technology and optimal soil conditions, blueberry plantation can
produce over 7-8 tons of fruit per hectare, the price of capitalization being very
good.(Braniște, 2009).
For the research, it was used Bluecrop variety, with a medium growth rate, green
leaves that change to red on red stems in the fall provide ornamental appeal through
the winter. (Reich L., 2009). Most importantly, the firm, medium-sized light blue fruit
is known for its excellent flavor, and berries are resistant to cracking. (Chira L., 2003).
This type prefers organically rich soil, with constant moisture and good drainage
(Gough E.R., 1991). Known for its disease resistance, Bluecrop is drought tolerant
when mature. This variety is known for having shallow roots. (Gosch T., 2014)
2. Material and method
The used material is one hectare Bluecrop blueberry variety, in a super-intensive

system ( 4000 bushes/ hectare), with support system, anti-hail net, drip irrigation
system. The used method is the economic calculation over the financial result,
obtained from this plantation.

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The costs from the first two years are shown in the following tables. In the third year
of culture, there are registered the first incomes.
Based on the technological culture sheet, in every year are registered the following
direct costs: workmanship, machinery, materials, transport.
Table 1. Entire direct expenses, establishment and maintenance in the 1st year
Cap.I Cap.II Cap.III Cap.IV Entire direct
Specification
Workmanship Machinery Materials Transport expenses
For one 2256,0 47234,2 456,33 61191,53
11245,0 Ron
hectare Ron Ron Ron Ron
Source: obtained from own calculations
Table 2. Entire direct expenses, establishment and maintenance in the 2nd year
Specification
For one 2817.6
4753.0 Ron 360.0 Ron 16.3 Ron 7946.9 Ron
hectare Ron
Table 3. Entire direct expenses, maintenance in the 3rd year and exploitation
Specification
For one 2576.0
44376 Ron 360.0 Ron 200.1 Ron 47512.1 Ron
hectare Ron
From the obtained results, from establishing the plantation until the first harvest,
there can be made the following economic analysis:
Df= 27 years
De= 25 years
It (Entire investment) = 69138,43 Ron
Setting up expenses= 61191,53 Ron
 Handmade works= 11245,0 Ron
 Mechanical works= 2256,0 Ron
 Materials = 47234,2 Ron
 Transport= 456,33 Ron
Maintenance costs= 7946,9 Ron
 Mechanical works= 360,0 Ron
 Materials = 2817,6 Ron
 Transport = 16,3 Ron
Ca (annual amortization rate)= 2765,5 Ron/ year
Ce (annual operating costs)= 47512,1 Ron
 Mechanical works = 360,0 Ron

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 Materials= 2576,0 Ron

 Transport = 200,1 Ron
Cd(annual direct costs)= 50277,6 Ron/ year
Ci (annual indirect costs)= Cd x 6%= 3016,6 Ron/ year
Ct (Annual entire costs) = 53294,2 Ron/ year
P (Production) = 7000 kg/ ha
Cp (Cost of production) = 7,6 Ron/kg
Pv( Selling price) = 10 Ron/kg
V (Value of annual production) = 70000 Ron/ year
Pab (Gross annual profit )= 16705,8 Ron/ year
I (Tax) = 2672,9 Ron
Pn (Net annual profit) = 14032,9 Ron/ year
R (Annual profit rate)= 26,3 %
T (Term of investment recovery) = 5 years
Pt (Entire operating profit)= 350822,5 Ron
Rec (Economic return on investment)= 500%.
0.8% 18.4%
3.7%
77.1%
workmanship 18,4% machinery 3,7%

materials 77,1% transport 0,8%
Figure 1: Chart of entire direct expenses, establishment and maintenance in the

1st year

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workmanship machinery materials transport
5.4 % 0.5 %
0.8 %
93.3 %
Figure 2: Chart of entire direct expenses, maintenance in the 3rd year and
exploitation
3. Results and discussion
Analyzing the obtained results, the total investment value is 69138,43 Ron. The
annual operating expenses are 47512,1 Ron, the annual entire costs are 53294,2
Ron.
At a production of 7000 kg/ ha, sold at a price of 10 Ron/kg, it is obtained a value of
annual production of 70000 Ron/ year.
The financial results of this culture for one year is 16705,8 Ron ( gross profit/ year).
Related to the obtained net annual profit and the entire operating profit, it is obtained
and economic return on investment of 500%.
5. In conclusion
The value of the entire investment from establishing until the first harvest of a
blueberry plantation can be recovered in five years of harvest.
The highest costs with the materials are registered in the first year, at the
establishing, due to the materials value (bushes price).
The highest costs with workmanship for harvesting are registered in the 3rd year from
planting, when the harvest takes place.
Direct costs could be lower when there is registered a large amount of precipitation
and irrigation is no more used.
The return on investment is 500%, that means culture is profitable, brings high
income in short time.

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References
1. Botez M. et al, 91984), Cultura arbuștilor fructiferi, Ceres Press, Bucharest, pg.
48.
2. Braniște N., (2009), Soiuri de pomi, arbuști fructiferi și căpșuni create în România,
Paralela 45 Press.
3. Charles B., (2014), Cranberry and blueberry culture- with information relating to
growing for profit, Paperback Press.
4. Chira L., (2003), Cultura arbuștilor fructiferi, MAST Press, Bucharest.
5. Gosch T., (2014), Arbuștii fructiferi cultivare și îngrijire, Casa Press.
6. Gough E.R., (1991), The Highbush Blueberry and Its Management, Food Products
Press.
7. Reich L., (2009), Landscaping with Fruit, Storey Publishing, pp. 93-95.
8. Santerre A., (2018), The Cultivation of Fruit Trees and Shrubs, Forgotten Books
Hardcover.
9. Schmid H.,(2008), Pomi și arbuști fructiferi. MAST Press.
10. Venig A., (2012), Contabilitatea unităților agricole, Editura Universității din
Oradea
11. Venig A., (2006), Practicum de pomicultură generală, Editura Universității din
Oradea

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SECTION: FINANCE, BANKING, ACCOUNTING AND AUDIT
SERVICE QUALITY AND CUSTOMER SATISFATCTION IN CEC BANK
BENȚE Corneliu, DROJ Laurențiu

Department of Finance-Accounting, Faculty of Economic Sciences, University of
corneliubente@yahoo.com
ldroj@yahoo.com
Abstract: Adopting the concept of marketing, as a basis for all the strategic and
tactical decisions that are adopted in the management process and in the existence
of the banking institution, would involve taking into account four elements: 1).
Satisfaction of customer wishes. This is a vital aspect of the marketing concept
without which the bank's financial objectives could not be met. 2). Return. Customer
satisfaction cannot be achieved at any cost, and there must be a balance between
customer satisfaction and earnings gains. 3). Employee involvement. All employees
need to understand the importance of marketing and work in the spirit of the
marketing concept. This can be done by meeting the needs of employees, and they
need to become aware of the importance of cost control and maximization of
revenue. 4). Social responsibility. The bank must be aware and sensitive to the
community and the environment in which it operates. The banking institution has an
extremely important role in society and, consequently, must have a responsible
behaviour.
Keywords: Performance; satisfaction; quality; SERVQUAL; GAP.
JEL Classification: G21; M31.
1. Introduction
The Bank has a flexible organizational and functional structure that allows it to be
continually adapted to the ongoing financial needs of customers. It successfully
meets the client's financial needs, namely:
- identifies new customer needs;
- remodeling products / services;
- creates new products / services;
- launches on the market the products and services required.
The importance of banking marketing activity lies precisely in the relationships that
banks establish with their clients and their loyalty.
2. The importance of marketing for banking services
In order to establish and develop long-term marketing relationships with consumers,

financial institutions develop services and delivery arrangements in such a way as
to provide efficient and affordable services to consumers, while maintaining quality
standards.
Marketing is important in ensuring the growth, development, dissemination,
diversification or even survival of banking products and services and, implicitly,

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banks and service providers. This process involves combining the efforts of
marketing specialists, human resources, and organization management.
The need to establish such relationships is due to the wishes of consumers, staff
and the social and economic environment in a continuous change. Consumers,
natural or legal, are in constant search for products and services, as good as
possible with financial institutions, and at the same time of the best possible service
quality. Companies realize that investing in long-term marketing relationships with
customers is not an expense, but a long-term profit.
3. The analysis of satisfaction on banking services offered by CEC BANK
The SERVQUAL method was developed by Parasuraman, Zeithaml and Barry in

1994-1995 based on the GAPS model of service quality.
SERVQUAL is a tool used to measure service quality, used to diagnose weaknesses
and strengths for companies operating in the service industry. This tool is based on
five dimensions of service quality: tangibility, trust, solicitude, safety and empathy.
As a result of the experiments carried out, the three specialists concluded that the
quality of a service influences many determinants.
In the original version, the authors identified 10 dimensions of service quality
subsequently grouped on the basis of results from other experiments in five
categories:
• Tangible elements (tangibles)
• Reliability
• Responsiveness
• Assurance
• Empathy (empathy)
For each dimension, the SERVQUAL authors have asked questions for the client by
specifying his expectations from the requested service and the perceptions he has
as a result of obtaining the service. In total, SERVQUAL comprises 22 questions that
are tailored to the nature of the service being evaluated. Depending on the type of
service evaluated and the experience of evaluators in the field covered by the
service, the weights may have different values.
The SERVQUAL model was the first method developed and applied to the quality
assessment services and has been the subject of a very large number of
experiments reported in specialized publications.
It should be emphasized that all other methods have been developed starting from
the conceptual SERVQUAL architecture.
Analyzing the average score of 5.8055 and expectations of 5.18 it can be seen that
all five indicators obtained a score between 5.46 and 6.18 at perceptions and 4.82
and 5.90 to expectations, from which it can be deduced that the company has a
higher level of quality of its services, as perceived by the executives questioned
before and after they became customers of the CEC Bank.
It can be deduced that the company corresponds to the perceptions of its customers.

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Table 1. Average score for SERVQUAL Dimensions

Tangibles 0,4
1. The bank owns modern design equipment 6,12 5,56 0,56
2. The bank is arranged in a welcoming way 6,00 5,68 0,32
3. Employees of the bank have a neat look 6,18 5,90 0,28
4. Promotional materials associated with the bank are attractive 5,46 5,02 0,44
Reliability 0,612
5. When the bank promises to do something in a certain time, 5,62 5,06 0,56
it will do to solve it.
6. If a client has a problem, the bank has a sincere concern 5,86 4,94 0,92
7. The bank performs the requested service promptly 5,46 5,14 0,32
8. The bank provides the service at the promised time 5,74 5,04 0,7
9. The Bank works with maximum accuracy 5,6 5,04 0,56
Responsivness 0,705
10. Employees of the bank accurately inform customers of 5,96 4,94 1,02
when the services will be performed.
11. Bank employees offer prompt customer service. 5,78 5,16 0,62
12. Employees of the bank are always willing to help 6,14 5,56 0,58
customers.
13. Employees of the bank are never too busy to respond to 5,88 5,28 0,6
customer requests.
Assurance 0,68
14. The behavior of bank employees inspires confidence in 5,76 5,30 0,46
customers
15. Bank customers will feel secure in transactions 5,68 4,96 0,72
16. Employees of the bank are courteous to customers in any 5,88 5,44 0,44
situation
17. Employees of the bank have the necessary knowledge to 5,92 4,82 1,1
answer customer questions
Empathy 0,712
18. The Bank has the ability to offer individual customer 5,78 4,98 0,8
support.
19. The Bank has a convenient program for all categories of 5,94 5,14 0,8
clients.
20. The Bank through its employees gives special attention to 5,58 5,04 0,54
each client.
21. The customer's interests are at the heart of the bank's 5,76 5,00 0,76
attention.
22. Employees of the bank understand the specific needs of 5,62 4,96 0,66
their clients.
Source: Processed by authors
By analysing the column of perceptions, the highest score was obtained in the well-
groomed view of the employees, namely 1. The bank's employees have a neat look
(6,18), followed by12. Bank employees are always willing to help customers (6.14)
within their receptivity, 1. The bank owns modern design equipment (6.12) within the
same indicator. At the end of the list we find the lowest 3 points, namely 9. The Bank

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works with the highest accuracy (5.6), also in the context of confidence, the Bank
performs the requested service (5.46), within the trust, also within the trust, and 22.
Employees of the bank understand the specific needs of their clients (5.2 - Empathy).
As an average of perceptions on the indicators, the highest value is found on the
visual image and the receptivity - 5.94, while the lowest average is found in the
confidence - 5.65.
By studying the expectation column, the highest value is found in the visual image,
namely 3. Bank employees have a neat look (5.90) followed by 1. The bank owns
modern design equipment (5.56), also in the visual image frame, and 2. The bank is
arranged in a welcoming way (5.62) within the visual image. The smallest values of
the perceptions scores are found in 17. The bank's employees have the necessary
knowledge to answer the questions of the clients (4.82), within the security, followed
by 10. The bank's employees precisely inform the clients about the moment when
the services offered will be performed (4.94 - responsiveness) and 6. If a client has
a problem, the bank shows a sincere concern to resolve it (trust) with the same score
of 4.94. As the average of CEC Bank's clients' expectations, the highest value is
within the safety - 5.54, and the lowest in the empathy - 5.024.
GAP analysis succeeds in highlighting different aspects of society's services, a
positive GAP is a favorable aspect of the analyzed society, as it can be inferred that
there are more perceptions regarding the services offered by society than what is
wait for it. Examining the data obtained from the applied questionnaires, it can be
noticed that CECs are also presenting positive GAPs within: most of the values
obtained have positive values, favorable for the firm, good sign for the firm
As an average of GAPs, it is noticed that the lowest value is found on the visual
image indicator with a value of 0.4, followed by the rest of the indicators, which show
positive and growing values.
As a result of the analysis of the sample, it is noticed that the main dimension is the
security offered by the customer bank in 60%, followed by 24% confidence, the
receptivity and empathy and the visual impression representing only a total of 16%
of the total number of people questioned.
Table 2. The importance given to each dimension

Features Percentage
1. Tangibles 12%
2. Reliability 44%
3. Responsiveness 16%
4. Assurance 20%
5. Empathy 8%
Source: Processed by authors
We can notice that the tangibles of the bank has a particular importance as a result
of weighting GAPs, as it depends very much on the aspect of each employee and
the environment in which the client meets the staff of the bank.

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4. Conclusion
Most of the respondents are between the ages of 18 and 25, accounting for 34% of
the sample, most of whom work in the private sector and have monthly incomes
between 800-1800 lei.
Most people 50% are advised with the family before calling the bank, and only 18%
resort to the advice of a specialist, 2% are searching for the market.
CEC Bank is considered by its clients as a bank that understands the needs of the
clients, but the highest score is found on the modern design of the bank and the
promotional materials.
After analysing the questionnaires, we can deduce that the most used bank products
are individual accounts, student, salary or pensions with 52%, followed by credit
cards, with a percentage of 30%.
CEC Bank has problems regarding customer confidence, namely that the bank
would perform the requested service promptly, even if there is not a significant
difference between the expectations and perceptions of the clients, but the bank
should take steps to strengthen the trust of the clients.
Security in the bank's transactions is an efficient one, and it is obvious that here too
improvements could be made through better data protection for its customers.
If we take into account the environments on each dimension, it is still noticed that
empathy is the strength of the bank.
At the same time, the questioned clients voiced their dissatisfaction with the Bank's
work program.
The analysis of the GAP can highlight a multitude of aspects of the services offered
by CEC Bank. A negative GAP highlights the unfavorable aspects of the bank's
services and alerts the company. A positive GAP is a favorable aspect for the bank.
Thus, as a result of the analysis of the questionnaires, all the GAPs of the bank are
positive, which is a favorable aspect for the bank. However, a higher GAP value
shows the size that best suits and even exceeds customer expectations, namely
empathy first, followed by receptivity. The smallest GAP is found in the visual image.
We propose to the bank to take action with regard to GAPs, by improving and
improving employees, and if necessary to hire new people so that they can
accurately inform customers about when the service offered by the bank, to provide
the services immediately and to pay more attention to each client.
CEC Bank should focus on promoting in rural areas, as this could increase the bank's
level both in lending and in the provision of deposits. Also, a very effective promotion
is the one from the online environment, as many of the respondents are studying the
market themselves before reaching the bank, which is why it should put more
emphasis on this segment of customers and develop online marketing policy.
Another recommendation for the bank would be the extension of the work program,
even if all these would generate costs for the bank.
The study can be improved because it was done on a rather limited sample (390
respondents), a limited period of time, a lack of comparison with the results that could
have been obtained for other banks, which could actually it surprises in a much wider
way the level of the quality of the services offered on the banking market.

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References
1. Bahia, K., and Nantel, J. (2000), A reliable and valid measurement scale for the
perceived service quality of banks, International Journal of Bank Marketing, 18, 84-
91
2.. Lee, H., Lee. Y., Yoo, D. (2000). “The determinants of perceived service quality
and its relationship with satisfaction”, Journal of Service Marketing, 14, pp. 217-231
3. Parasuraman, A., Ziethaml, V.A., Berry, L.L. (1985) , “A conceptual model of
service quality and its implications for further research”, Journal of Marketing, pp. 41-
50
4. Parasuraman, A., Zeithaml, V.A., Berry. L.L. (1988). “SERVQUAL: A multiple-item
scale for measuring consumer perceptions of service quality”, Journal of Retailing,
64, pp. 12-40

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AN INNOVATIVE PERSPECTIVE ON FINANCIAL DECISION-MAKING
COITA Ioana–Florina
Department of Finance-Accounting, Faculty of Economic Sciences, University of
popovici.florina@gmail.com
Abstract: This paper presents a multidisciplinary research that brings together areas
such as finance, behavioral economics, fractal theory and management. Each of
them presents a specific methodology for quantifying and measuring the analyzed
phenomena. The present paper uses the multidisciplinary approach to the results of
applying specific methods in areas such as psychology or exact sciences in the field
of managerial finance, areas that apparently have nothing to do with each other. The
results obtained from this approach highlight new knowledge, approached from a
different perspective. The development of managerial finance science, a field of high
interest at the moment at the level of companies, is at the heart of its financial
decision-making. The paper analyzes the financing decision of enterprises both from
the perspective of listed companies on the capital market as well as of the non-listed
companies, and the scientific relevance of this research lies in the various conceptual
clarifications presented. The degree of novelty brought by this research is supported
by the innovative approach of the financing decision by addressing some elements
of fractal theory, behavioral finance and managerial finances. At the same time, the
paper highlights the theoretical and practical aspects of innovations in financial
decision making. The impact of research results lies in the ability of the models
approached to be used by any manager of a company in taking a financing decision
in the context of efficient and innovative quantification of risks and performance. The
risk associated with a particular form of financing is analyzed and quantified
according to the specificity of the selected form of financing. This paper analyzes the
defining characteristics of the risks associated with the financing decision taken by
the managers of projects inside companies, taking into account the objective
characteristics but also the subjective ones. This paper analyzes the innovative
elements brought by the modern theories like behavioral finance, game theory,
mechanism design-theory, managerial finance and others that have an impact on
the financial decision process both at the enterprise level and from the perspective
of the decision-making subject.
Keywords: behavioral finance; expected value; fractals; project financing; decision
model.
JEL Classification: G41; G32.
1. Introduction
Financial science has undergone structural change along its crystallization process.
In the classical vision economy was "driven" by an abstract force, the "invisible hand"
as Adam Smith stated in his Wealth of Nations (1776) which was intended to
"distribute limited resources to unlimited needs." Evolution of scientific research has

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highlighted the fact that economy can become a battlefield in which various players
share their resources. This latter view of the economy offers a much more realistic
and humane picture in contrast to the traditional one. Today the economy is viewed
both at macro and micro levels up to the individual one that of the economic agent
whose role as "player" is defined by the effects of its decisions on the other "players".
Current state of knowledge in the field of financial decision-making should begin on
the origins, where the classical finances are characterized by the premises of strict
rationality in the decision- making process. Over time, emergence of modern
finances has been closely linked to the shift in research focus on factors such as
human perception and personal expectations of the individual involved in financial
decision. These elements, once taken into account, reveal the unpredictable nature
of human nature and therefore of the effects resulting from the financial decisions
taken by the individuals.
Modern finances analyze and define concepts such as uncertainty, coming from this
subjective nature, in economic transactions and the associated risk. Subjective
elements in defining risk come from the human perception of decision maker. The
expected value, that is the one estimated by the subject prior to any financial decision
and the market value of any financial decision taken is almost the same according
to classical financial theory and this financial equilibrium situation describes the
characteristics of the efficient financial market. Identifying the difference in the
economic market between the market price and the "expected" value is the subject
of modern finance research.
Why is this difference between the market price and the intrinsic value of a financial
asset? Trying to find the right answer, this paper analyzes numerous theories and
studies in order to find a suitable model in this regard. In order to accomplish this
goal, this paper presents how the subjects of financial decisions integrate risk in
achieving the "expected" return as high as possible. Utility is another concept used
in economics to characterize human decision making. This is a trigger for the
financial decision. The notion of "expected utility" thus captures the subjective factor
of the financial decision. The existence of value differences between the various
decision alternatives is in fact the "stimulus" triggering the decision-making
mechanism at the level of the economic agent. That alternative that gives the
decision maker the "expected marginal utility" is preferred by "homo oeconomicus."
The fundamental hypothesis of classical finance is that of "homo oeconomicus",
characterized by rational behavior, oriented to maximizing its usefulness. People
make decisions depending on the context and on the basis of marginal values
perceived by the subject by comparison (Tversky A. & Kahneman D., 1974).
Differences in value perceived at the psychological level cause people to act. Value
is not mobilizing unless it produces satisfaction for the subject (McFadden, 2000).
These premises described above characterize the notion of economic value or
profitability as it is used in economic theory.
Modern financial theories like portfolio theory developed by Markowitz (1952) are
built on models for estimating the cost of capital (Sharpe 1964, Jensen & Meckling,
1976; Fama & French, 1993; Estrada 2000), agency theory, mechanism design
theory, prospects theory or game theory bring into question factors that affect human
decision-making . This paper analyzes the innovative elements brought into question

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by the modern theories which have an impact on the financial decision process both
at the level of an enterprise and from the perspective of the decision-making subject.
2. Research methodology
This paper`s research objectives refer to identification of those characteristics which

are specific to decisional mechanism by analyzing the subjective factors, human
factors of the subject involved in a profitable and risk - bearing activity, as well as of
the objective ones. This research relevance lies in analyzing the relevant factors to
the financial decision making mechanism in projects managed by enterprises
bearing risk and uncertainty. Individual`s decisions shape and structure current
economy. It is impossible to separate the notion of "decision" from "economy" from
the objective of understanding risk phenomenon accompanying decisions taken at
both individual and project or organizational level. In another sense, investors or
decision - makers in the economy are primarily humans and risks that are related to
financial decisions are due to their unpredictable nature and will be analyzed during
this work.
Research methodology used is direct observation and critical thinking and reasoning
made to reveal similar or different aspects of the studied notions, as well as
describing dominant characteristics with an impact on the research topic addressed.
Economic analysis can be split into positive and normative analysis, depending on
the purpose and method used. The first type of analysis refers to studying economic
phenomena to discover the functioning of mechanisms and processes, to describe
phenomena and to reveal new meanings. The second form of analysis relates to the
use of the first method to substantiate the results or conclusions of value judgment
on certain directions to be followed. The research method used refers to the use of
positive analysis to understand and explain economic phenomena by presenting
possible alternatives and assessing the advantages and costs involved in various
alternatives implied by financial decision-making.
3. The issue of optimal allocation of resources in financial theory
3.1. In search of an epistemological reference model used in research

The attempt to find the perfect model that can accurately predict "who, what, and
how" is an attempt that failed, at its beginnings. The studies made so far on the
subject showed that models will predict the future in a more "predictable" way than
the analyzed phenomena does in reality. Until now, no expert has been able to
predict exactly what will happen in the medium and long term. In the short term,
however, it is viable to use economic models to make predictions. Why? The aim of
this paper is to reveal the optimal model that is able to take into account the degree
of uncertainty specific to the real world and thus contribute to the clarification of the
analyzed aspects, offering alternative solutions to the studied issues.
Financial theory is in a constant search for models from which society can benefit for
a better life adapted to the new environmental challenges. Methods and technologies
are sought to enhance the quality standards of human life both in urban and rural
areas. The classical theory of economy uses notions such as the market with perfect

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competition as a theoretical model, as well as the particular case of imperfect

competition through monopoly or oligopoly (Romer, 1996). The market, in the
classical view, appears at a macroeconomic level as being made up of similar
economic actors, without taking into account their individual characteristics. The
microeconomic approach views the individual behavior of an economic actor on the
market in terms of transactions with other economic actors, but without taking into
account their individual characteristics or mandate or representation relations
between them (Samuels et al., 2003).
Analysis of the balance between supply and demand was the primary focus of
economic research over the centuries. It starts with the analysis of the market
equilibrium mechanism through price which is still the subject of the macroeconomic
analysis and goes beyond the analysis of the agents` behavior allocation on limited
resources to the level of the individual as a functional morphological unit of demand
and supply. Economic research focuses on the analysis of human behavior and, in
particular, how people make decisions in response to environmental stimuli. We
recall in this sense the pioneering efforts of Herbert Simon (1978) in analyzing the
decisional behavior of individuals at the level of an economic organization. Hayek
(1945) is one of the first scientists to demonstrate the primary role of information in
the decision-making process to optimally allocate public financial resources to
private enterprises. It was therefore justified to develop a new model for resource
allocation in an economy where price mechanism is not an effective allocation tool
just by the means of using information taken from the actors of the market but who
are willing to make it public with the right incentives. An alternative to the "invisible
hand" of the classical economic model developed by Adam Smith (Smith, 1776) was
needed. The classical model described the market with perfect competition as being
characterized by a large number of participants from both the demand and supply
side, presenting homogeneous characteristics so that the price of equilibrium was
given by "meeting" between supply and demand on the market, without any
intervention from outside. But since then, over more than 300 years, the structure of
markets has changed dramatically so the mathematical model developed by Hurwicz
- Maskin - Myerson (2007) provided a better model to describe the mechanism for
allocating resources, describing in a more realistic manner the current markets
allocation mechanism.
What is financial decision-making and how it works is one of the questions that arise
in the mind of any researcher in this field. Finance as a science is in a constant state
of redefining its models and methods to help deciphering mysteries hanging over
this area. Each science has its specificity, all have evolved over time and and each
one enriched its area of knowledge by working with other sciences. All have
borrowed methods and techniques from each other in order to gain a deeper
understanding of the phenomena that take place in the world around us. So new
independent sciences appeared by merging one to another and an important number
of "border" sciences have been born such as behavioral finance, game-theory,
econophysics or others.
Another milestone for economic and financial theory were the 1800s, when
researchers and scientists have turned their attention to issues regarding the study
of national income produced by a country's economy developing models of

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macroeconomic analysis like the price of supply-demand balance on the perfectly

competitive and free market. The variables analyzed were quantifiable and related
to linear functions that measured market demand and supply at economic aggregate
level (Greene, 2003). The equilibrium price was created on the free market and was
the one at which the supply of goods and services between supply and demand was
made without the need for economic arbitrage measures (Dixit, 1990).
This is also the prospect of Adam Smith's classical theory. The balancing mechanism
on this market was "naturally" realized by the "invisible hand". The problem that
researchers were looking for a solution was referring to efficient allocation of natural
resources that are limited. At that stage, however, the issue of arbitrage of resources
between the market players was not discussed in the sense of their reallocation
between them. The free and competitive market, which is the classical model of
allocation resources through the "invisible hand" is a mechanism that efficiently
allocates resources under perfect competition conditions and this affirmation applies
to privately owned assets (Varian, 1992). But in the case of the public, the model of
resource allocation described by the free market does not work. This justifies State`s
intervention to allocate resources to the free market for the purpose of regulating and
delivering public goods. At the same time, the state acts on the market as a true
economic actor, providing increased access to finance for private businesses, taking
direct action by providing subsidies or money loans. The State also supports
enterprises by financing investment or public utility services offered to private actors.
The term public goods shall be used as a concept referring to public goods and
services. To this end, the state intervenes in the free market by allocating a share of
the public financial resources at its disposal to private enterprises to provide them
with access to the necessary funding sources. At present, the state plays an
important role in ensuring access to finance for private enterprises through the use
of various flexible public - private financial tools. This form of access to public -
private funding can only be materialized through the realization of projects in
partnership between the state and enterprises, which share both human, material
and financial resources.
The country's macroeconomic policies, starting from the crisis of the 1930s to the
1970s, were influenced by Keynes's ideas and addressed demand fluctuations, in
the sense of stimulating it in times of recession by "printing and injecting" money into
the economy translating into market demand and stimulate production in this way
(Elvin, 2004). The rationale was well received by the governments of the states that
have begun to practice large-scale excessive budget deficits from that date. Analysts
were interested in measuring aggregate phenomena in the economy by the year
1970. With the work of Robert Lucas, scientist`s interests turned at the
microeconomic level. His ideas attracted the attention of scientists towards the fact
that implementation of public policies translate into a number of decisions taken by
people. Thus, the importance of decision-making at the enterprise level and the
solution brought by project management for the achievement of organizational
objectives appeared. The pioneering work of Robert Lucas the 1970s meant the
introduction of micro-economic elements in the macroeconomic models and the
unexpected influence people can have on macroeconomic variables. All in all,

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economy and society is composed of individuals whose decisions influence the

course of economic aggregates.
3.2. Behavioral elements in the modern financial decision-making model

"Homo oeconomicus" definition lies in its involvement in transactions having a
purpose in mind and bearing at its disposal of a number of "tools" for achieving it.
He is "limited" by "inputs" or by his resources and he is oriented towards "outcomes"
to reach the proposed goal. In this sense, any human activity can be defined as a
process- input and output - and a series of coordinated unique processes to a
particular purpose results in a project. Economy as a whole is the sum of the results
of all individual projects so that economy appears as a portfolio of projects.
Current context in which organizations operate involves a large number of forces,
each of which has its own specific interest. We refer here to the forces of the external
environment, such as the market, customers, suppliers, investors, business partners
and also to the internal environment of the company's management and employees.
All these stakeholders want to get some value for the resources invested within the
organization. But this value has a different content for each of them and takes the
form of divergent interests. Depending on how the organization will be able to
coordinate all these divergent forces in order to achieve its purpose depends on its
success in the market thus gaining a comparative advantage over competitors. This
comparative advantage actually translates into that added value for all stakeholders
in the organization. The way managers strive to find the most appropriate solutions
to the ever-diversified requirements of customers, suppliers or investors that will
decide its survival on the market.
The question that both managers and financial science have tried to answer is "How
do we add value?" Scientific research and also managers in the business tried to
find answers to this question by turning their attention to the study of economic reality
in order to exploit domestic resources for the benefit of the organization in order to
create added value for those who bear an interest in that organization.
According to microeconomic theory, the balance in a market with imperfect competition
and in which information is distributed asymmetrically among the participants is
achieved by the "chance" encounter between demand and supply on the market. But
the "invisible hand" or the "incidental" equilibrium effect on the market is not an efficient
mechanism in allocating limited market resources so that to minimizing losses, nor
maximizing earnings due to the reality of markets characterized by the presence of
asymmetric information distributed among the participants and by imperfect
competition.
The economy as a whole is a sum of individuals interacting bearing different
interests. This interaction is an exchange of a material or immaterial nature. The
exchange between individuals is generated by the purposes or interests of the
people, who thus enter into relationships with each other. Transactions between
people in the economy are financially supported. This creates an intrinsic link
between the notions of project financing and the objectives followed. The project
determines how divergent forces between individuals are convergent directed, in that
they share a common and unanimously accepted goal. Even though the directions
in which the forces are directed are found in different planes and angles, their result

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will come in one single point. Enterprises create both the environment and the factor
for change and progress of the human being. The "internal kitchen" of each
organization creates prerequisites for innovation but also the ways in which they
come in to influence in an increasingly deeper manner the lives of individuals.
Organization is an environment for the transmission of information in order to guide
the work of people to achieve the goals for which it exists and has been created. At
the same time, the organization is also a means by which managers carry out their
goals, whether private or public. Private-public differentiation departs from the
characteristics of the interests or mobiles that stand behind these goals. They can
belong to a single person or group acting in their own name, and then the
organizations are privately owned. Among the theorists of this vision of
organizations, viewed as economic entities oriented towards the achievement of
goals, one can mention the contribution of Friedrich von Hayek (1974). His ideas
were continued by Professors Leonid Hurwicz, Eric Maskin and Roger Myerson
(2007) who built a model entitled mechanism design theory and it is a decision
model. The theory that lies behind the model refers to the fact that it was necessary
to develop a mechanism that would support organizational decision-making in order
to optimally allocate the value added expected by the participants. Professor Maskin
explains that the essence of the developed mechanism starts from the goals and
interests of the participants who interact and has discovered the "revealing principle"
that describes all the possible solutions that represent the balance of repetitive
games, coordinated by an external mediator. Professor Myerson explains why
resource allocation is no longer a current theory, and taking Hayek's theory (1945)
and developing it has shown how individual ownership of private information can
create hidden motivations for participants or agents to send false messages to
partners to manipulate the results of the transactions between them. Thus, their
mechanism integrates the notions of moral hazard and adverse selection (Myerson,
2007). Bringing together elements from game theory they have built a decisional
model describing the mechanism of optimal allocation of the surplus value resulting
from the transactions between them. The mechanism is built on a non - cooperative
gaming system where participants have incomplete information about each other
and the equilibrium is repetitively achieved. The model is currently widely used in
auctioning, political choices, or paying taxes or duties in public and private
organizations. The mechanism of this model refers to the realization of the best
possible variant, from the one existing at the moment of taking a collective decision,
which implies the simultaneous satisfaction of a large number of individual needs.
The model uses mathematical elements and game theory to match the resources
with the recipients they will be assigned, whether public or private. The goal is to
minimize "loss of value" and to help maximize the partners involved in a transaction
on a market where private information is heterogeneous and asymmetric distributed
between participants.
3.3. Economy and enterprise seen as a portfolio of projects

The external environment plays a fundamental role in the dynamics of the
organization, influencing its shape and nature. How does this explain? First in that
all input - sites used by organizations come from the environment (raw materials,

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energy, labor, equipment, etc.), then output - the organization appears on a given
market that is also a part of the environment. Also, many aspects of the process of
transformation of inputs into outputs are constrained or regulated to environmental
factors (legal or administrative regulations).
A project implemented by an enterprise that pursues its goals in this way plays the
role of agent through the project manager. The agent theory tells us that there is a
series of temporal conflicts between the agent and the owner of the enterprise on
behalf of which the action takes place between the short-term goals of people due
to their human and long-term nature of the organization they belong to (Kahneman
& Tversky, 1974).
Herbert Simon, Nobel Laureate for Economics in 1978, said that the organization
was not an "individual entity," but a sum of divergent "forces" deriving from the
different interests of the groups within it. Finding the "middle line" between the
multitudes of objectives does not have a single "optimal" path of realization, but
diversity (H. Simon, 1978). Daniel Kahneman reflects on the differences in time
perspective of the managers, at the organizational level, between long-term and
short-term objectives. Managers make decisions on behalf of the company they run
(Kahneman, 2009). Robert Aumann discovered that at the individual decision-
making level there is a disconnection between the clear and logical rules they
establish before acting on and the irrational state of mind they find themselves when
acting (Aumann, 2004).
At the same time, the goal pursued by an organization that can be defined as the
goal of an individual or a group of individuals. It can be seen the interconnection of
concepts such as individual, goal and project. The organization of human activity
generally has a complex structure, that resembles the "Sierpinski triangle" a
geometric figure present in fractal theory. This is a geometric shape that has a fractal
structure, because the closer you look at it, you notice the identical "copies" of all
that are actually its components, only their size is the only difference. The closer you
look at the fractal figure, you can see in the composition of the object an infinity of
copies identical to the whole in terms of structure but different in size. Similarly
structured looks and the enterprise from the point of view of the organization of
human activity aimed at achieving a goal. The company consists of projects that
match the objectives of human activity, as well as individuals interconnected to each
other through - a network of projects. Economy and the financial market is a network
of structured projects for a specific purpose. One can thus talk about a country's
economy as a complex project. Its subcomponents are the projects of the
administrative - territorial units subdivided into the projects of the various
organizations that make up the local community. Continuing with this reasoning,
each individual's projects are reached. All projects that make up the economy are
interconnected and look like a network of fractal nature. The fractal structure of the
economy finds various applications, ranging from the social sphere, to the public
finance system, to the private financial system.

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4. Conclusions
Why are the subjects and the enterprise at the heart of this paper? The answer is
simple: individuals are the ones who decide at organizational level and thereby they
assume financial risks that impact their decisions. Financing decision on allocating
resources on enterprise level depends on factors such as risk and return of a
financial decision outcome. The incidence of risk associated with the financing of
project management inside companies is an innovative approach to measuring risk
as it analyzes the impact factors on the decision-making subject both globally, at
macroeconomic and microeconomic level and at enterprise or project level to the
decision-making subject. Current research also provides a theoretical contribution to
knowledge and understanding of the financing mechanism of projects managed by
enterprises revealing modern financing decision models that built on classical
financing sources to more complex ones from the capital market.
The financing of a private enterprise, irrespective of the number of its owners or
shareholders or its turnover, is analyzed as an integrated concept in the financial
market. The concept of financial market, in the present study, refers to all the sources
of funding that are currently available to organizations. Market sources of funding in
the current context are either private, governmental, public or both. This integrated
approach is necessary because money flows are moving in and from public to private
and vice versa. The overall outlook on the entire financial market can provide a better
understanding of the phenomenon of money multiplier in the economy and also on
the financial mechanism needed to secure the money resources necessary to
achieve the organizational objectives using the different forms of financing existing
on the market. All these phenomena are conditioned by the evolution of the political
and legal environment, all of them being approached in a complex integrated
structure of projects, objectives and resources needed. Studying the mechanism of
financing an enterprise's objectives through projects is the motivation of the present
paper and involves reflections on the different patterns of resource allocation in the
economy during the stages of economic theory, from classical to modern.
References:
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http://www.nobelprize.org/nobel_prizes/economic sciences/laureates,
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7. Hayek F., (1945), The use of knowledge in society, The American Economic
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(Mar., 1952), pp. 77 91, available at http://links.jstor.org/sici?
sici=00221082%28195203%297%3A1%3C77%3APS%3E2.0.CO%3B21,
[10.03.14].
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Prize Lecture, December 8, 2007.
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USA.
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Blackwell Publishing Lt, USA.
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an electronic classics series publication, The Electronic Classics Series, Jim
Manis, Editor, PSU Hazleton, Hazleton, PA 18202, available online at:
http://www.hn.psu.edu/faculty/jmanis/jimspdf.htm, [05.04.2014].
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Edition, USA.

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THE EFFECTIVENESS OF THE SYSTEM OF QUALITY CONTROL IN

ACCOUNTING PRACTICES
DUMITRESCU Diana, BOBITAN Nicolae

Accounting and Auditing Department, Faculty of Economics and Business
Administration, West University of Timisoara, Timisoara, Romania
dianadumi@gmail.com
Abstract: Any accounting firm need to develop a system of quality control (SQC),
which have the purpose to offer a reasonable assurance, that the accountants or the
auditors, and their personnel, respect the professional standards and any legal or
regulatory requirements, and the reports issued are appropriate, with the
circumstances. The quality control system contains polices and their implementation
is achieved through a system of procedures. A company can have a system of quality
control, but only as a form, and as result, it is very important for everyone to be able
to assess, how effective such a system works. An effective quality control means
more than compliance with rules and provisions, and this is the reason why, for an
accounting firm, it is very important, not just to have the system, but, also, to have
some methods to evaluate how effective this system is. A lot of benefits can result
from a robust SQC, regarding competitiveness on the market and the financial
performance, and through monitoring controls, an accounting firm apply tests to
ensure that controls are designed and works properly. The paper has the purpose
to identify whether the accounting practices, small and medium, know how to
evaluate the effectiveness of quality control system, and in connection with is,
whether they have enough information to develop a set of indicators, which could
measure the effectiveness of the firm’s SQC The research is based on descriptive
statistics applied on the results of a survey addressed to small and medium practices
in accounting and auditing. The results can make their contribution to disseminating
how to design the system of indicators used to evaluate the effectiveness of the
quality control system. The findings of the paper are not very optimistic, but if, at
least it draws attention to the importance of building a set of indicators to measure
the effectiveness of the quality control system, the objective has been achieved.
Keywords: Quality Control; policies; procedures; effectiveness; indicators; SQC.
JEL Classification: M41; M42.
1. Introduction
With the purpose to ensure that the professional accountants delivery high-quality
services and meet the public interest, by regulation, accountancy profession
organizations and their members must play an important role in the assessment of
the quality control system (SQC) developed, also at the firms’ level, and at any
engagement performed.
All the professionals that are working in firms or as sole practitioners, and performs
a wide range of professional services, in accounting and auditing practices, are
required to develop and maintain a system of quality control (SQC). The International

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Federation of Accountants, IFAC, achieves its objective to serve the public interest,
and issues standards as guidance to establish the responsibilities of a firm to develop
a system of quality controls and the responsibilities of a professional body to evaluate
its application.
The most important guidance for an accounting or auditing firm, in establishing and
maintaining a system of quality control (SQC), with the objective `to provide it with
reasonable assurance that a) the firm and its personnel comply with professional
standards and applicable legal and regulatory requirements; and b) reports issued
by the firm or engagement partners are appropriate in the circumstances`(IAASB,
2015), is given by ISQC 1 `Quality Control for Firms that Perform Audits and Reviews
of Financial Statements, and Other Assurance and Related Services Engagements`.
For the audits of financial statements, the provisions of the ISQC 1 should consider,
the additional ISA 220 `Quality Control for an Audit of Financial Statements`.
The IFAC`s member bodies of professional accountants, in each member`s country,
also, apply a complementary guidance through IPPS (International Professional
Practice Statement) no. 1 Àssuring the Quality of Professional Services`. The
purpose of this document is to assure an external review of the quality control`s
policies and procedures, through a quality assurance review programs, which
evaluate whether the firm of practicing accountants comply with their SQC or not, or
the system needs some improvements.
Also, the IFAC Board have issued the Statements of Membership Obligations
(SMOs) and SMO 1 `Quality Assurance`, that `requires member bodies to establish
and publish quality control standards and guidance requiring firms to implement a
system of quality control in accordance with ISQC1` (IFAC, 2004).
As result of these provisions, accountants and auditors must have developed a SQC,
policies and procedures at the firm and the engagement level, and the professional
and statutory bodies, worldwide, perform periodic independent inspections of the
accounting and auditing firms’ systems of quality control.
The paper has the objective to establish whether the accounting and auditing
practices are preoccupied to measure the effectiveness of the SQCs. The paper
provides relevant provisions and literature in order to identify the regulation applied
for a set of indicators with the purpose to measure the effectiveness of the SQCs.
The hypothesis of the study is: The professional accountants and auditors, in small
and medium practices, have enough information for developing a set of indicators
which evaluates the effectiveness of the firm’s SQC?
With the purpose to answer at this question the paper presents the data which are
used, the descriptive statistics and the research design. Also, the study presents the
results and the conclusion based on them that are reached.
2. Literature review
2.1. The System of Quality Control and the Public Interest

There have been a variety of other research projects and global initiatives on the
topic of audit quality, and as result there has not been an universal agreement on a
definition of audit quality, or the audit quality framework, or the most relevant
indicators of audit quality and how and to whom they should be communicated.

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The level of audit quality is linked to quality level of the information contained in
financial statements, the reason for this is that the financial statement that have been
audited by high quality auditors rarely contained substantial misstatements, which is
reflected in minimization agency costs between shareholders and management.
Thus, according to the literature, audit quality positively affects the quality of
accounting information. (Soliman, 2014)
The accountancy profession and regulatory community act in a public/private
arrangement of shared regulation that bears joint accountability for the actions of the
profession, as well as their impact on society as a whole. (IFAC Policy Position Paper
5, 2012)
Accountants and auditors are responsible and have the aim to ensure the quality of
their works. As result, all the professionals that are working in firms or as sole
practitioners, and performs a wide range of professional services, in accounting and
auditing practices, are required to develop and maintain a system of quality control
(SQC). Policies and procedures, regarding the quality control of the professional
accountancy services, are developed at the engagement level, at the level of the firm
and at the national level, through the professional bodies.
An accountancy firm’s system of quality control is intended to address certain key
elements, such as: leadership responsibilities for quality within the firm, ethical
requirements (independence, integrity, objectivity), client relationships, human
resources/personnel management (which includes sufficiency of resources,
technical knowledge and experience), engagement performance, communication
and reporting, and monitoring.
Based on that key elements, a set of potential Audit Quality Indicators (AQIs) could
provide additional perspective on the firm’s system of quality control, and could be
useful for understanding the matters that may contribute to the performance of a
quality audit. A set of AQIs could help the firm’s ability to support and perform quality
audits, could help a better understanding the firm’s policies, procedures, and
processes related to its system of quality control, and could provide information
about the engagement team’s performance.
2.2. Quality Control according the Standard Setters

The Public Company Accounting Oversight Board’s (PCAOB) and the International
Auditing and Assurance Standards Board (IAASB) have developed two projects,
analyzed further below, which have the purpose to identify characteristics and
indicators of the audit quality, setting off by the two different perspectives and that
responding to the issues arising in the previous main studies.
The Public Company Accounting Oversight Board (2013) released its Audit Quality
Indicators Project in which they propose a set of qualitative/quantitative indicators
discussed with the board's advisory groups, firms, other regulators, audit committees
and academics in order to identify a good audit quality framework.
In the paper could be identifies the following indicators used to evaluate the quality
of audit service:
 Operational inputs - indicators regarding the people that work in audit
firm: ratio of partners to staff, partner and staff utilization percentages /
workloads, chargeable hours per professional, percentage of work

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outsourced to service center, industry expertise and proficiency, training

hours per audit professional, and so on.
 Process - the firm leadership communications on audit quality and
investors’ interests: metrics related to independence, testing, and
compliance; number and nature of internal quality review findings;
compensation trends of prematurely rotated partners; leverage ratio of
audit staff to partners, credentials of new hires and recruiting - academic
achievement; best companies to work for rankings; compensation
levels.
 Results - frequency and market impact of financial statement
restatements for errors: number of material weaknesses cited in
conjunction with material errors, number of audit reports lacking a going
concern opinion which had a subsequent bankruptcy; number and
nature of PCAOB inspection findings, and so on.
The Center for Audit Quality (CAQ), affiliated with the American Institute of Certified
Public Accountants (AICPA) has closely followed the Public Company Accounting
Oversight Board’s (PCAOB) Audit Quality Indicators (AQI) initiative and developed
a set of potential AQIs that could provide benefits relative to the oversight of the audit
quality, CAQ (2014) - CAQ Approach to Audit Quality Indicators.
Similarly, the International Auditing and Assurance Standards Board (2014) released
“Framework for Audit Quality: Key Elements that Create an Environment for Audit
Quality", which describes the different elements that create the environment for audit
quality at the engagement, firm, and national levels, as well as relevant interactions
and contextual factors:
 Inputs – the audit firm’s culture (values, ethics and attitudes), the time,
knowledge and skill brought to the audit and the effectiveness of the audit’s
processes and quality control procedures
 Engagement Level (for example the engagement team is independent,
the engagement team exhibits professional competence and due care,
the engagement team exhibits professional skepticism, partners and
staff have the necessary competences, partners and staff understand
the entity’s business., partners and staff make reasonable judgments)
 Firms level (Governance arrangements are in place that establish the
appropriate “tone at the top”, and which aim to safeguard the firm’s
independence, Necessary personal characteristics are promoted
through appraisal and reward systems supporting audit quality
Engagement teams are properly structured, Partners and more senior
staff provide less experienced staff with timely appraisals and
appropriate coaching or “on-the-job” training.)
 National level (Regulators, national standards setters and professional
accountancy organizations are active in ensuring that the ethics
principles are understood and the requirements are consistently applied.
Robust arrangements exist for licensing audit firms/individual auditors,
Education requirements are clearly defined and training is adequately
resourced and effective)

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 Outputs – recognizing that some stakeholders (such as regulators) have the

ability to influence outputs while for others (such as investors) outputs (in
the form of the auditor’s report) are relatively standardized. For these factors
the IAASB distinguish:
 Engagement Level (From the Auditor: Auditor’s Reports to Users of
Audited Financial Statements, Auditor’s Reports to Those Charged with
Governance Auditor’s Reports to Management, Auditor’s Reports to
Financial and Prudential Regulators; From the Entity: The Audited
Financial Statements, Reports from Those Charged with Governance,
including Audit Committees).
 Firm and national level
 From the Audit Firm: Transparency Reports, Annual and Other
Reports;
 From Audit Regulators: Providing an Aggregate View on the
Results of Audit Firm Inspections
 Interactions – the nature and quality of the various interactions between
involved stakeholders e.g. auditors, management, those charged with
governance and regulators during the audit process
 Context – the legislative and regulatory environment within which the audit
operates. The impact of the financial reporting framework and corporate
governance on financial reporting quality also give context to the audit.
However, the IAASB’s framework does not present a definition of audit quality or or
not provide AQIs.
3. Research Questions and Survey Design
Based on the indicators included in the papers presented above, that are relevant
for evaluating the effectiveness of the system of the quality control developed in the
accountancy firms, the research question of the study was: The Romanian
professional accountants and auditors, in small and medium practices, have
information for developing a set of indicators which evaluates the effectiveness of
the firm’s SQC?
With the purpose to test this hypothesis, the empirical data are collected based on a
survey sent to the most important social media groups, where are registered more
than 10.000 members, most of them certified as accountants or auditors, members
of CECCAR or CAFR.
The survey instrument was prepared and send using www.docs.google.com and the
responses was received in the same way. The professional accountants were asked
to offer information regarding the quality control policies and procedures, the
existence and the appliance of the SQC at the firm level, and also, to identify whether
there exists information for the SQC assessment and could be developed indicators
about the quality of the engagement.
The design of the questionnaire uses the multiple response for closed ended
questions and the participants need to express the agreement ratings on a 5-point
Likert scale ranging from 1 (strongly disagree/never), 2 (disagree/rarely), 3

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(undecided/every once in a while), 4 (agree/sometimes), 5 (strongly agree/almost

always).
The questionnaire consisted of 10 questions formulated in the Romania language to
minimize misinterpretations from the respondents and to increase the reliability of
the empirical study. In order to design the questionnaire, as well as increase
reliability and ensure that the questions include in the questionnaire were in
conformity with the study’s purpose of investigation, the authors have led first a pilot
test. The pilot test was completed by certified accountants and auditors during the
professional courses conducted by the professional bodies. To test the questionnaire
in practice, the questionnaire also was administered to different professionals,
accountants and auditors, via electronic mails.
Based on the CAQ proposal for a set of AQIs, the questions were formulated in order
to cover qualitative and quantitative information about the key elements of the SQC
developed by the firm:
I. Firm Leadership and Tone at the Top - how the firm’s tone at the top influences
and reinforces audit quality at the engagement level.
Q1: The firm`s Tone at the Top influences and reinforces audit quality at the
engagement level.
II. Engagement Team Knowledge, Experience, and Workload – intend to determine
that, collectively, the engagement team has the appropriate experience and
competencies, and that specialists are engaged, as needed.
A. Knowledge and Experience of Key Engagement Team Members
Q2: The engagement team`s members have the appropriate experience and
competencies?
Q3: Are engaged specialist whether in the engagement there is needed?
Q4: Are measured, for all key members of the engagement team, the years
of experience (on the engagement, in industry, in firm, in profession)?
B. Audit Firm Training Requirements
Q5: The firm considers the relevant training requirements for the key
engagement team members?
Q6: For the highly specialized industry the firm has an approach regarding
to determine the special knowledge ant to obtain them by industry training
courses or external industry professional conferences?
C. Allocation of Resources
Q7: The human resources are allocated by engagements based on the
specialization and the prior experience?
D. Key Engagement Team Members’ Workloads
Q8: The engagement team have appropriate time to perform any kind of
work, and also, there is time enough for review and supervise the activity?
III. Monitoring
A. Internal Quality Review Findings
Q9: There are internal inspection for reviewing the control quality system,
and as result of the findings are procedures modified?
B. Accountancy Organization Inspection Findings

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Q10: The firm was the subject of the professional body inspection, and for
the identified deficiencies were undertaken plans of remediation, including
changes in the firm`s system of quality control?
4. Results
The survey was administrated to a wide variety of accountants and auditors who
works in small and medium practices. A total of 105 responses were obtained. The
demographic profile is as follows: 56 percent of the sample are men, 63 percent were
having bachelor degree education, 27 percent were having master degree education
and 15 percent having a PhD, 67 percent have professional certification as chartered
accountant, 25 percent have certification in auditing and 13 percent have certification
as tax consultant.
Table 1 shows descriptive statistics of the responses, which describes professional
accountants and auditor’s perceptions regarding the variables used in the analyses.
The results interpretation it is about the values of the mean, standard deviation,
median and mode.
Table 1. Descriptive statistics—professional accountants and auditors’ perceptions

(N = 105)
Descriptive statistics Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10
Mean 4,12381 2,67619 2,190476 1,6 1,485714 2,857143 2,180952 3,571429 1,704762 3,847619
Standard Error 0,109691 0,093267 0,088842 0,062897 0,082447 0,087107 0,09832 0,110657 0,082235 0,108925
Median 4 3 2 2 1 3 2 4 2 4
Mode 5 3 2 2 1 3 2 4 1 4
Standard Deviation 1,123997 0,955704 0,91036 0,644503 0,844829 0,892582 1,007481 1,133893 0,842658 1,116149
Sample Variance 1,26337 0,91337 0,828755 0,415385 0,713736 0,796703 1,015018 1,285714 0,710073 1,245788
Kurtosis 1,831019 -0,31938 1,025139 7,203738 5,840166 -0,07386 0,363368 -0,2003 3,117409 0,318577
Skewness -1,53242 0,222804 0,779821 1,704732 2,288943 0,70045 0,834623 -0,6644 1,492554 -1,00384
Range 4 4 4 4 4 4 4 4 4 4
Minimum 1 1 1 1 1 1 1 1 1 1
Maximum 5 5 5 5 5 5 5 5 5 5
Sum 433 281 230 168 156 300 229 375 179 404
Count 105 105 105 105 105 105 105 105 105 105
Source: For the statistical analysis of the collected data was used Microsoft Excel -
Analysis Data package
In this study, we received 105 individual responses, and the mean`s values for each
of the question is presented in the Figure 1.

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Figure 1. Mean`s values for professional accountants responses

Source: For the statistical analysis of the collected data was used Microsoft
Excel - Analysis Data package
Table 2. Indicators used to evaluate professional accountants and auditors’

perceptions (N = 105)
No. Q Spec Z % CV Top Box Top 2Box Agree Net Top B
Q1 4 0,110151 54,4% 27% 46,7% 81,9% 81,9% 40,0%
Q2 4 -1,38517 8,3% 36% 2,9% 19,0% 19,0% -6,7%
Q3 4 -1,9877 2,3% 41,6% 2,9% 5,7% 5,7% -19,0%
Q4 4 -3,7238 0,0% 40,3% 1,0% 1,9% 1,9% -43,8%
Q5 4 -2,97609 0,1% 56,9% 1,9% 4,8% 4,8% -63,8%
Q6 4 -1,28039 10,0% 31,2% 5,7% 21,0% 21,0% 4,8%
Q7 4 -1,80554 3,5% 46,2% 2,9% 11,4% 11,4% -22,9%
Q8 4 -0,37796 35,3% 31,7% 21,0% 60,0% 60,0% 14,3%
Q9 4 -2,72381 0,3% 49,4% 1,9% 2,9% 2,9% -45,7%
Q10 4 -0,13652 44,6% 29,0% 30,5% 74,3% 74,3% 25,7%
Source: For the statistical analysis of the collected data was used Microsoft Excel -
Analysis Data package
To find more meaning of the responses to the closed ended rating scale data and to
make it more interpretable, after the descriptive statistics, and the calculation of the
mean and the standard deviation, another 5 indicators could be calculated:
1. The percent of the agrees (the percent of respondents who choose 4 or 5);
2. Top Box (the percent of respondents who choose 5) and Top 2Box scoring
(equal with the percent of the agrees);
3. Net Top Box (from number of respondents who choose 5 subtract number
of respondents who choose 1);
4. Z-Score to Percentile Rank - converts the raw score into a normal score: Z
= (Mean – Spec.)/Standard Deviation;

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5. Coefficient of Variation (standard deviation is divided by the mean, higher

values indicate higher variability, which indicates inconsistent attitudes).
The responses are interpreted through the agreement ratings, based on the 5-point
Likert scale ranging (where 5 – almost always; 4 – sometimes; 3 - every once in a
while; 2 – rarely and 1 – never), as follows:
R1: The firm`s Tone at the Top influences and reinforces audit quality at the
engagement level sometimes/almost always.
R2: The engagement team`s members have the appropriate experience and
competencies every once in a while.
R3: When in the engagement there are needed specialists, they are rarely engaged.
R4: The years of experience (on the engagement, in industry, in firm, in profession)
are rarely measured for all key members of the engagement team.
R5: The firm never considers the relevant training requirements for the key
engagement team members.
R6: For the highly specialized industry the firm has rarely an approach regarding to
determine the special knowledge ant to obtain them by industry training courses or
external industry professional conferences.
R7: The human resources are rarely allocated by engagements based on the
specialization and the prior experience.
R8: The engagement team sometimes have appropriate time to perform any kind
of work, and also, sometimes there is time enough for review and supervise the
activity.
R9: There are rarely or never internal inspection for reviewing the control quality
system, and as result of the findings are procedures modified.
R10: The firm was sometimes the subject of the professional body inspection, and
for the identified deficiencies were undertaken plans of remediation, including
changes in the firm`s system of quality control.
5. In conclusion
The aim of this paper was to identify whether the professional accountants and
auditors, who works in small and medium practices, are looking to get the information
that can build a set of indicators, relevant for evaluating the effectiveness of the
system of the quality control, developed in the accountancy firms.
The empirical analysis indicates that Romanian accountants and auditors, who
works or as sole practitioners, or in small and medium firms, are not yet prepared to
develop such a system of indicators for the SQC`s assessment, because all the
necessary information are or rarely or even never obtained, and just too few of them,
are sometimes issued.
Throughout this paper we have shown that just the existence of a SQC, it is not
enough to prove its efficiency.
The practical implications of this study aware the accountants and auditors to
become more preoccupied by the SQC`s effectiveness assessment, to have in
intention to develop a set of indicators with this purpose.

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References
1. Allen, C. (2011) Benefits of Effective Quality Control Systems in Accounting
Firms, CPA JOURNAL, vol. 81, no. 1, 2011
2. Dellaportas, S., Davenport, L. (2008) Reflections on the public interest in
accounting, Critical Perspectives on Accounting, Volume 19, Issue 7, November
008, Pages 1080-1098
3. PMG, LLP (2015). PCAOB Rulemaking Docket Matter No. 041; Request for
Comment: Concept Release on Audit Quality Indicators [Letter to PCAOB]. New
York, New York.
4. Martin, R. D. (2013). Audit Quality Indicators: Audit Practice Meets Audit
Research. Current Issues in Auditing, 7(2), A17-A23.
5. Mahoney, Jeff (2015). Concept Release on Audit Quality Indicators (PCAOB
Rulemaking Docket Matter No. 041) [Letter to PCAOB]. Council of Institutional
Investors, Washington D.C.
6. McGladrey, LLP (2015). PCAOB Rulemaking Docket Matter No. 041 [Letter to
PCAOB]. Chicago, IL.
7. Minnich, G. (2015). PCAOB Rulemaking Docket
8. Pinello, A. et al. (2019) The PCAOB Audit Quality Indicator Framework Project:
Feedback from Stakeholders, Journal of Business & Economics Research – First
Quarter 2019 Volume 16, Number 1.
9. Rood, D. (2016) Walking the talk on quality control,
https://www.journalofaccountancy.com/issues/2016/may/quality-control-at-cpa-
firms.html
10. Soliman, M. M. (2014) Auditing Quality Characteristics and Accounting
Conservatism: An Empirical Study of the Listed Companies in Egypt, Corporate
Ownership & Control / Volume 11, Issue 2, 2014, Continued – 3, pages 352 – 361.
11.FEE (2015) Overview of Audit Quality Indicators Initiatives,
https://www.accountancyeurope.eu/wp-
content/uploads/1607_Update_of_Overview_of_AQIs.pdf
12. IAASB (2015) International Standard On Quality Control 1, Quality Control for
Firms That Perform Audits and Reviews of Financial Statements, And Other
Assurance and Related Services Engagements,
https://www.ifac.org/system/files/downloads/a007-2010-iaasb-handbook-isqc-1.pdf
13. IFAC Policy Position Paper 5,
https://www.ifac.org/category/publication-type/policy-position-papers
14. IFAC Board have issued the Statements of Membership Obligations (SMOs)
and SMO 1 `Quality Assurance`,
https://www.ifac.org/system/files/publications/files/Statements-of-Membership-
Obligations-1-7-Revised.pdf
15. The Public Company Accounting Oversight Board (2013) Audit Quality
Indicators Project,
https://pcaobus.org/Rulemaking/Docket%20041/Release_2015_005.pdf

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ANALYSIS OF MAJOR CAPITAL STRUCTURE INDEXES OF

ORGANIZATIONS DEALING WITH SPORTS ACTIVITIES AND THEIR
RELATION WITH THE NOTES TO THE FINANCIAL STATEMENT
FENYVES Veronika1; BÁCS Zoltán1; BÁCSNÉ BÁBA Éva2; KEREZSI Dóra1

1
University of Debrecen, Faculty of Economics and Business, Institute of Accounting
and Finance, Debrecen, Hungary
2
University of Debrecen, Faculty of Economics and Business, Institute of Rural
Development, Tourism and Sports Management, Debrecen, Hungary
fenyves.veronika@econ.unideb.hu
bacs.zoltan@econ.unideb.hu
bacsne.baba.eva@econ.unideb.hu
kerezsi.dora@econ.unideb.hu
Abstract: GDP-measurable impact of the sports sector shows a growing tendency.
It is one of the most defining elements of global economy, as it is constantly opening
up new markets, with profit-oriented companies appearing, where the objective is to
achieve profit and wealth. Therefore, it was considered important to examine the
financial situation of various sports companies based on their annual statements.
The purpose of the financial statement is to provide various market participants with
information about the business situation of a company in order to support their
decision-making process. In order to make informed decisions, it is essential to
process and analyse the financial data disclosed in the statements. The analysis
provides the management with essential information on the operation of the system
and ensures its awareness. The aim of present study is to show the characteristics
of profit-oriented organizations located and based in Hungary in the years 2014-
2017, which have TEÁOR (Hungarian version of NACE) 931 ‘sports activities’ as
their primary business activity. The financial situation is presented through the
analysis of the liabilities side of the balance sheet. The survey involves mapping the
relationship of the indexes with the notes to the financial statement, namely their
conformity with the mandatory content stipulated by the Accounting Act.
Keywords: sports sector; analysis of the financial situation; capital structure
indexes; notes to the financial statement.
JEL Classification: Z23.
Sport is of increasing importance in the life of modern societies of our time. It

involves more and more people (either passively or actively) into the world of sport;
the performance of the sport-based economic sector is constantly expanding and
its role is becoming increasingly positive in various social areas (Laczkó, 2015). The
economic importance of sports is no longer questioned by anyone. Sports
economics is considered a relatively young field of science both within the scope of
sports science and economic sciences (Kendelényi-Gulyás, 2017).

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Average annual growth rate of the global sports market between 2009 and 2013
was 7%, which means that the growth rate of the sector exceeds GDP growth rate
in a significant proportion of national economies, especially in large markets such
as the United States, Brazil, United Kingdom and France (Bácsné et al., 2018).
Long-term prospects of the sector are also encouraging. Household expenditures
of sports tools, clothing, equipment, and health and fitness reach $700 billion
annually, which is 1% of global GDP (Collignon, 2014). In their study, which
examined the economic situation of enterprises dealing with sports activities
between 2014 and 2016, Bácsné et al. (2018) found that the results of the three-
year study clearly show that the sector experiences constant development, its
contribution to the added value is increasing both in terms of amount and proportion.
Traditional levels of economic analysis can also be found in the field of sports
economics research. Macroeconomic research primarily measures the economic
importance of sports, its contribution to national economy income, employment, and
consumer spending. Analysis of the economic effects of various international
sporting events (Olympic Games, UEFA European Championship, FIFA World Cup)
also appear within this area. Microeconomic research focuses on the issues of the
operation of sports services and providers, the characteristics of supply and demand
and the functioning of sports organizations. A mesoeconomic level exists between
the above two levels, which deals with the specificities of sports such as the
economics of leagues and the specialties of the player market (András, 2015).
Present study belongs to microeconomic research.
2. Material and method of the study
Currently, in April 2019, there are 2980 companies in Hungary, which are engaged
in sports activities. The survey database includes companies that are based in
Hungary, identified their primary business activity as ’sports activities’ (TEÁOR 931),
and have 4 closed business years. In the scope of the study, the financial
statements of 1747 companies were analysed (57.62%). These are the companies
that prepared financial statements for the period of 2014-2017 and that are not
under bankruptcy proceedings or being liquidated or terminated. The data was
provided by the OPTEN database.
For the analysis, Microsoft Excel spreadsheet software, and data management and
calculation options of the R statistical system were applied (Everitt – Hothorn, 2010;
Huzsvai, 2013). The R statistical system was utilized through Excel, by means of
RExcel (Heiberger – Neuwirth, 2009).
3. Analysis of the companies by quartiles. Analysis of the main capital

structure indexes of companies by means of the quartile classification based
on net sales revenues
The data used as the basis of the examination (1747 companies) were ranked by
their net sales revenues of the 2014 financial year in an ascending order and were
divided into four equal parts for the quartile-based analysis. Data were examined by

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means of descriptive statistical characteristics (mean, extent of deviation, relative

standard deviation, skewness and kurtosis
From among capital structure indexes, four main indexes were highlighted, by
means of which the distribution of the capital of sports-related enterprises classified
by their origin is presented among the main groups. The analysis of the financial
situation in present study is carried out using vertical indexes. Financial situation of
companies was analysed through the equity ratio, ratio of provisions, ratio of
liabilities and ratio of deferrals for the examined periods (2014, 2015, 2016, 2017).
The indexes examine the ratio of each main group of the balance sheet to total
liabilities.
Table 1 shows the mean index values referring to the equity ratio of the total
population and the 4 quartiles which are classified by net sales revenues; it also
includes relative standard deviation, skewness and kurtosis for each analysed year.
In general, it can be stated about organizations performing sports activities that their
equity ratio shows unfavourable values. Mean values are characterised by negative
values for the total population and all quartiles except for the 4th quartile. This means
that these businesses are less profitable; in many cases, their shareholders’ equity
is negative. In the case of the 4th quartile (companies with the highest sales
revenues), positive shareholders’ equity values were recorded in 2014 and 2015 by
examining the mean value. In 2016 and 2017 negative equity ratio was found in this
group as well.
Table 1: Main statistical properties of the equity ratios of the quartile classification
carried out based on net revenue (%)
Group Statistical index 2014 2015 2016 2017
Mean -1964.97% -46.68% -2273.70% -893.44%
Total Relative deviation -2778.25% -1423.30% -2048.51% -1306.76%
population Skewness -39.64337 -24.72958 -30.29266 -23.70323
Kurtosis 1618.9527 766.23255 977.01236 630.41538
Mean -1758.10% -99.46% -6111.06% -2610.81%
Relative deviation -798.46% -1191.13% -1301.74% -850.89%
1st quartile
Skewness -13.06294 -16.48092 -19.68782 -13.19566
Kurtosis 187.11567 297.5959 400.75767 186.36055
Mean -6016.26% -21.53% -2681.16% -433.19%
2nd quartile
Skewness -20.32628 -8.611016 -20.72749 -9.100315
Kurtosis 419.63674 97.176604 432.13348 92.032494
Mean -74.42% -77.57% -286.30% -523.61%
3rd quartile
Skewness -8.495353 -8.957937 -20.22009 -17.2762
Kurtosis 98.37406 94.886413 416.73255 320.00203
Mean 7.01% 11.85% -5.61% -4.31%
Relative deviation 1854.60% 893.19% -4814.64% -4706.37%
4th quartile
Skewness -7.32861 -6.177047 -11.83946 -6.079606
Kurtosis 72.294685 53.169489 180.6218 46.660426
Source: Own editing

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Relative standard deviation values of the total population and each quartile also
refer to an extremely heterogeneous population. The lowest, but still very high
values were observed based on the data of companies belonging to the 1st and 3rd
quartiles. Consequently, it might be worthwhile to subdivide the given population to
additional groups by means of a multi-variable method.
Analysis of skewness indexes shows that all of the variables show a left skewness,
which means that in a coordinate system most of the data are not located close to
the Y-axis. Skewness indexes are gradually decreasing from the 1st quartile to the
4th quartile and in the 3rd and 4th quartiles it is already well below 20.
Examination of kurtosis values suggests that distribution in terms of the total
population and the quartiles can be regarded as more peaky as compared to normal
distribution.
It is mandatory for companies to present their actual financial situation in their notes
to the financial statement, including the disclosure of the changes of shareholders’
equity and liabilities during the financial year, their reasons, with especial regard to
changes of share capital. Proportion and changes of shared capital of the parent
company, the subsidiaries, joint ventures, associated companies also needs to be
presented.
Following the analysis of equity, it was considered important to examine the ratio of
provisions as well. Provisions are allocated resources, which have to be or can be
generated by the company in conformity with the stipulations of the Accounting Act
as a security for expectable liabilities following the current financial year. Based on
earnings before taxes, provisions have to be allocated for liabilities originating from
past or ongoing transactions, contracts with third parties, which are likely or certain
to exist on the balance sheet date, the amount or due date of which is yet uncertain
and for which the company did not provide the necessary financial securities.
Provisions can be allocated based on earnings before taxes for such expectable,
significant and periodically recurring future expenses that are – on the balance sheet
date – probable or certain to occur in the future, but the amount or date of
occurrence of which is still uncertain and which cannot be recognized as deferrals.
Such provisions can be provisions for expected liabilities, provisions for future
expenses and other provisions.
The index represents the percentile proportion of provisions within total liabilities.
Table 2 shows mean ratios of provisions in a quartile classification together with
other descriptive statistical indexes. It can be established for both the total
population and the breakdown by quartile that enterprises engaged in sports
activities allocate only minimal provisions on average. As for the index numbers of
the 1st and 2nd quartiles, there were years when none of the companies allocated
provisions. The amount of allocated provisions increases with higher sales
revenues, but the mean value still does not reach the value of .05% even in the case
of the 4th quartile.
Relative standard deviation values belonging to the total population and for each
quartile also indicate an extremely heterogeneous population. Based on the above,
allocation of provisions can be recorded for companies belonging to the 3rd and 4th
quartiles, but in a very low volume.

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The analysis of skewness indexes suggests that each of the variables shows right
skewness, which means that in the coordinate system most of the data is located
near the Y-axis. Skewness indexes can be examined in the 3rd and 4th quartiles, and
it can be concluded that the value has decreased during the first three years of the
study, but this tendency reversed in the fourth year. Examination of kurtosis values
suggests that distribution in terms of the total population and the quartiles can be
regarded as more peaky as compared to normal distribution.
It is mandatory to disclose information in the notes to the financial statement about
the amount of provisions for liabilities to affiliated undertakings, broken down by
different purposes, with especial regard to the amount of provisions allocated for
warranty liabilities to affiliated undertakings.
Table 2: Main statistical properties of the ratios of provisions of the quartile

classification carried out based on net revenue (%)
Mean 0.06% 0.04% 0.08% 0.10%
Total Relative deviation 2096.01% 1411.21% 1695.93% 2073.42%
population Skewness 36.66743 18.88572 28.40632 34.39131
Kurtosis 1446.981 406.221 946.2451 1301.291
Mean 0.00% 0.00% 0.00% 0.00%
Relative deviation 0.00% 0.00% 0.00% 2090.45%
1st quartile
Skewness 0 0 0 20.90454
Kurtosis 0 0 0 437
Mean 0.12% 0.00% 0.14% 0.00%
2nd quartile
Skewness 20.92845 0 19.6158 0
Kurtosis 438 0 396.4027 0
Mean 0.00% 0.04% 0.01% 0.01%
3rd quartile
Skewness 15.3437 20.65027 17.64305 16.68412
Kurtosis 240.1925 429.2086 326.9977 297.8867
Mean 0.13% 0.12% 0.18% 0.39%
4th quartile
Skewness 7.594737 9.406272 9.947706 17.21762
Kurtosis 63.61053 102.8738 109.4087 325.6194
Source: Own editing
Besides the ratio of shareholders’ equity, the proportion of liabilities within the total
liabilities needs to be examined; this is represented by Table 3. It can be established
for organizations dealing with sports activities that the proportion of liabilities reflects
prominently high values. Based on the expectations of technical literature, the value
of the index is critical if it reaches or exceeds 70% and currently the recorded values
show unfavourable results in both the total population and in each quartile. Values
below 100% can only be found in the case of the 4th quartile.
Relative standard deviation values of the total population and each quartile also
refer to an extremely heterogeneous population. The lowest, but still very high
values were observed based on the data of companies belonging to the 4th quartile.

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Consequently, it might be worthwhile to subdivide the given population to additional

groups by means of a multi-variable method. The analysis of skewness indexes
suggests that each variable shows right skewness, which means that in the
coordinate system most of the data is located near the Y-axis. Examination of
kurtosis values suggests that distribution in terms of the total population and the
quartiles can be regarded as more peaky as compared to normal distribution.
Table 3: Main statistical properties of the ratios of liabilities of the quartile

Statistical
Group 2014 2015 2016 2017
index
Mean 2057.70% 113.75% 2362.59% 986.04%
Relative
Total 2653.06% 587.24% 1971.09% 1183.88%
deviation
population
Skewness 39.64321513 24.48016252 30.29138477 23.69874424
Kurtosis 1618.943492 754.7964694 976.8916122 630.1899891
Mean 1852.05% 140.65% 6193.40% 2704.20%
Relative
757.99% 846.41% 1284.13% 821.37%
1st quartile deviation
Skewness 13.06234487 16.38851708 19.68825098 13.19393995
Kurtosis 187.1020818 295.0526515 400.7672438 186.3122249
Mean 6112.63% 85.23% 2777.06% 529.62%
Relative
1768.55% 295.95% 1731.92% 587.14%
2nd quartile deviation
Skewness 20.32626741 8.271307356 20.72745294 9.100363694
Kurtosis 419.6363612 90.81429107 432.1324986 92.02924027
Mean 167.56% 157.79% 380.05% 618.34%
Relative
251.97% 340.95% 1076.07% 1004.98%
3rd quartile deviation
Skewness 8.487199447 8.887312618 20.21935332 17.27497399
Kurtosis 98.19785531 93.72127311 416.710599 319.9674996
Mean 80.44% 71.39% 89.15% 90.16%
Relative
163.59% 151.93% 300.06% 225.53%
4th quartile deviation
Skewness 7.251491721 6.063259949 12.27281873 6.130443224
Kurtosis 70.58089082 51.27197501 190.9334796 47.30817629
Source: Own editing
It is mandatory to disclose information in the notes to the financial statement about

the amount of provisions allocated for liabilities to affiliated undertakings, broken
down by different purposes, with especial regard to the amount of provisions
allocated for warranty liabilities to affiliated undertakings.
In terms of the ratio of deferrals, relatively high values are recorded. With the
increase of sales revenue, the allocation of deferrals also increases at the examined
companies. In the first three quartile, the recorded ratios were below 6%, while in
the 4th quartile the ratios were around 10-20%. Relative standard deviation is lower
as compared to the rest of the indexes, but it still shows values around 2-300%,
which indicates a heterogeneous population.

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The analysis of skewness indexes suggests that each of the variables shows right
skewness, which means that in the coordinate system most of the data is located
near the Y-axis. Examination of kurtosis values suggests that distribution in terms
of the total population and the quartiles can be regarded as more flat as compared
to normal distribution.
Table 4: Main statistical properties of the ratios of deferrals of the quartile

Mean 6.43% 5.80% 10.23% 6.55%
Total Relative deviation 288.13% 293.38% 1074.81% 288.18%
population Skewness 4.467195 3.998122 37.0782174 4.253795
Kurtosis 31.37091 19.90051 1468.75497 26.25778
Mean 3.53% 2.97% 14.92% 4.09%
1st quartile
Skewness 8.686199 7.347779 20.4927954 7.03536
Kurtosis 97.30265 67.61919 425.087591 63.99292
Mean 3.29% 3.20% 3.73% 3.34%
2nd quartile
Skewness 4.967574 4.883673 4.19085967 4.462935
Kurtosis 26.31507 25.40863 17.6292771 20.51144
Mean 6.51% 5.52% 6.02% 5.03%
3rd quartile
Skewness 3.156703 3.689655 3.32513676 3.679732
Kurtosis 10.21245 15.70222 11.5404981 14.16574
Mean 12.42% 11.52% 16.28% 13.77%
4th quartile
Skewness 2.143031 2.351331 13.4233586 2.54819
Kurtosis 3.787723 5.451731 227.654274 9.602326
Source: Own editing
4. In conclusion
Our main research goal is to analyse the financial position of sports companies
based on capital structure indexes. Four indexes were presented: the ratio of
shareholders’ equity, provisions, liabilities and deferrals for the total population and
broken down by quartiles for the financial years 2014-2017. The survey involves
mapping the relationship of the indexes with the notes to the financial statement,
namely their conformity with the mandatory content stipulated by the Accounting
Act. The database of the study was based on companies that are engaged in sports
activities as their primary business according to TEÁOR (NACE) 931. Based on the
classification by 2014 revenues, it can be stated that the dependency of companies
on foreign capital is high and the business management of a large part of
businesses is unfavourable, as mean indicators show negative shareholders’ equity
values. Allocation of provisions is minimal, however higher than average values are
recorded in terms of deferrals. It is suggested to disclosure these indexes, their

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major changes and underlying content in the notes to the financial statement in order
for them to facilitate the decisions of external actors.
5. Acknowledgements
The publication is supported by the EFOP-3.6.2-16-2017-00003 project. The project

is co-financed by the European Union under the European Social Fund.
References
1. András K. (2015): Hivatásos sport gazdaságtani alapjai In: Sport és gazdaság
szerkesztette: Ács Pongrác Kiadó: Pécsi Tudományegyetem Egészségtudományi
Kar, Pécs ISBN 978-963-642-372-8 pp. 434-481
2. Bácsné B. E., Fenyves V., Szabados Gy., Dajnoki K., Müller A., Bács Z. (2018):
A sportágazat nemzetgazdasági jelentőségének vizsgálata beszámoló adatok
alapján 2014-2016-os időszakban JELENKORI TÁRSADALMI ÉS GAZDASÁGI
FOLYAMATOK 13 : 3-4 pp. 93-103. , 11 p.
3. Collignon, N. S. (2014): Winning in the Business of Sports. Research report
A.E. Kerney Global Management Conculting Firm. <https://www.atkearney.
4. com/communications-media-technology/article?/a/winning-in-the-business-of-
sports> (2019. 04.07.)
5. Everitt, B.S. - Hothorn, I. (2010): A Handbook of Statistical Analyses Using R. 2nd
ed. Taylor and Francis Group, LLC.
6. Heiberger, R.M. – Neuwirth, E. (2009): R Through Excel. A Spreadsheet Interface
for Statistics, Data Analysis, and Graphics. Springer Science+Business Media, LLC.
7. Huzsvai, L (2013): Variancia-analízisek az R-ben. Seneca Books, Debrecen.
8. Kendelényi-Gulyás E. (2017): A magyar élsport versenyképessége és az állami
finanszírozás hatékonyságának kapcsolata. Doktori értekezés Testnevelési
Egyetem Sporttudományok Doktori Iskola Budapest pp.1-198.
9. Laczkó T. (2015): A sport, mint társadalmi alrendszer In: A sport társadalmi
aspektusai Szerksztette: Laczkó T.-Rétsági E. Kiadó: Pécsi Tudományegyetem
Egészségtudományi Kar, Pécs ISBN 978-963-7178-72-6 p.9.

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FINANCIAL LITERACY AND PENSION PLANNING OF MONGOLIAN

HERDERS
GANCHIMEG Gombodorj1, VAN OPHEM Johan2, GANKHUYAG Nyam-Ochir3

1
Károly Ihrig Doctoral School of Management and Business, Faculty of Economics
and Business, University of Debrecen, Debrecen, Hungary
2
Department of Social Sciences, Wageningen University of Research,
Wageningen, The Netherlands
3
Mongolian University of Life Sciences, Ulaanbaatar, Mongolia
go.ganchimeg@gmail.com
johan.vanophem@wur.nl
gankhuyag.nyam@gmail.com
Abstract: Pension planning is an internationally accepted tool for income
substitution and poverty reduction in old age. The livestock sector is a traditional
economic sector that still plays an essential role in the culture and economics of
Mongolia. Herders account for nearly 24.5 percent of the total workforce. Pension
income is the second monetary income source for herders. However, as of 2017, 32
percent of herder households are in poverty, and only 24 percent of herders
participated in the social insurance program. This paper investigates the pension
planning of a survey among 350 herder households in Mongolia in 2017. The study
aims to pay attention to herder's pension awareness, knowledge, participation in
pension, and to identify factors that influence pension participation. The research
results indicate that less than half of total herders make financial plans for their
retirement, although only 27 percent of participants pay social insurance fees
regularly in various amounts. Social insurance fees paid by the herders are positively
affected by education, age, and social insurance coverage, whereas the size of the
loan has a negative impact. Our conclusion highlighted that improving herders'
motivation, knowledge about retirement and basic financial literacy are essential.
Policymakers and local government agencies need to develop policy tools to
motivate the young herder's pension participation to break out a poverty cycle.
Keywords: financial behavior; financial literacy; pension planning; herders
Mongolia.
JEL Classification: J43; G40; D14.
1. Introduction
The agricultural sector is one of the primary industries in Mongolia that providing
10.6% of GDP after the mining sector, 8.4% of export earnings. Livestock sub-sector
remains dominant within the agriculture sector, making up for 88% of the total
agricultural output in 2017(NSO, 2018b). The number of livestock is increasing and
has reached 66.2 million or 110.8 million heads of animals in sheep units in 2017.
As the animal is the primary income source of 169.7 thousand herder households
(303.6 thousand herders), livestock herd sizes regard as an approximate measure
of the wealth of herding households in Mongolia. Herder households with less than

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200 livestock as poor herders make up 43% of the total number of herder
households, but the size of their herd only accounts for 12% in terms of the total
number of livestock in Mongolia (FAO and MoFALI, 2018). Herder households are
slightly more affected by poverty than in other types of families. 28.8 percent of
households without livestock are in poverty; in comparison, 31.9 percent of herder
households are in poverty (NSO, 2018a). From the total household income of
Mongolian herder households, 75.9% is various monetary income, which further
consists of 41.3% of agriculture, 17.1% from pension and benefit, 11.2% from wages
(NSO, 2018a). Moreover, researchers are concerned that the number of young
herders is decreasing. According to statistical data, the number of herders aged
between 15-34 is decreasing, whereas the number aged 35 and more are increasing
(NSO, 2018a).
Mongolia introduced a state (public) pension system since 1942, which consists of
mandatory and voluntary contributor schemes. The Mongolian Parliament made
amendments into the Pension and Benefits provided by the Social Insurance Fund
law in 2017. Also, they approved the Mongolian act of reimbursing pension insurance
for herders and self-employers in 2013 and 2017 to improve the participation of
pensioning. It dedicates an opportunity to herders repaying the pension insurance
fee of the unpaid years in minimum wage level (Mongolian government sets the
minimum wage level in every two years, as 240000 MNT/ 91.2USD in 2017).
Notably, herders retiring age decreased by five years, each on male and female and
set to 50 for women and 55 for men. Reference income declared voluntarily by
herders, between the minimum wage and ten times the minimum wage level.
Eligibility years of service: not less than 20 years of contribution to be entitled to a
full old-age pension; and at least 10–19 years of participation for partial retirement.
Replacement rate 45 percent of the monthly average wage of the highest continuing
seven years' income and extra to 20 years 1.5 percent per each additional year. One
herding year equals one year multiplied by 1.2 coefficient (Parliament, 1994, 1997;
Mongolian Parliament, 2017). Consequently, herders can have an average of 30-40
working years and further a higher pension income (Ganchimeg, 2018).
As of 2017, at a national average, only 23.9 percent of total herders covered by
social insurance. This coverage number is four times higher compared to 6 percent
in 2000. Notably, 13 percent of herders pay the social insurance fee in 2017(NSO,
2018b). The average pension amount is 282.7 thousand tugriks or 107.4 USD. The
amount is low compared to the national average of 378 thousand tugriks or 143.6
USD.
Mongolian herders' retirement age becomes 50 for females and 55 for males; it is
considerably lower than the average of international average retirement age 64.7 for
males and 64.3 females (Pension, 2019). Ninety more percent of the herders pay
minimum level social insurance fees. If they pay up to 10 times from the minimum
fee level, they can increase their monthly pension amount. Herders and self-
employers have only the opportunity to increase pension income 2-5 times higher
than the average pension level if they grow the monthly insurance fee (Ganchimeg,
2018).
Retirement is an event with profound personal, social, and economic consequences
(Aaron, 2010). Saving for old age allows individuals to transfer any excess income

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gained of their earning years to the corresponding dry times of old age (Rusconi,
2009). Old-age pension systems have two objectives: income replacement and
poverty prevention (Dethier et al., 2011). Financial literacy in shaping retirement
planning plays an important role (Lusardi and Mitchell, 2011). Financial literacy tied
tightly to retirement planning. Individuals' financial literacy levels are different, and
several factors do affect financial literacy.
Although many studies have focused on financial literacy, pension planning, and
consumer behavior, there is no research on Mongolian herders' behavior and
participation for retirement. Thus, reducing rural poverty through increasing pension
participation and pension income would contribute to the Sustainable Development
Goals of the United Nations: no poverty in 2030.
The research objectives of this paper are (1) to survey and analyze herders' pension
knowledge, motivation, and attitude to participation in the pension, (2) to identify
factors that influence pension participation.
The structure of the paper is as follows: Section two of this paper describes the
materials and methods, including theoretical framework, model specification, data
collection, and descriptive statistics. The third section presents data analysis and
results. The last part of the paper contains the discussion and the main conclusions.
2. Materials and Methods
2.1. Theoretical Framework

Consumer financial behavior studies interlinked with consumer research in
marketing, behavioral economics, and behavioral finance. Pension planning is one
of the areas of the consumer financial behavior. People do not like to think about old
age, sickness, lack of working power, lack of motivation, getting excluded from the
working market, a decrease in social status, and their fall in self-esteem (Aaron,
2010; Raaij, 2014, 2016).
Pension plans are also considered to bе problematic to understand, dependent on a
lot of political, societal, and thus uncertain variables (Van Rooij, M., A. Lusardi, 2011;
Kadoya and Khan, 2019). Retirement is an event with profound personal, social, and
economic consequences (Aaron, 2010). Saving for old age allows individuals to
transfer any excess income gained of their earning years to the corresponding dry
times of old age (Rusconi, 2009). People who plan for retirement do accumulate
more retirement savings. However, Individuals often have limited financial
knowledge and know little about the characteristics of their public and occupational
pension plans or how much to expect in retirement benefits (Holzmann Edward,
2006). Financial literacy in shaping retirement planning plays an important role
(Lusardi and Mitchell, 2011). Many people are woefully unaware of basic economics
and finance, shortfalls that may lead them to make severe and often irreversible
mistakes. Kadoya and Khan (2016) indicated that the demographic factors of
gender, age, and education; the socio-economic factors of income and occupation;
and the psychological factor of perceptions of the future significantly affect the level
of financial literacy. Individuals' financial literacy levels are different, and several
factors affect it.

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According to Raaij (2016) and Kadoya and Khan (2019), socio, economic,
demographic factors impact pension awareness, pension knowledge, expected
lifestyle, and pension saving. Awareness and motivation are the starting points for
pension knowledge and pension saving. Motivation, knowledge, individual’s
behavior to pension planning, self-control and self-regulation, time preference,
procrastination, and expectations about their future value of pension plans, all these
combined make up the pension knowledge and impact the decision. Many people
have insufficient pension knowledge. Knowledge should be consecutive steps such
as knowing the pension income, whether this income sufficient after retirement and
if not sufficient how to increase retirement income. The following step is life cycle
events like getting a job, buying a house, having a kid, grown-up, getting fired, getting
divorced or moving, become the prerequisite for pension saving. Life changes
continuously; people make changes in their financial plan; these actions will define
what their pension saving would be like (Figure1).
Figure 1.Relationships between awareness, pension knowledge (literacy),

expected lifestyle and pension saving
Source: (based on the Van Raaij, 2016, Kadoya and Khan, 2016)
2.2. Study Area

The survey was conducted before the amendment for Mongolian law on Pension
and Benefits provided by the Social Insurance Fund in 2017 enforced.
The primary data selected from the Socio-economic Baseline Study of herder
Households. Data collected with a nationwide survey between July to August in 2017
by Mongolian Marketing Consulting Group funded by Green gold and Animal health
project of Swiss Development Cooperation. The study applied two-stage stratified
sampling. A number of animals and herder households at soum (the second
administration unit of Mongolia (district)) and the bag level were taken from the
annual animal census-2015 of National Statistical Office Mongolia. Herder
households are nomadic; thus, we excluded the 330 soums and 21 aimag (The first
level of the administrative unit of Mongolia (province)) centers. The first stage or
soum sampling considered the representation of every zone, the number of herder
households (1-499 and 500 more), and distance from the aimag centers (1-199km
and 200km more). According to these indicators, every soum (total 309 soums) has
divided into stratum. One soum per stratum was selected: Khangai region-Arkhangai

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aimag-Ikhtamir, Battsengel, Tsakhir soum, Bayankhongor aimag- Bayanlig,

Bayantsagaan soum, Khuvsgul aimag- Alag-Erdene, Arbulag soum; Uvurkhangai
aimag-Bogd soum; Central region- Tuv aimag- Undurshireet, Buren, Delgerkhaan
soum, Umnugobi aimag-Mandal-Ovoo soum; Western region- Zavkhan aimag-
Erdenekhairkhan soum, Khovd- Chandmani soum; Eastern region- Dornod aimag-
Tsagaan-Ovoo soum. Thus, 15 soums of 9 aimags have selected as the survey
respondents. We determined the number of survey respondent units from the
chosen soums by equal distribution method (350:15=23). As a result, we involved
23-24 households per selected soum. Herder households were selected from 10
different livestock groups numbers: up to 10, 11-30, 31-50, 51-100, 101-200, 201-
500, 501-999, 1000-1499, 1500-2000 and 2000 above at each soum. Finally, a total
of 350 herder households were involved in surveying. One herder household
represented 410 herder households on average (Figure 2).
Figure 2. Location of the study area
2.3. Indicator Measurement Design

In order to evaluate the herders' pension knowledge, motivation, and attitude to
participation to the pension and identify factors the study based on Raaij (2014,
2016) and also draws on other relevant studies(Van Rooij, Lusardi and Alessie,
2009; Aaron, 2010; Lusardi and Mitchell, 2011; Van Rooij, M., A. Lusardi, 2011).
Based on the relationship between financial behaviour, financial literacy and pension
planning, and data availability, we identified ten indicators in total (Table 1).
Our expectation of the variable age is positive for the social insurance fee payment.
In the model, we concerned to examine how this coverage rate related to herder's
willingness to pay the social insurance fee. Our expectation of this variable is
positive. Respondents questioned how many times they were present bag (Smallest
administration unit (subdistrict) of Mongolia) meeting. Bag meeting explores
information, awareness for the fellow herders; therefore, expectation from this
variable is herders with more motivation and knowledge would pay more rather than
herders with less information.

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Table 1. Operationalization and expected effects of explanatory variables

Expected Implication of variables Scholarly references
Variables impact
Demographic and social variables
+ Sex of respondent. Differences (Raaij, 2014) (Arellano, Cámara
Sex between sex in financial literacy and Tuesta, 2018)
are statistically significant.
+ Age of respondent. Pension (Raaij, 2014) (Caroline E. van
Age planning depends on age. Dullemen and Jeanne G. M. de
Bruijn, 2015)
+ Education as a measure of (Lusardi and Mitchell, 2011)
financial literacy. From illiterate (Van Rooij, Lusardi and
Education
=0 to university level=6. Alessie, 2009)
level
(Dimitris Christelis et al., 2010),
(Raaij, 2016)
+ Herders who paid Social (Madrian and Shea, 2001)
insurance fees in some years.
Social-
Most of the herders caught the
Insurance
opportunity to recompensate
coverage
the Social insurance fees in
2013.
+ Official source of information (Lusardi, 2004), (Clark and
and knowledge in the first level d’Ambrosio,2008), (Bernheim
Bag of the administrative unit of and Garrett, 2003), (Raaij,
meeting Mongolia. The average 2016)
- frequency of bag meetings in (Duflo and Saez, 2003) (Clark
the countryside is 4. and d’Ambrosio, 2008)
Economic variables
+ The number of registered (Raaij, 2016)
livestock at the end of 2016,
Livestock Cattle, horses, camel, sheep,
and goats are the main stock
types.
+ Total household revenue (Raaij, 2016)
Total
includes all different income
revenue
sources.
- Total annual household cost. If
household cost is higher than
Total cost
the income, they cannot
participate in Social insurance.
- Received a loan in 2016. (Lusardi and Tufano, 2009)
Households can borrow money
Loan
from friends and relatives and
amount
get credit from banks and non-
banking financial institutions.
Size of + Household saving amount in a (Bernheim and Garrett, 2003)
savings bank in 2016.
Source: Authors.

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Five variables selected to show the economic capability of herders. The number of
livestock, total income, savings are expected to have a positive relationship with the
dependent variable, while total cost and loan would have a negative correlation.
Since, social insurance payment and credit are cost items of herders, that are
competitive with consumption cost. Therefore, herders with higher expenditure
would postpone paying a voluntary social insurance fee. The number of livestock is
an approximate measure of herders' livelihood. In this connection, there was
multicollinearity founded between the number of livestock and the total income of
herder household. After the test evaluation, the variable- total income was included
in the model.
2.4. Model Specification and Test

Using the dataset described in the next section, the following relationship is
n = o p , q + r , os = 1, … 350
estimated:
(1)
Where:
• p = Set demographic and social variables of herder ;

Yi =Social insurance fee paid by a herder i voluntarily, by money term;
• q = Set of economic variables for herder i;

• r = Error term with standard properties
The dependent variable is a continuous variable. Herders are as a voluntary

contributor to the Social insurance fund; their social insurance paid an amount, and
paying frequencies are different. A regression model estimated using SPSS through
standard econometrics procedures to determine the above model (Andy, 2005;
Marno, 2008)
2.5. Descriptive Statistics

Table 2 provides the descriptive statistics of the variables selected for the model,
and the texts the table explained the current state of each explanatory variable.
The amount of paid pension fees varies over the sample. Consequently, we
evaluated the relationship between the amount paid by the herders (as a financial
behavioral variable) and other explanatory variables representing their demographic,
social, and economic value.
Herders paid an average of 8 USD, which is far lower than the maximum amount
paid by some herders (Table 2). According to the survey data, only two herders paid
more than 300 thousand MNT or 120 USD, five herders paid between 100-200
thousand MNT or 40-76 USD, and more than 90 percent of interviewed herders paid
less than 100 thousand MNT or 40 USD.

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Table 2. Descriptive statistics of the dependent and independent variables

Std.
Unit N Minimum Maximum Mean
Deviation
p : Demographic and social variables

Y USD 350 0 126.65 8.38 14.27
Sex 1 or 0 350 0 1 0.93 0.248

Age Integer 350 21 82 44.79 12.155
Education level 1 to 6 350 1 6 2.98 1.049
Social Insurance
Y/N 350 0 1 0.42 0.495
coverage
q : Economic variables
Bag meeting Times 350 0 7 1.79 1.446
Livestock Heads 350 6 3059 501.59 492.614

Total revenue USD 350 37.99 56 504.56 5125.72 6021.16
Total cost USD 350 100.68 20 096.25 2039.34 2361.72
Loan amount USD 288 0.00 11 398.18 1642.51 1381.20
Size of savings USD 149 0.00 28 495.44 1425.95 3382.41
Source: Authors.
2.5.1. Demographic and Social Variables

Almost all (93%) respondents were male; therefore, variable Sex dropped out from
the model, which has not shown the gender differentiation. The oldest respondent
was 82 years old, and the youngest 21 years old. In the estimation, we exclude
pensioned people who are older than 60 years old for males, 55 years old for
females. Variable education coded 1 refers to no-education, and 6 is University
degree. The average education level of respondents was secondary education (6-9
years of schooling). Variable social insurance coverage is a dummy variable that
indicated whether or not a respondent has social insurance coverage in any form.
Hence, 42 percent of the respondent has social insurance coverage, whereas 27
percent of participants paid the social insurance fee.
2.5.2. Economic variables

The participating herders in the research were chosen using stratified sampling, so
the herder with the fewest livestock has 6, whereas the herder with the most livestock
has 3059. An average herder household has 500 head of livestock. When calculating
their income, we included in the questionnaire other types of income sources. The
average annual revenue of a herder household is 5125 USD, while the poorest
herder household has an income of 38 USD. As poor herder households, they are
unable to pay for social insurance. They consume some basics food like meat and
milk products from their farm free of charge. A herder household’s expenditure varies
depending on their number of livestock and other factors, the lowest cost is 100 USD,
and the average is 2040 USD. At the time of the questionnaire, 288 households had

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taken loans, and the average amount of loans was 1600 USD. The number of
families with savings was 149.
3. Results
The model presented in the previous section explains the dependent variable from
several explanatory variables at herders' level. Estimation techniques applied before
in similar studies include logit regression and the analytical hierarchy logistic model,
where the dependent variable is a choice variable. In our case, our dependent
variable is a continues variable; therefore, a linear regression model selected as
more suitable for our study after testing the functional form and distribution of the
dataset (Andy, 2005; Cameron, 2009).
In table 3 clarifies that, in terms of age, people getting older concerns more about a
pension — aged herders' participation in the Social insurance payment higher than
the younger herders.
Table 3. Regression results

Unstandardized Standardized
Coefficients Coefficients t
Variables
statistics
B Std. Error Beta
(Y: Payment of Social Insurance Fee)
Aj: Demographic and social variables
Age .258 2.604**
Education level 5.888 2.164 .372 2.721**
Social insurance 34.542 7.835 .448 4.409**
coverage
Bag meeting -.283 2.215 -.014 -.128
Bi: Economic variables
Total revenue .170 .204 .093 .837
Total cost .483 .530 .099 .911
Loan amount -18.018 9.466 -.209 -1.903*
Size of savings -.442 .692 -.051 -.639
R Square .499
F statistics (.000) 14.962
Durbin-Watson 2.105
Notes: *, ** indicate significant at 5%, and 1% level respectively.
Source: Authors.
Educated people understand more about the importance of future investment;

therefore, they willing to pay more to their social insurance fee as expected. People
who have received previous opportunities to recompensate their social insurance
payments have more understanding and desire to pay the social insurance fee. Loan
as a competitive consumption or investment for herders, people who have more
credit, would have less chance to pay higher social insurance payments.

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Bag meetings, households’ total income, and households’ total cost, savings are
contrary to the expectations not significant.
4. Discussion
Pension planning is vital for herder's current consumption cost and future income
source. An essential contribution of our study on anti-poverty policy study is a
quantitative analysis of the Mongolian herders’ participation in pension. We found
that herders have insufficient knowledge and understanding of retirement. It can be
seen from the percentage of people involved in pension insurance and that 90
percent of them pay the lowest amount fee. Moreover, herders' behavior to
participation in the pension is less than 30 percent in Mongolia. The result is similar
to Raaij’s (2016) research where people pay too much attention to their career and
family, thus, and they do not pay enough attention to their life after retirement.
Age is a key variable for participation in the old age pension Raaij (2014, 2016).
Worrying about their retirement income is not something for young people. Our
research correlates with the notion that people tend to think about their future and
look to make changes in their financial state after they cross the 40-year-old mark.
According to the research of Van Rooij, M., A. Lusardi (2011), financial literacy
affects financial decision-making. One of the most important financial decisions in
pension saving. Our results do not match with the study of Van Rooij, M., A. Lusardi
(2011) that in terms of financial education, age correlates with an inverted U-shaped
pattern, meaning that young and older adults have inadequate financial training. A
possible explanation would be because herders start work from the early age of 16
and after becoming herders they do not have to gain further systematic knowledge.
The next question is why people fail to plan; planning requires making calculations,
many of which are facilitated by financial literacy. Lusardi and Tufano (2009) found
that low literacy individuals are more likely to carry high-cost debt. Herders facing
financial difficulties get a loan (mainly for consumption) from the financial institutions,
i.e., credit is a competitive situation factor for pension fees. Our research results
show those who have higher levels of education tend to have pension while those
with loans fell less likely to have a pension. It is essential to develop various channels
to increase herders’ alternative income sources. Within the scope of the literature
review we researched, in terms of social insurance coverage there was no research
done on whether repaying the insurance fee had positive or negative effects on
receiving pension in the future. Since pension saving is more of an individual’s
responsibility, there is evidence showing that if voluntary social insurance changes
to mandatory, then pension coverage can be increased up to 90 percent(Raaij,
2016).
The variable of bag meeting was different from our expectations. Herders officially
get information and knowledge from bag meetings. Therefore, we expect that if
participation in bag meetings were to rise, the number of people covered by pension
would increase. The reason that our results from the research came insignificant
maybe because bag meeting participation was low, and providing information related
to retirement is insufficient. Research results Clark and d’Ambrosio (2008) show that
even if there were seminars that provided information, there was not that much

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progress. In response to the workshops, the proportion of participants who changed

either of their retirement goals is relatively small.
5. Conclusion
Herders' livelihoods and their income is a crucial issue of development researchers

as the livestock sector is a dominant economic sector of Mongolia. Pension is one
of the internationally accepted terms that increase people's income and eradicates
poverty. However, herders are a voluntary contributor to the social insurance fund.
Herders’ voluntary participation in pension needs to improve. While according to
international examples, the retirement age is rising (Raaij, 2016), the retirement age
for herders in Mongolia has been decreased by five years. Following this, they need
to receive information on necessary financing and the benefits of pension savings
from a young age. Therefore, policy-makers and government agencies pay attention
to educate herders should be one of the tools to reduce herder’s poverty. Giving
awareness will extend the range of herders' pension participation, increase cash
income in the long run, and reduce rural poverty. Thus, improving herders'
knowledge and awareness on a pension is essential to set good behavior concerning
pension participation.
6. Acknowledgment
This work was supported by EFOP3.6.3-VEKOP-16-2017-00007—“Young

researchers for talent” — Supporting careers in research activities in higher
education program."
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participation’, Journal of Financial Economics, (101(2)), pp. 449–472.
26. Van Rooij, M., Lusardi, A. and Alessie, R. (2009) ‘DNB WorkiNg PaPer DNB
Working Paper Financial Literacy and Retirement Planning in the Netherlands’, DNB
Working Paper, (231), pp. 1–38. Available at: https://www.dnb.nl/en/binaries/working
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27. Rusconi, R. (2009) ‘Improving Pension System Coverage: Understanding &
Meeting Needs’, in Conference Paper, OECD IOPS Global Forum on Private
Pensions, Brazil, pp. 1–17.

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MANAGERIAL ACCOUNTING – A TOOL FOR MEASURING AND PILOTING

THE OVERALL PERFORMANCE
HINT (ȘTEFAN) Mihaela, TONEA Ioana, HADA Izabela Diana

Doctoral School, Faculty of Sciences, “1 Decembrie 1918 University” Alba Iulia,
Romania
mihacont73@gmail.com
ioana.moldovan@gmail.com
izabela_hada@yahoo.com
Abstract: Successful market preservation of an economic entity can only be
achieved through effective and well-founded management. Managerial accounting
contributes to the way in which performance can be measured within economic
entities, but the notion of performance has different meanings, generally refers to the
achievement of objectives. Viewed from the financial-accounting perspective, it
differs according to the categories of users who want information about it, from the
overall performance, financial performance or profitability of economic entities. Any
definition we attribute to the notion of performance includes a comparison of the
results with the proposed goals, "create value". A performance management for an
economic entity must include a strategic approach so as to enable performance
analysis at an integrated level - from the ability to achieve performance to its
assessment within that entity. The purpose of this article is to highlight the
importance of managerial accounting in order to measure and pilot the performance
towards a sustainable development within an economic entity.The article analyzes
the role of managerial accounting from the notion of concept to performance analysis
tools within an economic entity in order to develop and achieve the proposed
objectives. Therefore, taking into consideration the market conditions, the efficiency
of any economic entity depends essentially on the quality of management to
understand and apply modern management principles, methods and techniques.
Quality management is a vital condition for economic entities to gain competitive
advantage and resist competition. Strategic management accounting assigns
strategic management tools from the cost of products to analysis of the competitors,
customer analysis pursuing cost strategy, assets, value chain analysis and brand.
With strategic management accounting, we can track managerial accounting data
that provides information about both the internal environment and the external
environment, so we can monitor the activity of an economic entity, which allows us
to predict a business strategy. Taking into consideration the theme of the paper, the
research is mainly qualitative, based on literature review and using descriptive and
comparative methods.
Keywords: managerial accounting; performance; sustainable development;
strategic managerial accounting.
JEL Classification: M41.

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1. Introduction
"Managing an entity means, on the one hand, knowing the current activity and
intervening with operative decisions in its direction, and on the other hand, the
prefiguration of the future evolution and the elaboration of forecasts that will outline
the directions of development in perspective (Briciu, 2006). "Today most policy
decisions contain a scientific and technological dimension. Therefore, they have to
be based on transparent and responsible opinions, based on ethical research. In
this context, it is necessary to strengthen the ethical bases of scientific and
technological research, to assess the risks inherent to progress and to manage it
responsibly in the light of the lessons of history" (Niculescu, 2011). "Gradually, the
environment forced the enterprise to act from marketing, the growth of waist pushed
organizations to decentralize autonomy, the rarity of resources required rationality
in use, and the consolidation of information needed monetary translation" (Albu and
Albu ,2003).
2. Research Methodology
The research consists of four parts: the literature review; the development of
theories; the therories testing and the reflecting and integrating of notions.
Considering the topic we approached, the research aimed at a theoretical approach,
presenting a qualitative synthesis of specialized literature, starting from the notion of
strategic management to a general approach of cost management. Due to the fact
that a qualitative analysis could limit the validation of the research results we also
chose a quantitative approach in order to make a comparison between the
managerial accounting and the strategic management accounting, as well as the
presentation of the managerial structure on the example of the lighting industry.
3. Literature Review
Strategic management is defined in the literature according to the strategic

objectives of each economic entity (Karst, 1998), taking into account the steps taken
in this respect and the allocated resources to achieve these objectives (Chalender,
1962), and involves planning the objectives of an economic entity and the
environment in which it operates, with a significant controlling influence (Mair and
Moore, 1993). Due to the growing demands of customers on the quality-functionality-
price ratio, economic entities have had to take measures to adapt to the new
conditions, and especially to be profitable. In this situation, cost management is
imperative when it comes to launching new products to meet customer requirements
through long - term anticipation of products, processes and resources (Cooper and
Slagmulder, 1998). The term of strategic cost management must cover a very wide
area that allows modeling the future of an economic entity (Hilton et al., 2001). SCM
(Strategic Cost Management) allows economic entities to identify the causes of
costs, cost drivers, and identifying them to interfere with them in terms of value
creation and productivity growth. Thus, customers can be offered competitive

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products because they have accurate cost information and relevant to their
management. The SMA (Strategic Management Accounting) approach makes
progress from the monetary notion to the notion of business (Mike and Yi, 2009).
With the emergence of strategic management accounting SMA, we also meet the
concept of total quality. This concept ensures continuous improvement of product
quality and efficiency by lowering costs (Khan and Jain, 2007). The strategic position
is defined by market positioning: on the one hand cost reduction and quality
improvement, and on the other hand the search for opportunities offered by the
market (Miles and Snow, 1978). The value chain represents the activities that
economic entities carry out in order to gain competitive advantages (Porter, 1985),
being the main way to assess the competitive position of an economic entity through
strategic influence of activities and cost drivers which contributes to increasing the
competitive advantage (Lee, 2001). Whatever the performance definitions, it must
include elements such as: value by achieving the objectives set; the results
expressed according to its nature, the achievement of the proposed objectives and
the comparison of the results with the proposed references or the competition (Mitu
and Mitu, 2007). Business performance management can be viewed both as a
strategic approach and as an integrated approach, delivering superior team-level
outcomes at individual level. In order to measure performance, we need to move
from the possibilities of achieving global performance to achieving a performance
system to evaluate it (Nobes and Parker, 2004). We cannot analyze the performance
of an economic entity solely from the point of view of operating result or increase of
net book value because profit is the result of several events that led to its obtaining.
Jianu (2007) appreciates that the one who achieves his goals is performing and
states that the term performance must "be reserved for describing the evolution of
the results over a period of time deemed to be a long period of time. In the opinion
of the authors Albu and Albu (2005), performance is all that leads to the achievement
of strategic objectives in an organization and leads to the creation of wealth and
value for it. Niculescu (2003) defines performance by productivity and states that "an
enterprise is theoretically performing if it is both productive and effective". So we can
conclude that performance is a very complex notion that should not be confused with
the indicators describing it, the profitability, the efficiency and the effectiveness,
because the financial profitability is one of the main indicators of the performance
analysis, and it is the fixed objectives; the efficiency implies the maximization of the
obtained results with a given amount of resources, the effectiveness implies that the
results of the arbitrator in the achievement of the performance , and cost control
contributes to the improvement of decision-making through a strategic piloting.
4. Tools for Measuring the Performance of Economic Entities and Strategic

Managerial Accounting
As described in section 3, quality management is a vital condition for economic

entities to gain competitive advantage and to withstand the competitive mechanism.
The previous statement is all the more important as in recent years it has been
shown that the main factor of bankruptcy of a company is the incompetence of
managers and the mistakes of management caused by errors in decision making

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(Homormonea and Socea, 2011). The main feature of strategic management is to

influence the environment in which the economic entity operates and to control long-
term development by managing benefits using opportunities that occur in the
external environment. Strategic management leads to increased sales, profitability
and productivity of an economic entity (Robinson, 1982), helping to understand the
competitive strategy and the relationship between performance and reward
(Thompson, 1993). In Figure 1 we present a model of strategic planning that defines
the mission, objectives, analysis of the external environment, analysis of the internal
environment, strategic variants and defining the chosen strategy of an economic
entity, because according to the literature only through rigorous planning can be
chosen a suitable variant for implementing a concrete strategy for managing
activities and choosing how the proposed strategy can achieve its objectives. There
are different classifications of strategies, but we think that regardless of the
approach, the management of an economic entity needs to adapt to the dynamics of
the external environment.
Figure 1. Strategic management process

Source: Wheelen and Hunger (2002)
Strategic management is defined in the literature according to the strategic

objectives of each economic entity (Karst, 1998) taking into account the steps taken
in this respect and the allocated resources to achieve these goals (Chalender, 1962).
It involves planning the goals of an economic entity and the environment in which it
operates, with a significant controlling influence (Mair and Moore, 1993).

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5. Strategic Management Analysis - Costs between Traditional Management

and Strategic Management
Given the changes in managerial accounting in the last period of the 20th century,
as we have shown in the previous analysis of this paper, in practice it has been
demonstrated that in the case of traditional methods, costs are distributed almost
randomly, which is why we cannot have a control too accurately, and economic
entities do not correctly perceive their dynamics. In fact, maintaining a market
position of economic entities depends on several factors, not just on cost
management. First of all, economic entities need to be concerned about meeting
their customers' needs and increasing their productivity. There is a distinction
between traditional management and cost management and according to McNair
(2000):
- Traditional cost management focuses on the internal environment, while
strategic cost management analyzes the external environment;
- in the case of traditional management the main objective is to direct and solve
internal problems, instead the strategic management pursues the same
objectives, but differs according to the chosen strategy;
- the concept of cost driver in the traditional case is defined by volume, and in the
case of strategic management it is approached according to structure,
execution, being able to define each value-bearing activity;
- in the case of traditional cost-cutting management, it is addressed through
responsibility centers, and in the case of strategic cost management, each
activity is regulated;
- contrary to traditional cost management where they have a major impact, in the
case of strategic management the main concern becomes the cost-value-
income ratio;
- the impact of cost management is studied for traditional methods only in the
financial accounting field, while in the case of strategic management, the
coverage area extends to other areas such as economics and marketing;
- from the point of view of accountability, in the first case we talk about “adept -
reactive", while strategic management turns us into "leader-proactive".
Due to the growing demands of customers on the quality-functionality-price ratio,
economic entities have had to take measures to adapt to the new conditions, and
especially to be profitable. In this situation, cost management is imperative when it
comes to launching new products to meet customer requirements through long-term
anticipation of products, processes and resources (Cooper and Slagmulder, 1998).
The term of strategic cost management must cover a very wide area that will allow
shaping the future of an economic entity (Hilton et al. 2001). The SCM allows
economic entities to identify the causes of costs, cost drivers, and identifying them
to intervene to increase value and increase productivity. This way customers will be
able to offer competitive products because they have accurate cost information and
relevant to their management. Strategic cost management is based on the following
principle (Berliner and Brimson, 1988):

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- undestanding the causes that led to the costs, but also the income structure
of an economic entity;
- identifying all activities and keeping only those that lead to a competitive
advantage;
- reducing complexity of functionality;
- increasing economic efficiency by improving the cost structure;
- using strategies to manage costs;
- improving the skills of the staff;
- the effect of employees' participation in decision-making.
6. Strategic Managerial Accounting - a Tool for Piloting the Performance of

Economic Entities
With strategic management accounting, we can track data from managerial

accounting that provides information about both the internal environment and the
external environment, so we can monitor the activity of an economic entity, which
allows us to predict a business strategy. We have not found a universally valid SMA
definition, but one of its definitions states that SMA has more financial data referring
to the following: value analysis, market strategic analysis and cost induction analysis
(Shnak and Govindarajan, 1993).
Strategic managerial accounting analyzes mainly cost information as it precedes
managerial accounting, which it will continuously integrate with the other processes
according to figure 2, where there are presented the processes of strategic
management starting with its definition until the control in the implementation of the
strategy and tracking results with the strategic goals of an economic entity.
Figure 2. The position of cost-type information in strategic management

Source: Systematization after Topor, 2014

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Depending on the cost information in the financial analysis, we can evaluate the
existing strategy, and it will be transmitted in the form of the information in the
accounting reports, its implementation and the performance-based monitoring based
on the cost information
SMA has a role to play in ensuring competitiveness by collecting accounting
information from the entity's external environment, information on the basis of which
costs can be reduced by developed strategies. From an operational point of view,
the traditional managerial accounting functions are similar to the strategic
management accounting functions, but only in the case of strategic management
accounting they are adapted to the external environment. The SMA approach makes
progress from the monetary notion to the notion of business (Mike and Yi, 2009).
In the following we will try to make a comparison between managerial accounting
and SMA, as shown in Table 1:
Table 1. Comparison between managerial accounting and SMA

Traditional accounting SMA
Future projections by internal factors
Information about the past
analysis
It analyzes the entity's internal
Analyzes entity-external factors
environment
introspection Demonstration
Analyzes production Competitiveness analysis
It focuses on the present Think of future actions
Experience Decisive
Planning Unexpected actions
Based on existing data It also points to other information
It is based on the existing information It is based on a wider spectrum of
system information
Based on achievements Independently, relying on a wider spectrum
Source: Systematization after Wilson and Chua, (1993)
With the emergence of SMA strategic management accounting, we also meet the
concept of total quality, this concept ensures continuous improvement of product
quality and efficiency by lowering costs (Khan and Jain, (2007).
SMA assigns strategic monitoring tools from product attribution to competitor
analysis, customer analysis through fiancial statements, cost strategy, assets, value
chain analysis, brand, ABC. Next we will present the strategic management
accounting by analyzing its three positions: the strategic position; cost drivers and
value chain analysis, according to table 2:

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Table 2. Presentation of SMA according to its positions

Methods
The notion of that
Definition Characteristics
analysis integrate
information
STRATEGIC -The strategic position is - due to globalization, it Target Cost
POSITION defined by market is unlikely that market Method;
positioning: on the one placement strategies as
hand cost reduction and a cost-cutting leader can Value
quality improvement, and be implemented as engineering
on the other hand the quickly as possible;
search for opportunities -in order to obtain a Kaizen
offered by the market competitive advantage, Costing
(Miles and Snow, 1978); the price-quality-
-the choice of leadership functionality trinoma JIT
in the cost area by must be targeted.
economic entities; ABC
-costs are induced by
structural and structural Balanced
factors; Scorecard
-NPV net present value BS
method, and finding a
way to rationally manage
the decisions made.
COST Activities are resource The main feature of cost
DRIVERS consumers that generate drivers is customer
costs, and the factors that demand, which group
influence cost behavior the cost drivers into
are called cost drivers. three categories:
structural cost drivers;
organizational cost
drivers; and activities
cost drivers. Cost drivers
are determined
according to the
specifics of the
economic entities.
VALUE The value chain Support activities: Target Cost

CHAIN represents the activities -organization; Method;
ANALYSIS that economic entities -HR;
carry out in order to gain -technology; BS
competitive advantages - procurement.
(Porter, 1985). It CBA
represents the main way Primary Activities:
to assess the competitive -logistics (material BSC
position of an economic handling, delivery);
entity through strategic -Operations EVA
influence of the activities (manufacturing,
and cost drivers (Lee, packaging);

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Methods
The notion of that
Definition Characteristics
analysis integrate
information
2001), which contributes Logistics (processing,
to increasing the orders, transport);
competitive advantage Marketing (product,
price, promotion,
distribution, location);
Services (customer
service, repairs) (Porter,
1985)
Source: own systematization
7. Structuring Managerial Accounting within Economic Entities
Managerial accounting, unlike its role prior to the 18th century industrial accounting,
currently aims at achieving the goals of an economic entity by reporting financial and
non-financial information to managers, information that helps implement strategies
(Horngren, Datar and Foster, 2006).
Business diversity at national and international level requires the development of
decision-making, and the main source of information for this is managerial
accounting. The financial accounting information is incomplete in terms of knowledge
of production costs, and in order to supplement this information, accountancy is a
"soft" account, which is adaptable to all units, whatever their size, activity and
structure (Matiş and Pop, 2007).
Starting with the 20th century, research has been carried out in the field of formation
and allocation of indirect costs on the cost object, according to Romanian experts.
Oprea (1980) states the cost calculation is based on the "value consumption" theory.
If we refer to the legislative environment in our country, the Accounting Law no.82 of
1991, has been modified in the sense that the organization of the management
accounting is no longer mandatory, only mentioning that "companies, companies/
companies national governments, autonomous administrations, national research
and development institutions, cooperative societies and other legal entities have the
obligation to organize and conduct financial accounting according to the law.
The obligation to organize management accounting with the adaptation to the entity
specificity was valid until 2011, since then, the accounting records have a legislative
reference for internal organization within economic entities. Law no.121/2015 on the
approval of O.U.G. no. 79/2014 comes with modifications and completions to the
Accounting Law 82/1991 and specifies according to art.10 paragraph (2) "Accounting
is organized and is usually conducted in distinct compartments, led by the economic
director, the accountant- chief or other person empowered to perform this function.
These people must have superior economic studies. The person empowered to
perform the function of chief executive officer or chief accountant is any person
registered under the law who has superior economic background and has authority
to manage the entity's accounting. "The activities of managerial accounting vary

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according to each individual economic entity the management of managerial

accounting being influenced by several factors (Ebbeken, Possler and Ristea, 2000).
In Romania, managerial accounting was conducted in a dualist system and
integrated according to the French model, financial accounting and managerial
accounting was supported by the 9th class of accounts, "Management accounts", in
the financial accounting the expenditures on production are highlighted in class 6,
"The management of dual-account management may meet certain objectives but
has its limits, so we will focus our attention on the integrated accounting system,
separate from the financial accounting system, using only class 9 accounts, taking
the data in Account Classes 6 and 7, management accounting reflects financial
accounting data.
8. Conclusions
Successful market preservation of an economic entity can only be achieved through

effective and well-founded management. We cannot analyze the performance of an
economic entity only from the point of view of "operating result" or "increase of net
book value ", because profit is the result of several events that led to it being
obtained. With strategic management accounting, we can track managerial
accounting data that provides information about both the internal environment and
the external environment, so we can monitor the activity of an economic entity, which
allows us to predict a business strategy. Quality management is a vital condition for
the economic entities to gain competitive advantages and to withstand the
competitive mechanism. With the emergence of SMA, we also meet the concept of
total quality, this concept ensures continuous improvement of the quality of products
and their efficiency through cost reduction. SMA assigns strategic management tools
from the cost of products to competitors analysis, customer analysis through fiancial
situations, pursuing cost strategy, assets, value chain analysis, brand, ABC. The
organization of dual-account accounting can meet certain objectives, but it has its
limits, so we'll focus on an integrated accounting system. Successful market
preservation of an economic entity can only be achieved through effective and well-
founded management. We cannot analyze the performance of an economic entity
only from the point of view of "operating result" or "increase of net book value ",
because profit is the result of several events that led to it being obtained.
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28. Wheelen, T. L. and Hunger, J.D (2002), Strategic Management and Business
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31.*** Legea nr.121/2015 privind aprobarea O.U.G. nr.79/2014.

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EMPIRICAL EXAMINATION OF THE ROLE OF FACTORS AFFECTING THE

VALUE OF FIRMS, IN RESPECT OF 8 YEARS
KISS Anita
Institute of Accounting and Finance, Faculty of Economics and Business, University
of Debrecen, Debrecen, Hungary
kiss.anita@econ.unideb.hu
Abstract: The goal of writing this article is to continue my previous empirical
research (Kiss 2015). In the article written in 2015, I dealt with the question, what
factors affect the value of the firm? Looking at the entire period (2004 through 2011)
I found that all value creators had a significant impact on the dependent variable, on
the value of the firm. Earnings before interest and taxes (EBIT), reinvestment,
invested capital, return on invested capital, profit margin, sales growth rate had a
positive impact on the value of the firm, while tax rate and return on assets at market
value (MROA), had a negative impact. In this research I am seeking an answer if
any changes occurred, when analysing the role of factors affecting the value of a
business, in these factors and their importance, in the period under review. In my
paper I present the primary objective of a firm, its possible approaches, while I shall
also deal with the concept of dual value creation. Then I outline the dimensions of
value, by reviewing the relationship of consumers’ value and shareholder value.
Shareholder value is a relevant value category concerning the article, therefore I
address its detailed characterization and firm theory background. The structure of
the study is the following. First I review the value creation process based on literature
from the most prominent academic authors. In the next part I describe the primary
objective of a firm, then the various dimensions of value and the firm theory
background of shareholder value. Then I move to the value creators, which I am
going to use in the empirical study. Finally I introduce the research, and in the last
part I formulate my conclusions.
Keywords: value creation; value chain; firm valuation; global financial crisis.
JEL Classification: G32.
1. Value creation of the firm
“The process of value creation is the procurement, management and use of

resources with the purpose of creating value for the consumer.” (Chikán – Demeter
2006: 3.) This definition embraces the concept of value creation from the side of
management literature, principally the aspects of production management,
marketing and business economics, that is, defines the firm as an organisation,
which generates value during its operation, and the primary objective of this
operation is to satisfy customer demand. For the approach of this study, this has to
be realised in a way that in the same time the shareholder value of the firm also
increases, that is, besides customer value, shareholder value has to be created as
well. This perception of value creation is well reflected, among others, in his work on
dual value creation of Chikán (2003).

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The value chain theory of Porter (1998) focusses on value creation. In his opinion all
firms carry out activities in order to create value. The individual activities each create
value themselves, but their contact points are also important. Porter (1998)
emphasizes that competitive advantage often comes from the connections between
activities, and not only from the activities alone. Firms using the value chain as a tool
for analysis, can be able to establish a competitive advantage by mapping and
developing their activities.
In order to realise a return over the cost of capital, the firm has to establish a
competitive advantage, and must be able to maintain it. Basic capabilities provide
the competitive advantage of the firm. A basic capability is a firm resource, which
can be moved by the management at any time. (Prahalad – Hamel 1990: 83-84.)
Once the firm generates a value through value creation processes, it is important to
clarify the manifestation, concept, and the closely related dimension of this value.
Just like value creation, the concept of value also appears in several disciplines,
focussing on different projections of the value. This is why I consider it important to
deal with the dimension of value.
Chikán (2003) considers the condition of successful operation of a firm is the
realisation of dual value creation. During dual value creation, value is generated for
the customers, and value is generated for the shareholders of the firm, thus satisfying
demand and being profitable, that is, customers’ and shareholders’ dimension, is
achieved simultaneously.
By the concept of shareholder value, the primary objective of a firm is to maximize
shareholder return, while obeying laws. This does not mean maximising profit in
short-term, but maximising value in the long run. Rappaport (1998) further
emphasises, that shareholder value does not exist without customers’ value.
Value is primarily affected by objective factors, but also impacted by subjective
elements. The assessing person, the external circumstances, the economic climate,
the decision situations. Pratt (1992: 11-17.), Bélyácz (1995), (2011), Bélyácz –
Kovács (2010), Ulbert (1997) differentiate between value categories and therewith,
value perception. From the aspect of this article, for the firm value, the shareholder
value category can be considered relevant.
2. Firm theory background of maximising shareholder value
Firm theory background of maximising shareholder value goes back to traditional

economics, then re-appears in neoclassic economics, whose firm theory has been
dominant in economics for a long time. In standard microeconomics the firm is a
legal entity, the owner and manager is the same person, the ownership and
management functions are combined in one decision-making person. The next
milestone is the work of Coase (1937), whose study can be considered as the basis
for contracting firms’ theories. Coase (1937) says the price mechanism, considered
as the only coordination mechanism in neo-classic economics, has to be
supplemented, it is not sufficient by itself, for decision-making. The studies published
in the field of firm finances, in the fifties and sixties, serving as the financial basis for
the theory, have had a significant impact on the evolution of the shareholder value
perspective. These were the portfolio theory of Markowitz (1952), the theory of

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Modigliani and Miller (1958), (1961), (1963) on capital structure and dividend policy,
the capital asset pricing model of Sharpe (1964) and Lintner (1965).
The next theory in time was the principal-agent problem, which particularly supports
maximising shareholder value. The principal-agent problem is not new in economics,
since the experts of the subject Jensen and Meckling (1976) start their study with a
200 year old quotation from Adam Smith, which describes this relationship.
Review of the theoretical background of maximising shareholder value, is followed
by presenting another opinion, the stakeholder theory.
The concept of shareholder value states, that the primary objective of a firm is to
maximize shareholder return, while obeying laws. In management literature, an
alternative to this theory was born, the stakeholder theory, which sets higher moral
standards than laws, and guarantees reaching a higher social performance. The
primary objective of a firm is defined as creation of value, which is realised by taking
into account the cooperation and interests of stakeholders.
In respect of examination the theory of shareholder value and stakeholder theory,
we will remark by the way, that these are not two opposite trends. Theory of
shareholder value does not deny existence of other stakeholders, and their
consideration during economic decisions, but thinks the highest return can be
reached if we maximise shareholder value.
Among reasons of these theories being enforced in practice, Copeland et al (1999)
mention different ownership structure of countries, shareholders manner of control,
legal form of companies, and concentration of capital resources. In the USA the open
joint stock companies, and their fully fragmented ownership is characteristic, while
in Europe the ownership is in the hands of several large companies, banks, families,
the companies operate privately, and cross-shareholdings are not uncommon.
We have to differentiate between the Anglo-Saxon and continental understanding of
value. The differences are primarily a result of the different financial system. (Black
et al. 1999, Sulyok-Pap 1998, Vigvári 2011)
3. Identification of value creators
Summarizing the lessons learned from the above parts, it can be concluded that
starting from the value chain theory of Porter (1998) – that is, the objective of the
operation of the firm is to create value, thus the source of corporate value creation
is the operation –, through the shareholder value network and maximising
shareholder value of Rappaport (1998) – which makes identification of value creators
possible –, over the key value creator of Copeland et al (1999) – which are value
determining elements closely related to the cash-flow generating capability of the
firm –, to the valuation model of Damodaran (2006) – which are the discounted cash
flow based, relative and optional valuation based, and asset-based valuation models
–, a logical relation between processes exists. Based on this theoretical knowledge,
I determine the value creators of the firm as follows:
I. FCFF (Free Cash Flow to Firm): the free cash flow of the firm, which is the
sum of cash flows shown for the investor of the firm. Since this is a complex
value creator, I break it down to the following factors:

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uvuu = wqxy ∗ 1 – y − {3] v ] | w} 3J ]~ 3W

− vℎ J•3 J JsJ Wℎ €s • J• v ] |
1. EBIT (Earnings Before Interest and Taxes): earnings before paying interests
and profit taxes.
2. Tax Rate: marginal tax rate of corporate tax
3. Reinvestment: the additional investment, which is the sum of net capital
expenditures and changes of non-cash working capital.
II. Invested Capital
4. Invested Capital: capital invested in the core business.
III. Return on Invested Capital
5. ROIC (Return on Invested Capital): return proportional to the capital
wqxy 1 − ]
invested,
‚ƒxv =
xJ„3W]3 v ] |
IV. Net Margin
{3] … • J = {3] xJ s†3 ⁄ ‡ |3W

6. Net Margin: net profit (profit after tax) divided by revenues
V. Cost of Capital
7. Market ROA: return on assets at market value, which I am using as a
{3] xJ s†3
substitute concerning WACC
…‚ƒp =
… •3] ‰ |~3W so w ~ ]Š + … •3] ‰ |~3 so ‹3Œ]
VI. Growth Rate
8. dlnRev: growth rate of revenues
After the theoretical review and earlier empirical research, I conducted independent
statistical tests in order to get answers for my outlined research questions. To this
end I examine the database of 1553 firms from 18 Europeans countries, representing
10 industries, in the period between 2004 and 2011, which can be considered as a
highly balanced panel, containing very few missing observations. I downloaded the
database from the homepage of Aswath Damodaran, and made several adjustments
on it.
For the firm value I used the firm value category, which is the sum of market
capitalization – the best estimate for the market value of the equity capital – and
market value of debt.
From the factors influencing firm value – as the dependent variable – I select those
explanatory variables, which are most determinants of the firm value. The selection
of variables was based on the relation that the value creation capability of a firm is
determined by its cash flow generating capability. The works of Rappaport (1998),
Copeland at al (1999), and Damodaran (2006) agree that during identification of
value creating factors, the firms have to focus on cash flow, net margin, growth rate,
invested capital, increasing the return on invested capital, and decreasing the tax
burden and cost of capital. The model I used was defined by using a reduced number
of value creators, since for identification of each value creator, several indicators can
be selected. In my model I strived to have every explanatory variable in significant
relation with firm value, the dependent variable.

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In the case of firm value, EBIT, reinvestment and invested capital, I used the natural
logarithm of variables, for the growth rate I used the variation of the natural logarithm
of revenues, since this way the distribution of variables became close to normal
distribution.
The empirical research was followed by definition of the panel model. The panel
model is the most sophisticated method of using time series and cross-sectional data
together, also called as the analysis of longitudinal data. By using the panel model,
it is possible to monitor development over time (time series) of characteristics (cross-
sectional data) of the same firms, since the panel data base contains data for several
time periods and several entities (firm, industry, country), tabulated. (Ramanathan
2003: 498-501.)
•Ju‰ ,Ž = • + •‘’“”•– |Jwqxy ,Ž + •ŽP— ] } ,Ž + •‘’˜™ ’š |J‚3 J„ ,Ž + •‘’•’š› |JxJ„v ,Ž

After the completion of tests, I defined the following multi-variable regression model:
+ •˜œ•› ‚ƒxv ,Ž + ••™Žž {3]… ,Ž + •ž˜œŸ …‚ƒp ,Ž + •&‘’˜™š |J‚3„ ,Ž

+ ~ ,Ž + r
4. Empirical examination of factors affecting the value of firms
In this article I aim for getting an answer if any changes occurred, when analysing
the role of factors affecting the value of firms, in these factors and their importance,
in the period under review.
Table 1: Values of the estimated coefficients for the entire time period, and for the
first and second period, concerning all sectors
2004-2011 2004-2007 2008-2011
lnFirm_V lnFirm_V lnFirm_V
Coef. Coef. Coef.
lnEBIT 0.5504*** 0.3579*** 0.6123***
Tax_r -0.2267*** -0.0469 ns -0.5958***
lnReinv 0.0392*** 0.0115** 0.1021***
lnInv_C 0.3208*** 0.5331*** 0.2004***
ROIC 0.0376*** 0.1177*** 0.0280***
Net_M 0.4924*** 0.5036*** 0.1890 ns
MROA -3.5142*** -3.6069** -2.9758***
dlnRev 0.0473*** -0.0904*** 0.0264***
cons. 2.7067*** 2.4098*** 2.8599***
R2 overall 0.9209 0.9424 0.9236
2
R within 0.6349 0.2479 0.5958
R2 between 0.9427 0.9450 0.9300
2
Wald (chi ) 15728.09*** 14410.98*** 12988.11***
Number of observations 5504 2450 3054
Source: own calculation
Note: At the levels of significances *** 1 %, ** 5 %, * a 10% respectively

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Thus if I separate the whole time period to two sub-periods along the year of the
crisis, to pre-crisis and post-crisis periods, and then evaluate them individually, are
there any factors, which were significant, and then they lost their importance, or the
other way around, they were marginal, and then became important.
Analysis was carried out using the STATA 11 statistical program, which is capable
of performing statistical, econometric calculations and their graphic visualisation.
Results of the calculations are shown cumulatively for the entire period (2004-2011),
for the period before the global financial crisis (2004-2007), the period after the global
financial crisis (2008-2011), for all economic sectors (10 industries).
In all three models, variance of the firm value, as the dependent variable, can be
significantly explained by the variance of the independent variables. The Wald test
confirms the foregoing, since the probability of χ2 (chi2)is below 1% in all three cases.
The explanatory power of the models can also be considered permanent, since the
coefficient of determination (total R2) is above 90%. In the same time there is a
difference between the strength of impact of the independent variables.
In the model inspecting the entire period, all independent variables have a significant
impact on the dependent variable. In the first period, the tax rate did have a marginal
impact, it was not significant. It was interesting though, that the increase of revenues
had a negative impact on the dependent variable. In the second period the net
margin had a significant impact on the firm value, there were no changes in the
impact direction of other variables.
5. Conclusions
Based on the empirical examination of factors affecting firm value, the following
conclusions were formulated: Comparing the first period of the panel analysis, the
period before the global financial crisis (2004-2007) with the second period of the
panel analysis, the period after the global financial crisis (2008-2011), the following
differences can be observed: in the first period the tax rate did not have an influence
on the firm value, and the increase of revenues had a negative impact on firm value,
while in the second period the net margin did not have any impact on firm value.
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TRADE AND MANUFACTURING COMPANIES RISK ANALYSIS
KULCSÁR Edina
Partium Christian University, Faculty of Economics and Social Science, Department
of Economics, Oradea, Romania
kulcsar.edina@partium.ro
Abstract: Risk assumption is a key element of profit generation and hereby of
shareholder capital maximizing. Therefore the determination and measurement of
risk have become an essential task for companies. The main purpose of this
research is to analyse corporate risk of companies acting in two sectors of economy:
trade and manufacturing. Financial literature shows many risk quantification
methods as variance, standard deviation, etc., but according to present study aims,
we use for corporate risk analysis two dynamic risk measures: Degree of Operating
Leverage (DOL), Degree of financial Leverage (DFL). The investigation is based on
Hungarian companies data for five years (2013-2017). The database used for risk
analysis is ensured by data from financial statements of trading companies (1077
companies) and companies operating in the manufacturing sector (638 companies).
The calculations were carried out using different packages of R statistics system. In
the first part of study, it was calculated the basic statistical characteristics of above
mentioned two leverage ratios for trading and manufacturing companies. Then we
plot the results with boxplot diagram in order to show the dispersion of investigated
data and to ensure a better comparison of results. According to Degree of Operating
Leverage (DOL), the results shows, that excepting one period (2014), the
manufacturing companies risk level is greater than trade companies. This means
that investigated manufacturing enterprises have to reconsider their functioning and
to optimize their costs, on aspect of fix costs. In term of Degree of Financial Leverage
(DFL), the results obtained show that manufacturing companies’ riskiness is higher
than trading firms. This means that have to pay more attention to the level of
indebtedness because this may be linked to financial risk. The coefficient of variance
show extremely high values which drew attention on great spatial heterogeneity of
trade and manufacturing companies in term of Degree of Operating Leverage (DOL)
and Degree of Financial Leverage (DFL). We can conclude that solution for a proper
risk analysis may be the grouping of companies’ sample by different features.
Keywords: corporate risk; risk measurement; degree of operating leverage; degree
of financial leverage; risk analysis; standard deviation; coefficient of variance;
quartiles; heterogeneity.
JEL Classification: G3; G30; G32.
1. Introduction
Risk is one of the most determinative, but at the same time, one of the most
controversial questions of economics The rapid and often unpredictable changes in
the economic environment, globalization and the strengthening of competition have
place even more emphasis on the importance of risk-taking. Companies need to

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take risk to ensure their subsistence, the necessary performance, the continuous
adaptation to economy and customers’ needs, the profit achievement, briefly the
competitive functioning. The balance between the performance and the risks
involved in it can be decisive for companies.
In order to determine the risk level, it is essential to map and quantify risk factors.
Moreover, working out activities for managing them should be important, as well.
Expressing corporate risk with right values is not an easy task. The aim of present
paper consists in comparative analysis of corporate risk of firms acting in different
sectors (trade and manufacture). In our analysis we quantify corporate risk by two
leverage ratios Degree of Operating Leverage (DOL) and Degree of Financial
Leverage (DFL) representing the main components of company’s total risk.
2. Review of literature
Risk is an influential factor of economic environment. There are many theories about
risk in literature, but I present only the most determinative ideas. Alastair (2009)
defines risk as a chance, probability of loss, in his book gives more definitions of the
risk and the most commonly mentioned: the probability of variant results, the
deviation from the expected results, the symmetrical chance of gain and loss. Gallati
(2003, p. 8) defines the risk as “a situation in which there is a possibility of deviation
of expected result from the desirable result”. Despite the fact that risk is mostly a
symmetric concept, when we are talking about the deviation from the expected
result, it is mostly used in a negative sense, as a “probability of negative event
occurring”. An important feature of the risk is that the time of occurrence of
unfavourable events, the consequence and the gravity of its impact are uncertain
and unpredictable. According to Bélyácz (2004, p. 1) “Risk and uncertainty are the
most controversial phenomena in economics. It has never been the subject of
controversy that both of them affect economic decisions...”It is essential to deal with
specific risks of companies, basically with the economic and financial risks.
According to Conklin (2002) the economic risk is reflected in the fluctuations of
corporate’s outputs, that cannot be predicted by company’s management. Many
researchers think that economic risk means negative change in revenue, cost and
market share. Gabriel and Baker (1980) consider that economic risk is appears in
the dynamics of net operating results and net cash flow. According to them, the
relative standard deviation of operating profit is in close connection with the level of
economic risk, so if the indicator shows a high value the economic risk is high.
Besides the individual and company specific risks, there are some other
independent risk factors against which companies have to defend. These include
the effect of whole macroeconomic environment, the changes of economic
competition’s rules and the unpredictable and less favourable changes of laws,
effects of globalization. In their book, Oxelheim and Wihlborg (2008) deal with
definition of macroeconomic risks and they made a quite distinction from
macroeconomic, company- specific and sector-specific risk. Santoro and Gaffeo
(2009) think that the success and failure of company is significantly affected by the
macroeconomic risk, but the intensity of the impact may vary depending on sector
in which the corporate is acting in. According to Colquitt (2007), the classification of

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corporate risks should take into account the different sector-specific risks. In the
quantification of risk, it may be important to identify sector-specific risks, as they can
be used to select appropriate risk measurement methods and corresponding
indicators. In the comparative risk analysis we also take into account that results of
two risk indicators may be interpreted carefully, because a relatively high value for
companies operating in one sector does not necessarily mean quite high value for
companies in the other sector. So, this is why we should take into consideration the
main features of sector which we analysis. In the financial literature we can read
about many risk indicators (standard deviation, variance, Value at Risk, Expected
Shortfall). Besides these we can read about leverage ratios: Degree of Operating
Leverage (DOL) and Degree of Financial Leverage (DFL). These leverage ratios
are especially important because they are sensitivity ratios, so through their analysis
we can find out step by step the cause which lead to the specific evolution of
indicator. This is the reason why we used for present research these leverage ratios
ratios.
Brealey and his co-authors (2014) in one of their studies deal with the average DOL
values of companies operating in different sectors. The study embraced 20 years’
time interval, between 1990 and 2010. The authors classified companies in two
large groups. One group constituted the companies with lower DOL value and the
second group the companies with larger DOL values. The analysis shows that lower
DOL values were present at companies operating in electric utilities (0.39), food
(0.97) and clothing industries, while companies that were operating in steel industry
(2.31), in the paper industry (1.50) and in the machinery industry (1.49) had the
larger average DOL value and higher operating risk.
Kumar (2017) analyses the companies operating in Indian steel industry. He tries to
find out whether there is a relationship between degree of financial leverage (DFL)
and earnings per share (EPS). He based his analysis on the financial statements of
the companies operating in steel industry between the years 2006-2015. The result
of the study shows there is a strong but negative relationship (-0.7779) between
DFL and EPS in case of Indian steel companies. This means that if the degree of
financial leverage increases, namely the cost of capital increases the earnings per
share (EPS) decreases. This confirms that DFL has an effect on companies’
profitability.
3. Research methodology
Financial literature shows distinct interpretation of corporate risk, including the

concepts of financial and operational risk. We consider that it is indispensable to
clarify the concepts and interpretations, on which we have built the overall risk of
enterprises’ functioning, including operational and financial risks.
One of the most important theorems of financial management is the “return- risk
trade off”, which means that higher risk must be assumed only if higher return
belongs to it. According to this, the increase of return (profit) is in close connection
with risk. According to Modigliani’s and Miller’s proposition II., the extent of return on
capital depends on two factors, on the one hand on the return on assets, on the other
hand on the capital structure of the company. The component a. (Return on Assets)

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may be linked to the company’s assets side and it is significantly influenced by the
nature of company’s operating activities, so it is called operating leverage, which can
be considered as operational risk (business risk). The component b. is determined
by the company’s financing policy and on cost of debt. The component b. includes
de Debt/Equity ratio, of which name in English literature is leverage. If the company
does not use debt financing the Return on Equity is equal with Return on Assets.
Therefore, the component b. appears and has great importance only if in the
company’s capital structure appears debt financing, which means greater risk
exposure. Debt financing may increase the Return on Equity if the Return on Equity
is greater than Cost of debt, but with this the financial leverage, and the financial risk
(Ross et al., 2013, p. 532) also increase.
In the narrow sense, we can divide the firm’s total risk into two parts: the first is the
risk of the company’s assets side, which depends on firms’ operating activities (its
name is operational business). The second one depends on companies’ capital
structure, namely on the debt ratio, so it is called corporate financial risk (Ross et al.,
2010, p. 518). In almost all books dealing with corporate finance, I have found that
firm’s risk measure is the Degree of Combined leverage (DCL) which consists of two
basic elements: the Degree of Operational Leverage (DOL) and the Degree of
Financial Leverage (DFL). In the literature, the DOL and DFL indicators belong to
the category of sensitivity indicators.
The DOL is an elasticity indicator, which reflects the ratio of the changes in Sales
and changes in Earnings Before Interest and Taxes (EBIT).
DFL shows the percentage changes in net income, which results from changes in
operating profit.
The formula of DFL highlights the close relationship between the degree of financial
leverage and cost of debt. If there is no debt in a company’s capital structure, the
value of DFL is 1, which means that 1% changes in operating profit causes 1%
changes in net income (EPS). If interest expenses appear in Income Statement, the
DFL value is greater than 1, which also means a higher financial risk level. So, DFL
is really relevant when the company uses debt financing such as credit, for which fix
costs can be linked (Illés, 2007). There is a direct, positive relationship between DFL
value and the cost of debt. The credit financing can provide many advantages.
Firstly, it has a positive effect on the variability of profitability, but only up to a certain
point. The degree of financial leverage can also be an essential tool in determination
of borrowing limit and tolerable risk level because the exceeding of them may pose
serious threats to the company’s overall activity and its financing policy.
In favourable circumstances, the higher DFL value provides an opportunity to
corporate’s profit increase when the Return on Assets is greater than the cost of
debt. However, this also leads to an increase of a company’s financial risk. According
to Damodaran (2015), under favourable circumstances, the cost of debt may
increase the EPS. At the same time, in case of companies with debt financing, the
volatility of EPS influences the EBIT in a greater way. This increases the risk of
capital investment of company (Damodaran, 2015, p. 119, Berk - DeMarzo, 2014, p.
496).
The empirical research was based on Hungarian enterprise data for five years (2013-
2017). The database used for risk analysis is based on data from financial

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statements of Hungarian trading companies (1077 companies) and companies

operating in the manufacturing sector (638 companies). The calculations were
carried out using different packages of R statistics system. In the first part of
empirical research, it was calculated the basic statistical indicators of two leverage
ratios of trading and manufacturing companies. Then we plot the results with boxplot
diagram in order to show the dispersion of investigated data and to ensure a better
comparison of results.
4. Results of research
The empirical analysis in which we carried out a comparative risk analysis of the
Hungarian trading and manufacturing companies contains more steps. First, we
determine of Degree of Operating Leverage (DOL) and Degree of Financial
Leverage (DFL) for trading and manufacturing companies. Then, we present the
main statistical characteristics of investigated trade and manufacturing companies’
two risk indicators. For a better comparison of obtained results we plot values for
each risk indicator and each sector.
In the Table 1. it can bee seen the main statistical features of Degree of Operating
Leverage (DOL) for investigated trade and manufacturing companies.
Table 1. The investigated trade and manufacturing companies DOL indicators

(2014-2017)
2014 2015 2016 2017
Trade Manufacturing Trade Manufacturing Trade Manufacturing Trade Manufacturing
DOL
companies companies companies companies companies companies companies companies
Minimum -84.81 -98.76 -92.79 -86.19 -98.56 -80.95 -95.66 -75.13
1. Quartile -0.93 -0.44 -1.57 -1.29 -1.72 -1.42 -0.83 -1.39
Median 1.68 1.60 1.41 1.37 1.06 1.24 1.42 1.18
3. Quartile 4.93 4.76 4.76 4.52 4.21 4.48 4.51 3.99
Maximum 98.57 85.53 96.39 95.16 96.54 94.01 88.10 83.97
Mean 2.43 1.49 1.82 2.12 0.94 1.95 2.57 2.57
Standard
deviation 16.72 15.46 16.59 15.64 17.65 16.77 14.02 15.63
Coefficient of
variance (%) 689.27% 1040.45% 910.23% 737.08% 1876.78% 858.81% 545.90% 608.39%
Skewness 0.52 -1.49 0.27 0.65 -0.32 0.46 0.23 0.73
Kurtosis 9.98 14.89 9.51 12.28 10.73 9.71 13.40 8.58
Source: own calculations using R statistical system
During the investigation of statistical characteristics of each year, we can observe

that in 2015 and 2016, the manufacturing companies’ average DOL values shows
higher values than in case of trade firms, which means the profit/loss amplifier effect
and also operating risk level is relatively high. In 2014 and 2017, the contradictory
can be seen. Studying the evolution of mean DOL values, we can see that in case
of trade companies the operating risk decrease until 2016 year, after that increase
suddenly. In case of manufacturing companies’ mean DOL values show fluctuation
during investigated period with an overall increase of operating risk until 2017.
By analyzing the standard deviation of Degree of Operating Leverage (DOL), we can
conclude that excepting the last investigated period, the values are greater in case
of trade companies, which means that the trading enterprises sample it is more
heterogeneous than the manufacturing sample. We can also see, that in both sectors

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enterprise data, the coefficient of variance shows values greater than 100%, which
also confirm the high heterogeneity of investigated companies, on aspect of DOL. In
the first and the last year, in the case of manufacturing enterprises, the coefficient of
variance of DOL shows higher values than in case of trade companies. In the 2015
and 2016 the coefficient of variance of DOL shows greater values at trading
companies.
As we can see from Figure 1., for both sectors’ companies, the distances between
Minimum and 1. Quartile and 3. Quartile and Maximum are quite greater, which also
confirm the high heterogeneity of enterprises data in term of operating risk. Based
on these, it is clear, that the examined populations is strongly heterogeneous in term
DOL.
Figure 1. Boxplots diagrams of trade and manufacturing companies’ DOL indicators

(2014-2017)
Trading companies Trading compa nie s Trading compa nie s Tra ding companies Manufa cturing firms Manufacturing firms Manufacturing firms Ma nufacturing firms
DOL - 2014 DOL - 2015 DOL - 2016 DOL - 2017 DOL - 2014 DOL - 2015 DOL - 2016 DOL - 2017
100
100
100
100
100
50
50
50
50
50
50
50
50
frequency
frequency
frequency
frequency
0
0
0
0
0
0
0
-50
- 50
- 50
-50
-50
-50
-50
- 50
-100
-100
-100
-100
In term of skewness we can observe quite symmetrical distribution in case of trading

companies, because values are very close to 0. Compared with trade companies’
values, the manufacturing firms’ skewness values for DOL shows slightly worse
situation in term of symmetricity. In both case of trade and manufacturing companies,
the kurtosis shows values greater than 0, what means high degree of peakedness
of investigated data, so a leptokurtic distribution it is specific.
The Table 2. shows the main statistical characteristics of Degree of Financial
Leverage (DFL) for trade and manufacturing companies.

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Table 2. The investigated trade and manufacturing companies DFL indicators (2014-
2017)
Trade Manufacturing Trade Manufacturing Trade Manufacturing Trade Manufacturing
DFL
companies companies companies companies companies companies companies companies
Minimum -12.95 -10.44 -13.85 -14.87 -11.59 -14.10 -11.89 -6.31
1. Quartile 0.49 0.59 0.60 0.55 0.64 0.67 0.80 0.88
Median 0.92 1.01 0.98 0.98 0.97 1.02 1.03 1.05
3. Quartile 1.29 1.46 1.35 1.37 1.24 1.25 1.26 1.29
Maximum 14.15 13.39 14.88 14.81 13.97 11.96 14.91 12.17
Mean 0.83 1.06 1.02 1.04 0.89 0.93 1.08 1.09
Standard
deviation 2.27 2.23 2.12 2.51 1.96 2.15 1.91 1.45
Coefficient of
variance (%) 273.24% 210.29% 208.17% 241.85% 220.56% 230.90% 177.11% 132.20%
Skewness -0.38 -0.50 0.15 -0.11 -0.56 -1.85 2.24 0.52
Kurtosis 13.57 10.74 14.27 11.52 15.48 21.48 21.92 19.44
During the investigation of statistical characteristics DFL, we can see that in case of
manufacturing companies’ mean values are higher than in case of trading
companies. According to this, we can state, that manufacturing companies are more
riskiness in term of financial risk. We can read in the financial literature books about
the fact that greater indebtedness lead to greater financial leverage and also to a
greater financial risk. This can be linked with our results and can be conclude that
manufacturing companies are probably more indebted than trade companies due
their specific functioning. This can be considered typically sector specific feature. By
the examination of mean values of DFL of both sectors, we can also see that in some
cases these not reach the value 1. This means that the financial leverage cannot be
interpreted. Despite the fact that, first we susceptible to characterized as a favorable
situation, but in fact this means the absence of amplifier effect. This is basically the
consequence of fact that the operating leverage decrease is higher than the net
income decrease. By analyzing of DFL evolution we can state in the last three (2015-
2017) investigated years similar trend can be observed for manufacturing and
trading companies. The DFL average follows the same fluctuation in the specified
period: decreasing in 2016 and increasing in 2017. In 2014-2015 period
contradictory evolution can be seen at manufacturing and trade companies financial
risk.
In three of four investigated years, the standard deviation of DFL is lower in case of
manufacturing companies. This shows less significant variability and also lower
financial risk level in case of manufacturing companies. The coefficient of variance
of DFL shows slightly contradictory results during investigated period, while in the
first and the last years the trading companies shows greater values, in the middle
years the manufacturing companies register greater values. It is clear, that both in
case of trade and manufacturing companies, high values (greater than 100) of
coefficient of variance reveals great heterogeneity of investigated data in term of
DFL.

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Figure 2. Boxplots diagrams of trade and manufacturing companies’ DOL indicators

(2014-2017)
Trading companies Trading compa nie s Trading compa nie s Tra ding companies Manufa cturing firms Manufacturing firms Manufacturing firms Ma nufacturing firms
DFL - 2014 DFL - 2015 DFL - 2016 DFL - 2017 DFL - 2014 DFL - 2015 DFL - 2016 DFL - 2017
15
15
15
15
10
10
10
10
10
10
10
10
5
5
5
5
5
5
frequency
frequency
frequency
frequency
frequency
frequency
frequency
frequency
0
0
0
0
-5
0
-5
-5
-5
-5
-5
-5
- 10
-10
-10
-10
-10
-5
-10
-10
- 15
-15
-15
As we can see from Figure 2., for both sectors’ companies, the distances between
Minimum and 1. Quartile and 3. Quartile and Maximum are quite greater, on which
we can also underline the high heterogeneity of enterprises samples in term of
financial risk expressed by DFL.
By examination of skewness values, we can observe that in the first three
investigated period, the values relatively close to 0 shows quite symmetrical
distribution for both trade and manufacturing enterprises. This can be the
consequence of fact that analysed leverage ratios may register both positive and
negative values, as we can see from Table 2. Both in case of trade and
manufacturing companies the kurtosis shows greater than 0, what means high
degree of peakedness of investigated data, so a leptokurtic distribution.
Finally, we can conclude that high values of dispersion measures (standard
deviation, coefficient of variance) and the great statistical range drew attention on
great spatial heterogeneity of trade and manufacturing companies in term of
operating and financial leverage. This is why, the obtained leverage ratios’ mean
values need to be reconsidered. In this form, the leverage ratios are not proper
measurements for sample characterizing. The right solution in order to get a
homogeneous sample consists in grouping the sample by some specific features. In
order to group the enterprise samples we can group by their size, for example using
sales as grouping feature. We can also group by leverage ratios.
5. Conclusion
After studying books dealing with corporate finance and corporate risk quantification
for analysts it still difficult to decide about the best risk measurement method that
ensure the proper results in term of aims of concrete research. So, the corporate risk
quantification is not easy task. The analysts have always take into consideration the

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main purpose of his analysis and choose the risk quantification measure which suits
best.
The main purpose of this research was to analyse corporate risk of companies acting
in two sectors of economy: trade and manufacturing. Regarding to our research goal,
we found that two leverage ratios express the corporate risk as well as possible: the
Degree of Operating Leverage (DOL) and Degree of Financial Leverage (DFL).
The results shows that excepting the first investigated period (2014), the
manufacturing companies operating risk level is greater than trade companies,
according Degree of Operating Leverage (DOL) values. This means that
investigated manufacturing enterprises have to reconsider their functioning on
aspect of their costs. It is clear that they need to optimize their fix costs to total costs.
The results of Degree of Financial Leverage (DFL) show that manufacturing firms’
financial riskiness is higher than trading companies. Regarding to this,
manufacturing companies have to reconsider their indebtedness level and/or cost of
capital because this may be linked to financial risk.
The coefficient of variance shows extremely high values for both two leverage ratios
which drew attention on great spatial heterogeneity of trade and manufacturing
companies. We can conclude that solution for a proper risk analysis may be the
grouping of companies’ sample by different features.
References
1. Alastair, L. D. (2009): Mastering Risk Modelling, Prentice Hall, Financial Times,
Pearson Education.
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székfoglaló előadás anyaga,
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3. Berk, J. – DeMarzo, P. (2014): Corporate Finance, Third Edition, The Pearson
Series in Finance.
4. Brealey, R. A. – Myers, S. C. – Allen, F. (2014): Principles of Corporate Finance
– Eleventh Global Edition, Mc Graw Hill Education, UK.
5. Colquitt, J. (2070): Credit Risk Management. How to avoid lending disasters and
maximize earnings. McGraw-Hill.
6. Conklin, D. W. (2002): Analyzing and managing country risks. Ivey Business
Journal, 66 (3) (January/February), 36–41 p.
7. Damodaran, A. (2015): Applied Corporate Finance, Fourth Edition, JohnWiley &
Sons, Inc.
8. Gabriel, S. C. – Baker, C.B. (1980): Concepts of business and financial risk,
American Agricultural Economics Association.
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Companies, Inc., United States of America.
10. Illés, I-né (2007): Vállalkozások pénzügyi alapjai. SALDO Pénzügyi Tanácsadó
és Informatikai Zrt., Budapest.
11. Kumar, P.(2017): Relationship between degree of financial leverage and earning
per share, Research Scholar, Ranchi University, India, IMPACT: International
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Nov 2017, 5-10. o.

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12. Oxelheim, L. – Wihlborg, C. (2008): Corporate decision-making with

macroeconomic uncertainty. Performance and risk management, Oxford
University Press, Inc.
13. Ross, S. A. – Westerfield, R. W. – Jordan, B. D (2010): Fundamentals of
Corporat Finance- Ninth Edition, McGraw-Hill Irwin, New York.
14. Ross, S. A. – Westerfield, R. W. – Jordan, B. D (2013): Fundamentals of
Corporat Finance- Standard Edition, McGraw-Hill Irwin, New York.
15. Santoro, E. – Gaffeo, E. (2009): Business failures, macroeconomic risk and the
effect of recessions on long-run growth: A panel cointegration approach, Journal
of Economics and Business, 61, 435–452 p.
16. Thomson, S. (2005): Management of Financial Risks. (in Reuvid, J. (ed.):
Managing business risk. A practical guide to protecting your business. p. 127-
131), Kogan Page Limited, Great Britain.

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ENVIRONMENTAL ACCOUNTIG DEVELOPMENT FOR ORGANIZATIONS IN

MEXICO
MARTÍNEZ Germán1, ARMENTA Aida2, CABRERA Abraham2

1
División Académica de Ciencias Económico Administrativas, Universidad Juárez
Autónoma de Tabasco, Tabasco, México
2
División Académica de Ciencias Económico Administrativas, Universidad Juárez
Autónoma de Tabasco, Tabasco, México
germanmtzprats@hotmail.com
handel91@gmail.com
antoniocabrerac3@gmail.com
Abstract: The environment has gained significant relevance on a global scale,
owing to research by scientists and environmental movements that have been able
to place global environmental problems such as earth warming and pollution. Social
and environmental aspects are related to organizations and are being
transcendental for various international institutions and organizations. The
accounting has been present in humanity for several years now, as a result of the
need that man has had to control and quantify the information generated from the
economic activities that he has developed in the course of history. Today, accounting
is required to report how organizations harm nature and its environment, because
traditional accounting does not clearly reflect social and environmental costs The
accounting area must make efforts so that the environmental accounting is
developed and provides useful, clear and relevant information for the interested
parties. In this research, a documentary review of the proposals on environmental
accounts and the current state of environmental accounting was made. This
research is descriptive with a qualitative approach and the design applied is non-
experimental. Its objective is to analyse the elements of environmental accounts and
show the efforts of the accounting area in terms of environmental impact. As a result,
environmental accounts are conceptualized differently by each author depending on
the reference on which they are based. It is concluded that there are great advances
in environmental accounting and in the conceptualization of environmental accounts,
however, further development is required for its uniformity and application. It is
required that at the level of undergraduate studies are taught more subjects of
corporate social responsibility for the graduates to develop an early awareness of
the social and environmental aspects related to the organizations with the objective
of establishing better accounting practices in order to reduce the impact of the
current environmental damage and that could have been part of the regular
accounting procedures that are carried out within organizations.
Keywords: Environment; environmental accounting; social responsability;
sustainability; organizations.
JEL Classification: F61; F63.

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1. Introduction
In the years 70 the first indications of protection to the environment were presented
in response to the environmental problems that were arising from the irrational
exploitation of resources by the organizations (DE-la-Rosa, 2011).
At present, environmental problems have been recognized before well-known
summits, starting with the Earth Summit of 1992, where for the first time the
governments proposed to reflect on the actions against the climatic changes and the
relation that this Situation is facing the economic development of the countries. From
that moment, various programs, changes in policies and tactics to promote habits
and customs that seek to carry out commercial activities in a more sustainable way,
emerge. Accounting, is not alien to this problem and is exploring the various
possibilities that exist between the environment and accounting (Rodriguez, 2011).
Therefore, Governments pay special attention in the productive sectors as support
for action to combat this situation. From this concern the accounting area is making
efforts through environmental accounting to establish an accounting model that
allows companies to have relevant information about their environmental
performance, and thus prevent and control the damage that their Productive
activities can cause the environment (DA-Rosa and Col., 2013).
In this work are analyzed elements of environmental accounts proposed by different
authors and show how in the accounting area efforts are being made to contribute
to the reduction of environmental impact by companies, as it is a task that is not only
of a certain sector, market or people if it is not a work that involves the whole society
and the environment that surrounds it. Within the environment surrounding society
are economic entities who should seek to contribute to the reduction of pollution to
the environment. It is worth mentioning that the primary economy referring to
management accounting, seeks through economic theory to mention the
internalization of externalities, which is considered as a way by which the company
is responsible Of the negative effects generated by the environment and society in
general (Vásquez and Gonzales, 2009; Salgado-Castillo, 2014).
Therefore, the objective of the research was to analyze the elements of the
environmental accounts and to show the efforts of the accounting area in matters of
environmental impact.
2. Background of Enviromental Accounting
The accounting began its progress, because of the different cultures and peoples
that appeared, one had to find a way to capture the legacy of relevant facts of the
history with arithmetic projection, which occurred frequently and were very complex
as for to be preserved by memory. Kings and priests had the need to define the
distribution of taxes and settle their payment in some way or another. Lastly, traders
have always been the part of society more committed to all kinds of new
developments for data logging.
Old pieces were found in ancient times that were later considered as part of the
beginnings of accounting, the clay splints are within those pieces, the system of

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weights and measurements, the cuneiform script, the position and Settlement of the
quantities, the mathematical operations, the pictographic and hieroglyphic writing,
the coin and the papyrus. In the Middle Ages the Arabic numerical system was
established, at that time the Crusades began where new mercantile routes arose,
which gave rise to the establishment of some form to register the mercantile
transactions that were carried out (Guajardo and Andrade, 2008). Accounting has
evolved and structured as new needs are emerging in organizations and productive
systems (Palacios and Suarez, 2015). At present, accounting has expanded to
encompass through financial accounting and tax accounting, besides administrative
situations that organizations are suffering as globalization progresses, and in recent
years we work on a Environmental accounting in order to obtain the arguments and
norms that allow an adequate development of the same one in the organizations
because of the relevance that has obtained the environment.
The importance of environmental accounting lies in the objectives that the
accounting-environmental information has according to the authors Vega and
Ricárdez (2011), which describe below:
1) from the accounting perspective, it is important to study and analyse the
Processes of valuation, measurement and control of the environmental processes.
2. To renew the regulations of registration and accounting management.
3. To improve the accounting contribution to the management practices of the
environmental issue in the companies.
3. Accounting relationship with management
The book of Industrial and General Management of Fayol (1961), establishes six
groups of operations or essential functions that exist in the company; One of these
groups has the function of carrying out the accounting, which is defined as the
instrument of vision of the company that must allow to know at any moment the
current situation of the company and its plans forward. It must give a clear, accurate,
concise and precise report on the economic situation of the company. A good
accounting, which is simple and clear, allows you to have a clear idea of the
company's conditions, is a powerful tool for management and decision making, so
accounting is the fundamental support of every administrator.
With regard to the principles of social responsibility that goes very close to
environmental accounting, it is interesting to know that for more than 2 decades have
appeared within the business postulates when Taylor (1994) raised it as the progress
Employee's and employer's share, in which the employer intends to get the
maximum benefit and the employee to get a higher income. Friedman (1970), says,
"responsibility is to earn as much money as possible by adjusting to the basic
standards of society. Both in those embodied in the laws and in those embodied in
the Ethical Customs "(1970:1).
The systems theory proposed by Von (1986), is the basis for the accounting system
because it studies the totalities, defined as systems composed of interrelated parts
or subsystems, that constantly interact with their environment, where each Part is
related to a common purpose or objective of the system. The theory can be seen
from the point of view of the Organization as a whole where the accounting system

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plays a predictable role to achieve the objectives of the Organization or also from
the focus of the accounting system which requires information from the other areas
to be able to feed properly and provide important information for management
decision making. The theory of systems requires an excellent attitude to examine
the phenomena and to see the reality with their interrelations, the environmental
accounting is a system that requires an integral vision of the environment where the
organization operates to have a inputs and outputs That can have a feedback or can
be modified to enhance benefits of the stakeholders.
Another point that must be highlighted when talking about environmental accounting
is that the theory of value is present, and this is because it is perceived to value as
something that pleases people to those objects or services that somehow satisfy
their needs, some have perceived it erroneously as something additional to goods
or services. The value (Ramirez, 2008) is much more than a property of the object,
the value increases if the effort improves or if the cost is reduced.
Value-based management is aimed at providing enormous value to customers,
shareholders, members of the company and the community in general. Value
management must be played by all companies that want to maintain their
competitiveness in the future.
In the commercial activities, like life itself, the goods compete, and only the most
suitable ones persist (according to the theory of the value, those that have more
value). The goods must be valued according to the advantages and disadvantages
that each one presents in front of other equivalent goods that satisfy the same
necessity. To create sustainable competitive advantages, organizations need to
learn to unite social, economic, environmental and political factors in their processes
and in the different links of the value chain (Ramirez, 2017).
The organizations that implement a management system established in the value,
will develop a differentiator to compete in terms of the quality of products and
corporative image that will show to the client and therefore the manufacture of its
products maintain A high intrinsic quality, optimizing costs and performing the
processes in a sustainable way (Ramirez, 2008).
4. Environmental accounts in the accounting system
The current economic model has placed individual economic needs over life
conservation needs, by placing environmental care in the private sector, those who
consider environmental damage as externalities of organizations, where they do not
have the obligation to take responsibility for these damages (Terreos, 2014). In this
type of model, capitalism manifests its triumph, as organizations have acquired some
power because they are in charge of promoting consumption, production and
innovation, but also with the acquisition of that power comes responsibility ( Raufflet,
2010); And they have as a challenge to optimize productivity to be competitive in the
market, which brings as a result that they contribute actively to the social, economic
and environmental improvement, so they require tools that allow advances not only
in the economic, But in the social and environmental (Alturo, 2014).
Currently, models that evaluate sustainability are characterized by multidisciplinary
approaches that show the demand to manage with the most evolved styles of

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decision and responsibility. The sustainable economy is the one where the social,
economic and environmental area interact and is identified by the ecological benefit,
where the best financial results and the best ecological positioning will be obtained
(Dascalu, and Col., 2010). There are differences in the development of the social
responsibility of the organizations between the different countries and, therefore, a
greater impetus is necessary of the hand of the Governments and of the civil society
(Alonso-Almeida and Col., 2015).
Today, accounting is required to report how organizations harm nature and its
environment, because traditional accounting does not clearly reflect social and
environmental costs because they are hidden within the general accounts, showing
themselves as clearly financial costs, which means that companies are unable to
show the impact of their activities on the environment in which they develop
(Sánchez-Vásquez and Rodríguez-Jiménez, 2014; Vergara and Col., 2016). It is
necessary for the accounting to play a definitive role as a tool for information and
control of the operations that are carried out in the organizations, it is required to
strengthen the environmental management with appropriate instruments, as well as
the qualities Techniques and knowledge of professionals to solve the requirements
that the environment imposes; The incorporation of the environmental dimension into
the accounting system is essential as an element to refine the methods of planning
and business decision making (Salas and Col., 2015). The monetary value of the
amount of money directed to environmental problems is not adequate, because it is
considered that it is through the market that this situation is to be resolved, so that
accounting should show monetary and non-monetary data, Qualitative and
quantitative environmental impact, strategies to reduce, remedy and maintain the
environment surrounding the activities of organizations (Quinche, 2008). And it is
required that the organization identify appropriately its stakeholders, that is to say,
clearly determine who are the people who are interested in accounting for the
situation of the Organization including environmental and social issues, not Making
an adequate determination of the stakeholders will hardly obtain transparent,
credible and verifiable reports (Palacios and Coppa, 2015).
The International Federation of Accountants (IFAC) considers the Environmental
Management Accounting (EMA) the way where accounting systems and practices
are established, EMA not only encompasses the monetary calculus commonly
handled in accounting, but encompasses the calculation of materials (Lorea, 2008).
Panario (2010), mentions that, from the economic-Financial perspective, the
absence of accounting records of liabilities, costs and environmental expenses make
it reflect unreal profits to the owners of the organizations and places them in an
economic position that is not Consistent with the actual situation of the Organization;
It is therefore necessary that environmental events be recorded in a detailed
account, so that there is greater transparency in the relationship between the
organization and the environment, in order to contribute through accounting With
truthful and timely information for decision making.
Recently environmental costs have become significant in the decision making of the
organizations, this is because the prices of goods and services that show the
traditional production costs are no longer available, it is necessary to include The
actual environmental costs of the use, recycling and disposition of goods and

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services (Taleo-Cabrejo, 2008). Therefore, environmental costs are divided into

different categories among which are the conventional environmental costs are
those related to the use of raw materials, capital goods, inputs and services;
Potentially hidden environmental costs are those related to responsible management
of the working environment and waste generated by business activities, also the
author mentions that there are environmental contingency costs which Are those
where the organization may incur in the future, are fines or penalties, personal injury;
The costs of image and environmental relations are those where there is a decrease
in income due to loss of image due to inadequate environmental management, and
to end the author points out the existence of social environmental costs or
externalities that are They relate to the environmental impacts of business, society
or community (Taleo-Cabrejo, 2008).
For the authors Dascalu and Col. (2010), the environmental accounting system has
as its main component the environmental costs for which it takes those established
by the Environmental Protection Agency. The types of environmental costs that the
Environmental Protection Agency classifies are internal and external; Within the
internal are the conventional costs, hidden costs, contingent costs, image and
relationship costs. Within the external costs are the costs of environmental
degradation and human impact costs.
De-la-Rosa (2007), establishes that in the accounting system the environmental
costs are classified in recurrent and non-recurrent costs. Within the recurrent are a)
costs generated by the environmental information obtained; B. Costs from the
development of an environmental management plan; C. Costs deducted from
technological implementations in favour of the environment; (d) Costs caused by
logistics of final disposal of waste, emissions into the atmosphere and discharges to
water bodies and soils; Costs resulting from the final product and its management;
F. Additional costs arising from administrative policies, and g) extra costs from
environmental audits. Non-recurrent environmental costs are found to be a) cost-
generated by information systems and environmental care; (b) Costs of facilities and
investments for improvement; C. Costs arising from the company's annual
maintenance and conservation; D. Costs caused by interruption in the operation;
e)costs resulting from accidents; (f) Costs arising from the new needs of the
environment; G. Costs deducted from the improvement of corporate image and the
environment; h)Costs derived from monitoring and control systems; i)Non-disbursed
costs; J. Legal costs, and k) other costs arising from specific actions.
For Braga (2009), the environmental accounting system is integrated by a new
environmental position where the organization assumes a position of conservation,
preservation or repair of nature, this situation is directly related to the costs of
environmental expenses made by the organization and where it reflects on the life
cycle of the products that the organization provides, through recycling, thus
generating environmental income and where the new technologies play an important
role Through environmental assets, all of this results in a lower level of pollution,
higher productivity and a better image for the organization.
Perera and Zicari (2009), propose a fourth financial statement to complement
financial accounting, which would form part of the 3 traditional accounting states
(Balance sheet, statement of income and cash flow) where social information and

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Environment that aims to show the generation and distribution of wealth. Regarding
the generation of wealth, sales are considered less the total direct costs to determine
the value added obtained by the company. With the distribution of wealth is taken
into account how the value generated between the various stakeholders is
distributed. One of the advantages of this model is that it clearly shows the
contributions the Organization makes to society in terms of job creation, investment,
supplier development, environmental care and management, and tax payment.
Corporate reports should be deeper and show appropriate and beneficial information
as complicated and questionable. The fourth proposed financial statement includes
job creation, investment, supplier development, care and management of
environmental variables and tax payments, these points are the first part of the report
because it carries the notes of the fourth State where the minimum requirements for
corporate governance issues, code of ethics, consumer protection, among other
points are embodied.
Salas and Col. (2015), establish a procedure on how to integrate the environmental
dimension into the accounting system. It considers that the financial statements are
the instrument for the environmental information has been presented in a clear,
timely and relevant way, in addition to having the least permissible subjective
influence. Manage environmental accounts such as environmental revenues,
environmental expenditures, environmental costs, environmental assets, active
environmental assets, tangible fixed asset, intangible assets Environmental and
environmental liabilities.
Environmental costs are also considered as impacts caused by the company or
organization and as a result of activities that affect environmental quality. It is
important to mention that these impacts may be monetary or non-monetary (Becerra
and Col., 2011).
In this research the design applied is non-experimental, the scope of the research is
descriptive with a qualitative approach. It is a documentary research where the
method used to carry out the review was done by different stages: the search for
primary articles in the different closed and open databases such as Emerald,
Conricyt, EBSCO, Elsevier, Scielo and REDALYC related to the subject of research,
then the reading and the collection of information, and finally the information was
synthesized through a content analysis to be able to interpret the results.

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6. Results
After the review carried out in the investigation on the environmental accounts it was
found that the accounts are named differently depending on the author, as for the
conceptualization it was observed that the authors Taleo-Cabrejo (2008) and
Dascalu and Col. (2010) Agree to take the definitions issued by the Environmental
Protection Agency, while Salas and Col. (2015) establishes its definitions with the
help of other authors about environmental incomes, environmental expenses, costs,
assets and liabilities and explains through stages a procedure to integrate the
environmental dimension into the financial information system. Braga (2009),
presents several environmental accounts reflecting the new position that considers
pertinent of the accounting in relation to the environment, constitutes in which
consists each one of the accounts coinciding in general terms with the authors Salas
and Col. (2015).
Mejia and Col. (2010) found that financial accounting is not adequate to express
social aspects, as non-monetary measurements are required to demonstrate the
effects of protection, conservation and care of resources Environmental, both
complement each other.
During the review of the literature it was noted that in the accounting discipline as
established by Larrán and Andrades (2015) It is required that at the level of
undergraduate studies are taught more subjects of corporate social responsibility for
the graduates to develop a Early awareness of the social and environmental aspects
related to the organizations, only in postgraduate studies is where the subjects of
environmental nature predominate.
7. Conclusions
The environmental accounting has obtained in recent years great advances in the
establishment of accounting accounts and in which each one consists, advances in
the non-monetary physical records that are required as complement to be integral,
although some Authors consider that non-financial physical information should be
handled separately from environmental accounting; However, if the environmental
accounting focuses on only financial and monetary records, it is limited to only
economic measurements, and the social and environmental aspects are not
susceptible to being only economically measurable, because It requires the physical
non-financial part to control and decrease environmental years. It is important to
recognize that further development is still required for its application in a clear and
precise manner in organizations, because the normative framework that will support
its implementation is not specifically determined because the criteria Established
International Accounting Standards Board (IASB) are not adequate enough to
represent the environmental aspect within them, it has much to work still in that part
to have the foundation to support the application of the Environmental accounting. It
must be the priority of economic entities and society to care for and protect our planet
in order to make development sustainable and lasting, so that it has something to
inherit to future generations for its growth and development.

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FISCAL PRESSURE IN THE EU: AN ECONOMETRIC APPROACH
PETRIC Nicolae
Babeş-Bolyai University, Faculty of Economics and Business Administration, Cluj-
Napoca, Romania
nicolae.petric@econ.ubbcluj.ro
Abstract: This article assesses the impact of fiscal pressure through the relationship
between direct taxes, indirect taxes and taxes received by the central government
as a percentage of GDP, and personal income tax rates, corporate income tax rates
and value added taxes using a country sample that includes members of the EU-28,
Iceland and Norway. Empirical analyses use annual data from 2004 to 2016 and
employ techniques to account for possible linear effects in fiscal policy actions.
Results show that for all countries considered in the analyses there is a strong
relationship between dependent variables and independent variables in four
econometric models.
Keywords: taxation; direct taxes; GDP; income tax; corporate tax.
JEL Classification: H24; H25; H26.
1. Introduction
The topic of fiscal pressure is more current than ever within the EU in general and
Romania in particular. First of all, Romania is in the process of reforming its fiscal
system, which started with the constant updating of the Tax Code. Secondly, country
authorities are aware of the lack of major investments needed to create stable and
well-paid jobs. Thirdly, the income of most taxpayers is burdened by excessive
taxation that discourages investors and encourages tax evasion. Regardless of the
terminology used in the financial literature (i.e., fiscal coefficient, fiscal tension, tax
burden, compulsory tax rate, etc.), the concept of fiscal pressure expresses the same
idea, namely the tax burden exerted by the state on individual and corporate income.
The global financial crisis has imposed the need for a stronger fiscal reform, which
is directly linked to the banking system. Some authors like Batrancea et al. (2013)
show that the banking crisis has revealed severe shortcomings of the monetary
policy, deregulation, financial innovation, and other government policies. In another
paper, a summary of the world economy emphasizes that other countries like Brazil
and Mexico have experienced crises, which were caused by poor government
policies based on low taxation and a fixed rate of converting national currencies
(Batrancea et al., 2009c).
From the point of view of the economic and financial analysis, the fiscal pressure
rate highlights the confiscatory aspect of mandatory levies, neglecting the fact that
such levies are being reinvested in the economic circuit as public expenditures. The
fiscal pressure rate measures the part of tax proceeds that undergoes a compulsory
and public distribution process instead of being left to the discretion of private
initiative.

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Over the last two decades, most of the EU tax systems have undergone significant
changes, amid the adoption of a new fiscal stance. The global financial crisis, the
excessive increase in the complexity of tax systems, the negative influence that
taxes and duties had on economic growth are the main factors that have led to fiscal
reforms. Through fiscal reforms, EU member states have the difficult task of finding
the adequate formula that provides the resources needed for the activity of public
institutions and for achieving the abovementioned goals.The reminder of the paper
has the following structure. A brief survey of the empirical literature highlights
relevant studies tackling the problem of fiscal pressure. The section entitled “Method
and research hypotheses” presents the hypotheses, the proposed linear and panel
econometric models together with their estimated outcomes. The final part
emphasizes the main results of the study, limitations and concluding remarks.
2. A brief survey of the empirical literature
There is an extenssive literature analyzing fiscal pressure in the different countries.

The present research has focused on the fiscal pressure in EU countries across a
period of 13 years. Using a meta-regression analysis, Belz and von Hagen (2019)
focused on the relationship between effective tax rate and firm size, showing that
Hofstede’s cultural dimensions theory, a transparency index and a corruption index
explain the variation of this relationship. However, Lai (2019) investigates the effects
of tax havens on nonhaven countries’ redistributive policies and finds that a stricter
antihaven regulation may lower tax rates. He shows that income shifting is likely to
reduce the amount of the transfers, when considering also tax evasion.
Recent approaches have incorporated panel data techniques. Thus, Kottaridi et al.
(2019) expand the notion of escapism involving foreign direct investment and
integrate it into the framework of developed economies struggling with high fiscal
pressure or inefficient policies. The authors stress that such developed economies
need efficient public authorities and lower tax rates in order for domestic firms to
succeed on foreign markets. Therefore, the paper emphasizes the moderating effect
domestic market regulations have on taxation. Based on the Porter hypothesis, You
et al. (2019) use data from 1,962 Chinese industrial companies listed on the
stockmarket and covering the period 2004-2015 in order to investigate the influence
of environmental regulation on company eco-innovation and the moderating effects
of fiscal decentralization and political competition. Refering to the efficiency of local
administration in Spain, Narbón-Perpiñá et al. (2019) explore the overall cost
efficiency of Spanish local governments during the 2008-2013 economic crisis,
considering four different non-parametric techniques. Their results suggest that local
government efficiency has improved during the analyzed period because budgetary
outlays decreased while the quality of local public goods and services has been
maintained constant. Fiscal pressure is an important field of empirical research and
it is also determined by tax compliance (Batrancea, 2012a,b; Nichita & Batrancea,
2012).
Empirical studies on fiscal pressure within the healtcare sector (Asensio & Popic,
2019) emphasize the need for more in-depth analyses of welfare reforms during
crises periods that focus on the institutional characteristics and political contexts of

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analyzed countries. After investigating UK employer-employee data for the period

2002-2016, Singleton (2019) concluded that no significant public sector wage
premium was registered for male subjects. Lehner and Wasserfallen (2019)
analyzed the conflict dimensions that shaped reform negotiations within the
Economic and Monetary Union (EMU). Empirical findings show that political
contestation regarding the Eurozone reform between the suporters of fiscal transfer
and those of fiscal discipline is one-dimensional.
Based on the abovementioned opinions, it can be stated that financial ratios
represent a very reliable research instrument when investigating economic
phenomena, especially fiscal pressure (Batrancea et al., 2009a, b; Moscviciov et al.,
2010). Therefore, as a macroeconomic phenomenon, fiscal pressure represents the
taxation level a taxpayer is subject to, depending on the annual financial and fiscal
policies enacted by the government. The amount of taxes levied on taxpayers’
income can be determined both at the macroeconomic and microeconomic levels
using a system of indicators among which the rate of fiscal pressure plays a central
role. In this current paper, taxation patterns of countries belonging to EU-28, in
addition to Iceland and Norway are analyzed by means of econometric models.
3. Method and research hypotheses
In order to run the analyses, taxation indicators from 30 countries (28 EU members,
Iceland and Norway) were used. All data were taken from the European Commission
AMECO (Annual Macro-Economic Data) database, covering the period 2004-2016.
Country sample included EMU countries, as well as Eastern European economies
outside EMU.
3.1. Analysis of correlation regarding taxation ratios

As a next step, based on data retrieved from the official website of the European
Commission, the indicators presented bellow have been determined:
Indicator 1: Direct taxes ratio (DT_GDP) = Direct taxes/Gross domestic product
Indicator 2: Personal income taxes ratio (PIT_GDP) = Personal income taxes/Gross
domestic product
Indicator 3: Indirect taxes ratio (IT_GDP) = Indirect taxes/Gross domestic product
Indicator 4: Company income taxes ratio (CIT_GDP) = Company income
taxes/Gross domestic product
Indicator 5: Value added taxes ratio (VAT_GDP) = Value added taxes/Gross
domestic product
Indicator 6: Taxes received by level of government ratio (TaxGov) = Central
government taxes/Gross domestic product
Indicator 7: Personal income tax rates (PIT)
Indicator 8: Company income tax rates (CIT)
Indicator 9: Value added tax rates (VAT).
Regarding the correlation coefficients, two significance thresholds were considered:
0.01 and 0.05. The first threshold shows that the correlation coefficient is equal to 0
with a probability of 99%, while the second threshold shows that the correlation

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coefficient is equal to 0 with a probability of 95%. Table 1 presents the correlation

matrix for the taxation indicators of the European countries analyzed.
Table 1. Correlation matrix corresponding to the taxation indicators in the European

countries
Ratios TAXGOV DT_GDP IT_GDP CIT_GDP
TAXGOV 1.000000
DT_GDP 0.647100** 1.000000
IT_GDP 0.261264 0.243073 1.000000
CIT_GDP 0.493803* 0.340741 -0.137363 1.000000
PIT_GDP 0.497239* 0.886652*** 0.220465 -0.004178
VAT_GDP 0.194913 0.048505 0.705922*** -0.083479
CIT 0.094226 0.380912 -0.050632 0.214257
PIT 0.245113 0.636153** 0.274958 0.059543
VAT 0.258145 0.341745 0.480782 -0.119375
Ratios PIT_GDP VAT_GDP CIT PIT VAT

TAXGOV
DT_GDP
IT_GDP
CIT_GDP
PIT_GDP 1.000000
VAT_GDP 0.005294 1.000000
CIT 0.252369 -0.332139 1.000000
PIT 0.605007** 0.023055 0.531834* 1.000000
VAT 0.374736 0.477608 -0.148195 0.226231 1.000000
Note: *Correlation coefficients significant with p < 0.1; **Correlation coefficients
significant with p < 0.05; ***Correlation coefficients significant with p < 0.01. In the
table above, one can identify positive correlations between the majority of indicators,
excepting the following: IT_GDP, CIT-GDP and CIT; CIT_GDP, PIT_GDP and VAT;
VAT_GDP and CIT; CIT and VAT.
In order to highlight the level of fiscal pressure, the relationship between direct taxes
ratio, indirect taxes ratio and taxes received by level of government ratio (as
dependent variables) and the other ratios (as independent variables) was analyzed
on a country sample pool comprising members of EU-28, Iceland and Norway, during
the period 2004-2016. The analyses will therefore inform regarding the assessment
and understanding of taxation nature and its effects on fiscal reforms across Europe.
The econometric models

The software EViews version 9.0 was used to perform the statistical analyses for the
econometric models. Analyses are based on the Least Squares Panel method,
which is a specific method of generating equations for time series data. Our empirical
research is based on the following hypotheses:

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H1: There is a linear dependence between direct taxes ratio (DT_GDP), personal
income tax rates (PIT) and company income tax rates (CIT).
H2: There is a linear dependence between taxes received by level of government
ratio (TaxGov), personal income tax rates (PIT) and company income tax rates (CIT).
H3: There is a linear dependence between indirect taxes ratio (IT_GDP), personal
income tax rates (PIT), company income taxes rates (CIT) and value added tax rates
(VAT).
H4: There is a linear dependence between taxes received by level of government
ratio (TaxGov), company income taxes ratio (CIT_GDP), direct taxes ratio
(DT_GDP), indirect taxes ratio (IT_GDP), personal income taxes ratio (PIT_GDP)
and value added taxes ratio (VAT_GDP).
The link between the abovementioned variables is analyzed by means of the

following econometric models:
Model 1: ‹y_¡‹¢ Ž = _ + ¢xy Ž + vxy Ž + £ + ¤Ž + r Ž
Model 2: y }¡s„ Ž = _ + ¢xy Ž + vxy Ž + £ + ¤Ž + r Ž
Model 3: xy_¡‹¢ Ž = _ + ¢xy Ž + vxy Ž + + ‰py Ž + £ + ¤Ž + r Ž
Model 4: y }¡s„ Ž = _ + vxy_¡‹¢ Ž + ‹y_¡‹¢ Ž + + xy_¡‹¢ Ž + ? vxy_¡‹¢ Ž +

+ ‰py_¡‹¢ Ž + £ + ¤Ž + r Ž
 £ represents fixed effects intended to control for time-invariant taxation-

where:
 ¤Ž represents fixed effects intended to control for common shocks (e.g.,

specific factors;
 r Ž represents the error term.

global financial crisis);
In order to compensate for omitting other factors that influence direct taxes ratio,
indirect taxes ratio or taxes received by level of government ratio, the specific
unobserved effect (£ ) of a country should be considered. As with time common
shocks have an impact on dependent variables, a parameter estimation with fixed
effects was also performed.
Results
Estimations of the relationship between direct taxes ratio, taxes received by level of
government ratio and the designated independent variables are presented in Table
2.

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Table 2. Estimations of the relationship between personal income tax rates (PIT),
company income tax rates (CIT), direct taxes ratio (DT_GDP) and taxes received
by level of government ratio (TaxGov) via econometric models
Model 1 Model 2
Constant 7.578604*** 6.695710*** 19.58236*** 19.81792***
(9.287102) (7.622477) (20.07056) (18.94552)
PIT 0.082198*** 0.086958*** 0.063665*** 0.059213***
(5.415747) (5.877204) (3.508315) (3.360680)
CIT 0.041238 0.070507** 0.027628 0.025099
(1.470144) (2.336802) (0.823777) (0.698557)
Prob.>F 0.000 0.000 0.000 0.000
F-statistic 226.9605 178.7166 199.9570 158.9083
Cross-section Fixed Fixed Fixed Fixed
effects
Time fixed No Yes No Yes
effects
R2 0.951581 0.956916 0.945399 0.951804
Observations 390 390 390 390
Note: The dependent variables are DT_GDP in model 1, TaxGov in model 2 for
country “i” in the “t” year. Robust t-statistics are shown in parentheses. *, **, ***
indicate statistical significance at 10%, 5% and 1% levels. Prob.>F is the probability
of the model not including fixed effects. For all estimated models, the hypothesis of
multicollinearity is investigated using the variance inflation test (VIF). In all cases,
the VIF values are lower than 3, thus indicating low risk of multicollinearity.
Model 1
In the first equation, the multiple regression model is significant (R2=0.95), meaning
that 95% of the variation in the DT_GDP is explained by independent variables,
while 5% is explained by variables outside the model. The F-statistic of 226.96
shows that predictors are significantly related to the dependent variable DT_GDP.
The regression estimation reveals the existence of a positive relationship between
DT_GDP and independent variables PIT and CIT. Namely, the coefficient 0.082
indicates that an increase of 1% in PIT leads to an improvement of 8.2 percentage
points in DT_GDP.
In the second equation, when taking into account fixed-time effects, the F-statistic of
178.71 shows that predictors are significantly related to the dependent variable
DT_GDP. Moreover, the multiple regression model is significant (R2=0.95), meaning
that 95% of the variation in the DT_GDP is explained by the independent variables,
while 5% is explained by variables outside the model. Results indicate that an
increase of 1,000 units in PIT and CIT generate the increase of DT_GDP with 86
units and 70 units, respectively.
Based on the results above, the null hypothesis is rejected and the alternative
hypothesis is accepted, hence there is a positive significant impact on direct taxes
ratio.

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Model 2
In the first equation, the results show that the multiple regression model is significant
(R2=0.94), meaning that 94% of the variation in the DT_GDP is explained by the
independent variables, while 6% is explained by variables outside the model. The F-
statistic of 199.95 shows that predictors are significantly related to the dependent
variable. The regression estimation reveals the existence of a positive relationship
between DT_GDP and the independent variables PIT and CIT. Namely, the
coefficient of 0.0636 indicates that an increase of 1% in personal income rates leads
to an improvement of 6.36 percentage points in DT_GDP. Hence, a 1,000-unit rise
in PIT will determine a 27-unit rise in DT_GDP.
In the second equation, when taking into account fixed-time effects, the multiple
regression model is significant (R2=0.95), meaning that 95% of the variation in the
DT_GDP is explained by independent variables, while 5% is explained by variables
outside the model. Also, the F-statistic of 158.90 shows that predictors are
significantly related to the dependent variable DT_GDP. Results indicate that an
increase of 1,000 units in PIT and CIT determine an increase of 59 and 25 unites
respectively in DT_GDP.
hypothesis is accepted. Therefore, one can state that there is a positive significant
impact on direct taxes ratio.
Estimates on the relationship between personal income tax rates (PIT), company
income taxes rates (CIT), value added tax rates (VAT) and indirect taxes ratio
(IT_GDP) are presented in Table 3.
Table 3. Estimations of the relationship between personal income tax rates (PIT),
company income taxes rates (CIT), value added tax rates (VAT) and indirect taxes
ratio (IT_GDP) via econometric models
Model 3
Constant 9.549861*** 9.080494***
(8.960030) (8.272872 )
PIT 0.016577 -0.032218***
(0.834870) (-3.407445)
CIT -0.022039** -0.024255
(-2.170878) (-1.246451 )
VAT 0.230599*** 0.319192***
(6.282698) (7.515658)
Prob.>F 0.000 0.000
F-statistic 106.8243 94.26499
Cross-section effects Fixed Fixed
Time fixed effects No No
R2 0.905440 0.923208
Observations 390 390
Note: The dependent variable is IT_GDP in model 3 for country “i” in the “t” year.
Robust t-statistics are shown in parentheses.*, **, *** indicate statistical significance
at 10%, 5% and 1% levels. Prob.>F is the probability of the model not including fixed

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effects. For all estimated models, the hypothesis of multicollinearity is investigated

using the variance inflation test (VIF). In all cases, the VIF values are lower than 3,
thus indicating low risk of multicollinearity.
Model 3
In the first equation, results show that the multiple regression model is significant
(R2=0.90), meaning that 90% of the variation in the IT_GDP is explained by the
statistic of 106.82 shows that predictors are significantly related to the dependent
variable. The regression estimation reveals a positive relationship between IT_GDP
and the independent variables PIT and VAT, and a negative relationship between
IT_GDP with CIT. The 0.83 robust t-statistic for PIT indicates statistical non-
significance. The t-statistic for CIT indicates a statistical significance at the 5% level.
For VAT, the robust t-statistic of 6.28 indicates a statistical significance at the 1%
level.
regression model is significant (R2=0.92), meaning that 92% of the variation in the
IT_GDP is explained by the independent variables, while 8% is explained by
variables outside the model. Also, the F-statistic of 94.26 shows that predictors are
significantly related to the dependent variable IT_GDP. The -3.40 robust t-statistic
for PIT indicates statistical significance at the 1% level. The t-statistic for CIT
indicates statistical non-significance. For VAT, the robust t-statistic of 7.51 indicates
statistical significance at the 1% level.
hypothesis is accepted. Hence, there is a positive significant impact on indirect taxes
ratio.
Table 4. Estimations of the relationship between company income taxes ratio

(CIT_GDP), direct taxes ratio (DT_GDP), indirect taxes ratio (IT_GDP), personal
income taxes ratio (PIT_GDP), value added taxes ratio (VAT_GDP) and taxes
received by level of government ratio (TaxGov) via econometric models
Model 4
Constant 0.185795 -0.161525
(0.283610 ) (-0.232168 )
CIT_GDP -0.053956 -0.119717**
(-1.143370) (-2.306637)
DT_GDP 0.926486*** 0.952157***
(35.73693) (35.89451)
IT_GDP 0.80750*** 0.815418***
(14.33130 ) (14.12796)
PIT_GDP -0.022980 -0.025158
(-1.312020) (-1.425909)
VAT_GDP 0.141440 0.16457*
(1.531285 ) (1.755842)
Prob.>F 0.000 0.000
F-statistic 1615.111 1222.300
Cross-section effects Fixed Fixed

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Time fixed effects No No

R2 0.993577 0.993937
Observations 390 390
Note: The dependent variable is TaxGov in model 4 for country “i” in the “t” year.
Robust t-statistics are shown in parentheses. *, **, *** indicate statistical significance
at 10%, 5% and 1% levels. Prob.>F is the probability of the model not including fixed
effects. For all estimated models, the hypothesis of multicollinearity is investigated
using the variance inflation test (VIF). In all cases, the VIF values are lower than 3,
thus indicating low risk of multicollinearity.
Model 4
In the first equation, results show that the multiple regression model is significant
(R2=0.99), meaning that 99% of the variation in TaxGov is explained by the
statistic of 1,615.11 shows that predictors are significantly related to the dependent
variable. The regression estimation reveals that a positive relationship exists
between TaxGov and the independent variables DT_GDP, IT_GDP and VAT_GDP.
Moreover, TaxGov has a negative relationship with CIT_GDP and PIT_GDP. The -
1.43 robust t-statistic for CIT, the -1.31 t-statistic for PIT_GDP and the 1.53 t-statistic
for VAT_GDP indicate statistical non-significance. Moreover, the 35.73 t-statistic for
DT_GDP and the 14.33 value for IT_GDP indicate statistical significance at the 1%
level. For VAT, the 6.28 robust t-statistic indicates statistical significance at the 1%
level.
regression model is significant (R2=0.99), meaning that 99% of the variation in
TaxGov is explained by the independent variables, while 1% is explained by
variables outside the model. The F-statistic of 1,222.30 shows that predictors are
significantly related to the dependent variable TaxGov. The -2.30 robust t-statistic
for CIT shows statistical significance at the 5% level. The -1.42 robust t-statistic for
PIT_GDP indicates statistical non-significance. The 1.75 robust t-statistic for
VAT_GDP shows statistical significance at the 10% level. The 35.89 t-statistic for
DT_GDP and the 14.12 t-statistic for IT_GDP indicate significance at the 1% level.
Based on the results presented above, the null hypothesis is rejected and the
alternative hypothesis is accepted. Hence, one can conclude that there is a positive
significant impact on taxes received by level of government ratio within the analyzed
country pool.
4. Conclusion and recommendations
This paper investigates the existence of a high fiscal pressure on a country sample
pool including members of EU-28, Iceland and Norway, based on the linear
relationships between government revenues and income taxes. Analyses do not
consider a particular threshold level of taxes received by level of government as a
percentage of GDP when assessing fiscal pressure but they explore the impact of
direct and indirect taxation, as well as of other taxation rates.

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Firstly, empirical results indicate a linear relationship between the direct taxes ratio,
personal income tax rates and company income tax rates. In this situation, a small
increase in these taxation rates can trigger government insolvency and delay the
efforts to achieve fiscal sustainability.
Secondly, another interesting result is the significant positive link between indirect
taxes as percentage of GDP, company income tax rates and the value added rates
within the country sample.
Thirdly, analyzed countries amass rather consistent tax revenues levied by central
governments, ranging between 10% and 45% of GDP, while also registering a strong
dependence of direct and indirect taxation. Therefore, policy makers need to improve
the management of national fiscal pressure in order to foster economic growth, so
that the taxes received by level of government remain at a stable level.
Finally, one could observe that results indicate correlations between the direct taxes
ratio (dependent variable), personal income tax rates and company income tax rates
(independent variables), meaning that direct taxes increase in the same time as labor
and company taxation. From the investors’ point of view, an increasing fiscal
pressure diminishes future investments. From the employees’ point of view, an
increasing fiscal pressure diminishes purchasing power.
The present study recommends the following measures concerning the fiscal
pressure management:
 optimizing budgetary resources by increasing tax collection;
 ensuring an adequate management by efficiently allocating budgetary
resources for investment and creating new jobs – the latter measure would
increase the collection of direct taxes levied on labor;
 providing tax incentives to investors who create new jobs and introduce new
technologies into production.
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External Pressure or Domestic Choice? Social Policy and Administration (2019).
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Light of Tax Law Complexity and the Relationship between Authorities and
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59(1), 97-106 (2012a).
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Economies: The Role of Regulatory Context and Corporate Taxation.
International Business Review 28(1), 36-47 (2019).
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Public Economic Theory, 21(1), 81-97 (2019).
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European Union Politics (2019).
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Analysis used in the IT Enterprises. The Annals of the University of Oradea.
Economic Sciences XIX, 600-603 (2010).
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Government Performance in Times of Crisis. Local Government Studies 45(1),
64-100 (2019).
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Compliance Behavior. Annals of the University of Oradea. Economic Sciences
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databases/macro-economic-database-ameco/ameco-database_e

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FISCAL RISK OF VAT UNCOLLECTED IN EUROPEAN UNION
PORUMBOIU Adriana Elena1, BUTU Ionela1, GHETU Raluca1, BREZEANU

Petre2
1
Doctoral School of Finance, Bucharest University of Economic Studies, Bucharest,
Romania
2
Phd Professor, Department of Finance, Bucharest University of Economic Studies,
Bucharest, Romania
adriana_porumboiu@yahoo.com
ionela_butu@yahoo.com
gheturaluca93@yahoo.com
petre.brezeanu@fin.ase.ro
Abstract: Since 1967, the 6 states that then formed the European Economic
Community (EEC) decided that value added tax (VAT) would be the most important
indirect tax of the Member States. Moreover, its use by the countries wishing to join
the EEC was an indispensable condition. In 2019, VAT is a tax used by all 28
European Union (EU) Member States, but the system for collecting public revenues
from this tax is not a perfect one and it can be improved. EU intervention in the area
of taxation is limited because the fiscal policy of each Member State continues to be
an attribute of national sovereignty. Through the directives, the European
Commission sets measures valid for all countries (such as the minimum level of the
standard VAT rate set at 15%), but each EU state decides on the national system of
taxes and duties. The fiscal policy registers differences from one state to another
and therefore provides different results in terms of performance. This article aims to
highlight the link between the VAT collection deficit and the standard VAT rate
applied in each of the EU countries. The analysis showed that the countries with the
lowest VAT rates are also the ones with the lowest losses in VAT collection. The
biggest deficits are encountered among the states with average VAT rates,
especially in the east and south of the EU. Romania and Greece lose about a third
of the VAT revenues, and the loss is all the more obvious as the share of VAT in the
total tax receipts is higher than in Western EU states, for instace. After all, any loss
harms the tax system and indirectly the society. We also mention that the data used
in this analysis are those published in September 2019 by the European Commission
through TAXUD and also provided by Eurostat databases and refer to 2017.
Keywords: value-added tax; VAT Gap; VAT revenue; standard VAT rate.
JEL Classification: H26; H71.
1. Introduction
A strict control, at national level, of the income and assets/wealth of each individual
taxpayer - natural and legal person - is a utopia. The collection of taxes due to the
state budget as a result of such control would rather emphasize the coercive force
of the state within the society, as opposed to the increasingly studied idea of "
voluntary tax compliance" (Pomeranz, 2015).

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Complying with tax laws is indeed a civic obligation. However, the nominal value of
the taxes owed depends on the accuracy and completeness of the taxpayer's tax
returns. As the fiscal obligation affects the budget of the taxpayer, there is a well-
known, intuitive possibility for the latter to make a misreporting.
From this perspective, we can see that the struggle for voluntary compliance takes
place on several levels, not only strictly fiscal, but it is a complex process with social
and psychological implications. In addition to the measures of the public
administration to combat evasion, there is talk of forming a conscience of the
taxpayer, a "tax morale" (Luttmer and Singhal, 2014) that dictates to him a
responsible fiscal behaviour. The authors claim for the need to create non pecuniary
motivations, capable of determining within taxpayers a uniform behaviour of
compliance, so a social norm of compliance.
2. The situation of VAT collection in EU countries (2017)
As stated in the literature, public financial resources ensure the needs of the social
environment (Anghelache et al, 2018). Therefore, the failure to achieve the
expected level of tax revenues is not only a loss of the state as an institution, but is
a loss of the whole society in general, of each member of it in subsidiary.
The inefficiency of collecting taxes leads to a lower state budget than estimated,
hence the difficulty in financing specific activities. The greater the deficit of tax
collection on the budget, the greater the need for the state to find alternatives to
cover the expenses. Perpelea and Perpelea (2018) state that in such situations, the
simplest solutions to ensure the financial need at the state level are: "increasing the
level of existing taxes, introducing new taxes or state loans". Of course, the
immediate effect of these measures is positive, that of obtaining the funds, but in
the long term, not properly managed, it turns out to be an unintended participation
of the state in the phenomenon of tax evasion and tax avoidance. The increase of
the amount of taxes, the state loans, regardless of the market from which they were
accessed, only lead to the distrust of the taxpayers in the fiscal policy of the state
and in the latter ability to efficiently cover its expenses.
The European Union supposes a customs union that allows the movement of goods
and services internally without applying additional tariffs. However, this facility was
also used for the purpose of avoiding tax payment. In this sense, at European level
there is a VAT fraud of carousel type (Sergioiu, 2012). Although the phenomenon
exists as well at the national level of member states, its presence in the EU implies
effects on all countries, a complex network (that’s why it is even more difficult to
monitor and destroy), huge amounts of unpaid VAT.
In EU, for 2017, the situation of the VAT deficit and the standard rates applied for
this indirect tax in each member state is illustrated in the following graph.
The lowest VAT rate in EU can be found in Luxembourg (17%) and the highest in
Hungary (27%). This information emphasizes that the range regarding standard
VAT rates in EU is not high and "represents a step towards harmonization" (Vlad et
al., 2018).

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40
35 Romania
Greece
30
25 Lithuania
VAT defficit (%)
Slovakia Italy
20
15 Latvia
Poland Hungary
Czechia Ireland
Bulgaria
Belgium
10 United
Germany Kingdom Portugal
Austria FinlandCroatia
France Denmark
5 EstoniaNetherlands
Slovenia
Spain
Malta Sweden
0 Luxembourg Cyprus
16 17 18 19 20 21 22 23 24 25 26 27 28
standard VAT rate (%)
Figure 1: VAT Gap (%) correlated with VAT standard rates (%) in EU (2017)
Source: own representation, based on data provided by 2019 TAXUD Report.
Nevertheless, VAT collection difficulties were faced by all the member states and
led to different results in terms of VAT collection deficits in 2017, from 0.6% in
Cyprus to 35.5% in Romania.
The first remark we can make from this graph is that the smallest deficits were in
the countries with lowest VAT rates - between 17% and 19% (Cyprus, Luxembourg,
and Malta registered VAT Gaps less than 2%). At the other pole, the biggest VAT
collection deficits were not recorded by the countries having the highest VAT rates
in the EU, as we might think. Croatia, Sweden, Denmark or Hungary, each with a
standard VAT rate of 25% or more, were not in the top of VAT gaps, their deficits
were below 15%. Therefore, we cannot infer that there is a directly proportional
relationship between the two elements analyzed, VAT rate and VAT Gap.
The countries with the highest levels of VAT Gap were Romania and Greece, with
values exceeding 30%, followed by Lithuania, Italy, Slovakia, with values between

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20% and 30%. The standard VAT rates of these states were closer to the European
average and were in the range of 19% - 24% in 2017.
The graph also shows that among the VAT rates practiced, the 19% and 24% ones
seem to be the most controversial, with extreme deficits. Using a VAT rate of 19%
in 2017, Romania had a deficit of 35.5%, while Germany 9.9% and Cyprus only
0.6%. Similarly, with a 24% standard rate, Finland had a deficit of 7.4%, when in
Greece 33.6% of VAT revenues were going missing.
Romania's VAT collection deficit, with a value of 35.5% of the total value of VAT
estimated revenues, remained in the first position in the EU regarding the VAT non
collected. Compared to countries such as Cyprus or Luxembourg which have lost
less than 1%, or compared to the EU average of 10.1%, Romania lost from its VAT
returns 34%, 25% respectively more.
Tax revenues in the countries of Central and Eastern Europe (including Romania)
are based on indirect taxes, especially on VAT (Ibadula et al., 2017). Therefore, a
large deficit in VAT collection, as in the case of Romania, where it exceeded one
third of the total VAT expected, has an even more pronounced impact as the share
of VAT revenues in the total tax revenues is higher.
Table 1 summarizes the data used to calculate the shares illustrated, data that were
taken from both TAXUD report and Eurostat databases. The amounts are expresed
in national currency and refer to 2017.
Table 1 - VAT standard rate (%), VAT Gap (%), VAT Gap, Fiscal Revenues, VTTL
and Potential Fiscal Revenues (EU, 2017)
VAT Potential
Country VAT Fiscal
standard VAT Gap VTTL Fiscal
code Gap (%) Revenues
rate (%) Revenues
BE 21% 11.80% 30254.7 139820.1 33759 143816.1
BG 20% 11.80% 9121.3 21646.23 10344 22868.23
CZ 21% 12.40% 387537 1026808 442353 1081624
DK 25% 7.40% 207767.9 1008136 224395 1024763
DE 19% 9.90% 226582 779439 251598 804455
EE 20% 5.40% 2148.71 5104.26 2270 5226.26
IE 23% 12.70% 13059.92 56092.63 15215 58030.63
EL 24% 33.60% 14642 48861 22041 56260
ES 21% 2.40% 73970 260335 75913 262141
FR 19.60% 6.90% 161932 685168 173962 697198
HR 25% 6.60% 48250.9 94932.9 51831 98361.9
IT 22% 23.8% 107576 504910 141530 538539
CY 19% 0.60% 1851.4 4963.1 1862 5050.1
LV 21% 15.10% 2163.7 6121.38 2549 6506.38
LT 21% 25.30% 3310.4 7288.93 4429 8407.93

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VAT Potential
Country VAT Fiscal
standard VAT Gap VTTL Fiscal
code Gap (%) Revenues
rate (%) Revenues
LU 17% 0.70% 3434.9 15312.76 3492 15335.76
HU 27% 13.90% 3626566 9908427 4210262 10493579
MT 18% 1.60% 810.19 3012.96 823 3043.96
NL 21% 5.2% 49833 183688 52644 186432
AT 20% 7.9% 28299.79 100921.9 30748 103365.9
PL 23% 13.7% 154656 423937 179194 448475
PT 23% 10.3% 16809.45 48890.38 18738 50819.38
RO 19% 35.5% 53228.6 141387.9 82528 170686.9
SI 22% 3.5% 3481.73 9432.27 3606 9560.27
SK 20% 23.2% 5918.74 16383.68 7708 18174.68
FI 24% 7.4% 20404 69985 22026 71607
SE 25% 1.5% 425053 1912945 431357 1919249
UK 20% 10.6% 142655 565047 158421 581878
Source: TAXUD Report and Eurostat databas.The following graph shows the share
of VAT revenues in the total tax revenues of each EU member. We note that in the
case of Croatia most of the tax revenue consists of VAT collection, with a share of
approximately 51% in the total tax revenue. Among the countries the most affected
of the VAT deficit, Lithuania, Slovakia, Romania and Greece have 30% or more of
their total tax receipts based on VAT. Therefore, a poor VAT collection has a grater
impact in country’s fiscal revenues.
The Figure 2 expresses the share of the total value of the VAT, if it had been
collected at the level estimated by each EU state, in the total of the tax revenues,
all the other sources of tax receipts remaining unchanged. VTTL designates VAT
Total Tax Liability. There is a considerable increase compared to the representation
in the previous graph, except for Cyprus, whose VAT deficit, if collected, would not
have led to a higher share of VTTL in tax revenue. For Romania and Greece, the
countries with the largest deficit, a complete collection of VAT would have generated
a higher VAT share in tax revenues with 10.7 percentage points, respectively 9.2
percentage points.

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Figure 2: VAT revenues in total tax receipts / EU Member State (2017)

Source: own representation, based on data provided by Eurostat databases.
60%
50%
40%
30%
20%
10%
0%
BE CZ DE IE ES HR CY LT HU NL PL RO SK SE
Figure 3: VTTL in potential tax receipts / EU Member State (2017)
Source: own representation, based on data provided by Eurostat databases.
The main sources of VAT deficits are reviewed by the European Commission: the
level of voluntary tax compliance, fraud, avoidance, bankruptcy, insolvency or an
imperfect tax administration system. Apparently, these notions seem to be very

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different, but the VAT Gap actually comes from the chaining of these processes:
from the use by the taxpayers of the legislative deficiencies, of the procedural gaps
regarding the tax administration, by adopting an evasive behaviour.
Specifically, the procedures by which the VAT payment is avoided are listed by
Ciobanu (2019): undeclared or registered sales accounting with a lower value than
the real one, false invoices or the use of the same invoice several times to obtain
unmerited deductions, use the exemptions provided by law without these being
applicable, the deliberately erroneous registration of certain amounts that may
change the amount due to the state budget.
3. Conclusions
The most important conclusion that emerges from the analyzed chart is that the
level of the standard VAT rate does not guarantee the deficit in a certain interval.
However, the EU Member State’s experiences show that a reduced VAT rate also
implies a lower risk of losing revenue from this source. Greatest deficits are
encountered by the countries having fiscal revenues based especially on VAT.
The need to reduce the VAT Gap is even greater as VAT is a major source of tax
revenue collection, as we presented in the last two graphs.
If the level of standard VAT rates does not decisively influence the VAT Gap, it
means that the deficits are the result of the interaction of several factors, such as:
organization of the tax administration system, events in the life of companies with
an impact on the VAT collection - bankruptcy, insolvency, the extent of tax fraud,
VAT exemptions used abusively, factors that deserve to be studied separately.
As we mentioned, the VAT collection deficit is not a mere loss of the state.
Underneath it can hide a system of deficient collection, a distrust of the taxpayers
in the role of the tax system or an intention of certain companies to generate profits
to the detriment of social welfare.
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Economică, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol.

69(4), pp.118-128
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New Approaches", Finanțe - provocarile viitorului (Finance - Challenges of the
Future), University of Craiova, Faculty of Economics and Business Administration,
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Accounting and Management, vol.2, no. 2
13. TAXUD/2015/CC/131, Study and Reports on the VAT Gap in the EU-28 Member
States: 2019 Final Report
14. Vlad, C., Ibadula, B., Brezeanu, P. (2018), "Tax Harmonization in Fiscal
Competitiveness Context", Finance–Challanges of the Future, University of Craiova,
Faculty of Economics and Business Administration, vol.1(20), pp. 45-52
15. www.ec.europa.eu

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CHALLENGES IN THE FINANCIAL MANAGEMENT OF THE PUBLIC PENSION

SYSTEM IN ROMANIA
SZARKA Arpad
Partium Christian University, Oradea, Romania
szarkaarpad@yahoo.co.uk
Abstract: The paper presents the impact of tax measures beginning in 2016 as
regard to the frequent increase of the gross minimum salary, reduction of social
insurance rates, the increase of the country's average gross incomes, as well as to
changing the social insurance contribution support by employees only. The
implementation of the governmental plan to move from a deficit budget strategy of
public social insurance to one with a surplus budget, in the context of significant non-
supplementation of the number of taxpayers, represents a crucial factor for new
challenges of the financial management of the public pension system in Romania.
The results are planned to be seen by 2021 and consist of the continuous increase
of the minimum and average nominal pension value, in the context of modernizing
the system and eliminating inequalities between different categories of retirees
covered by the new pension law.
Keywords: Public Pension; Retirement Pension; Social Security; Budget Systems.
JEL Classification: G22; G20; H30; H55; H61.
1. General background of public pension system in Romania
In order to ensure the material and financial needs throughout the lives of the
population exposed to known social risks, the Constitution of Romania stipulates in
Article 47 that “[t]he state shall be bound to take measures of economic
development and social protection, of a nature to ensure a decent living standard
for its citizens... Citizens have the right to pension...
With this in mind, the aim of the social security system in Romania, in the words of
the authors of the book Public Finance is the following “public social security are
meant to play an important role in maintaining and increasing the living standards
of citizens” and the public pension system is an essential building block (Văcărel et
all, 2007).
The right to social security is guaranteed by the State and is exercised based on the
statutory regulations regarding the unitary public pension system which is organised
and managed with the help of all major players in the economic, social and even
political life, based on the following principles:
• The principle of uniqueness: the State organises and guarantees public pensions
system based on the same rules of law for all participants in the system;
• The principle of obligation: private and public persons are required to take part in
the public pension system, and the right to social security is exercised correlatively
with the fulfilment of obligations;
• The principle of contribution: social security funds are created based on the
contributions owed by those who participate in the system (Grigorie-Lăcrița, 2005).

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• The principle of equality is to be ensured to all participants, tax payers and

beneficiaries, based on non-discriminatory treatment for all persons of the same
legal situation regarding their rights and obligations;
• The principle of social solidarity: participants to the public pension system assume
mutual obligations and are granted the same rights to prevent, limit or terminate
social security risks;
• The principle of allocation: according to it social security funds are redeployed for
payment of obligations that are to be assigned to the public pension system.
The public pension system is strongly influenced by both the negative effects of the
present demographic shift and its future change which constitutes a fundamental
factor regarding foreseeable medium-term and long-term mutations especially as
far as the number and the structure of the beneficiaries of the system are concerned
with regard to the increase of life expectancy and the degree of the ageing of
population as well as the decrease of the working population and that of birth rate.
Eurostat estimates that by 2070 in Romania life expectancy of men at birth will have
increased by 12 years, i.e., to 83 years and 6 months, and that of women by 10
years, i.e., the average age will be 88 years and 3 months, which indicates the need
of an adequate medium-term and long-term strategic management in order to
ensure the sustainability of the public pension system in Romania as well as that of
the alternative/complementary ones tailored to the needs and interests of the
involved persons, the beneficiaries, insured persons, employers, etc.
2.The management of the public pension system
The aim of the Romanian Government in the 2017-2020 Governing Programme is

“[t]o increase the living standard of every citizen of Romania [...] an inclusive labour
market and reduce inequalities through promoting coherent and realistic public
policies which are to determine decent incomes devoid of discrimination.”
The strategic objectives in the area of labour and social justice target:
• employment growth of the working population to 70% until 2020 that would be able
to sustain the growth of a competitive economy based on the annual growth in
revenues, increase of gross minimum salary as well as the alleviation of shortage
of jobs and the asymmetry of the income curve
• implementation of an adequate, equitable, and sustainable pension system which
in 2021 is to reach an average turnover of income of circa 36.6%, which is to ensure
decent and equitable living, non-discrimination, as well as the equality of
opportunities for retirees in accordance with the principles established in both
national and international applicable legal regulations.
Awareness and correct appraisal of economic, financial, social, as well as political
phenomena and processes renders it necessary to improve the present
management of public pension system which through its actions should perform so
as to meet the expectations of population to increase living standards as it is
highlighted by the authors of Management, ADVENS as well: “Management is one
of the essential factors that explains why a country is rich or poor” (Farmer, R. 1988
in Nicolescu & Verboncu 1999).

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The main objective of the management of the public pension system must be sound
organization and operation of the system which is to be able to ensure the financing
of the system and the ensure insured persons/beneficiaries of the system the ability
to exercise their rights and obligations in order to reach and maintain a decent
standard of living in the present as well as in the future.
The challenges the financial management of the public pension system in Romania
has to face, especially as a consequence of the fiscal measures initiated with the
amendments to the Fiscal Code in 2016, are based on determining factors of
evolution of the rights of beneficiaries; of the number of beneficiaries/retirees/the
amount of the pension, as well as those ensuring the sustainability of the public
pension system from a financial point of view; the change of number of insured
persons/insured income/earnings; of the amount of state social security
contributions; the developments in the labour market, as well as the influence of the
mode of operation of the alternative/complementary pension systems, etc.
The management of the public pension system is provided by the Ministry of Labour
and Social Justice as well as central government institutions under the ministry’s
authority, especially the National House of Public Pensions and the decentralized,
county institutions under its authority in collaboration with the Ministry of Public
Finance, Financial Supervisory Authority as well as other institutions with
attributions in the field.
3. The evolution and current state of the major influencing factors of the public
pension system in Romania
In the past years the following tendency has been noticeable: decrease of the total
number of retirees showing oscillating changes in their typology: increase of number
of normal retirements and decrease of retirement based on invalidity. At the end of
2018, the total number of retirees was 5,009,497 persons, 0.8% less, i.e., 39.204
persons less than in the corresponding period of 2017.
Of the total number of retirees, 4,690,199, i.e., 93.6% were state social security
retirees, while 319,298 persons, i.e., 6,37% were agriculture retirees (Statistical
Bulletin 2018, Pensions and state social security).
Public social insurance retirees

At the end of 2018, as compared to 2017, the total number of state social security
retirees was smaller by 1,453 persons due to the decrease of the number of
invalidity retirees and the increase of that of normal retirement. Average state social
security pension was 1,180 RON, increased by 109 RON. Average old-age pension
was 1,340 lei, with an additional 119 lei more than in 2017.
In December 2018 of the total number of state social security retirees, 45.49% had
pension not exceeding 1,000 RON, while the average state social security pension
represented 23.90% of the average gross salary (4,938 lei), i.e., 39.91% of the net
average earnings (2,957 lei), lagging behind the demands of 45% from social
partners.

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Figure 1. Evolution of state social insurance

Source: Statistical Bulletin 2018, www.mmuncii.ro
Figure 2. The evolution of the average pension by categories of retirees

Source: www.cnpp.ro, own edited
The number of retirees from the agriculture sector has been decreasing for the past
two decades and continues to do so. At the end of 2018 it presented the following
structure: of the total number of 319,298 retirees, 91.73% are retirements due to old

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age, 0.41% are invalid, and 7.86% have survivor’s pension. The average pension
was 487 lei, while that for old-age was 510, which is 47 lei more than in December
2017.
Figure 3. Retirees from the past social security system for farmers 2006-2018
Source: www.cnpp.ro ,own edited
Figure 4. The minimum social pension between 2009 - 2019

Source: www.cnpp.ro , own edited
The number of persons to receive minimum social allowance (former minimum

social pension) has witnessed a significant increase in the past 10 years due to
mainly having attained low parameters of factors that are taken into consideration

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when establishing the amount of pensions, thus: low level of earnings/taxable

earned income, retirement contributions inferior to retirement benefits up to date.
Since the introduction of the minimum social pension between 2009 and 2019, the
amount of this benefit has been constantly increasing:
At the end of 2018 the total number of insured persons was 5,151,127 people, of
which 43,649 people had social insurance contract, and the average gross income
was 4,512 RON. (National House of Public Pensions)
Table 1: Second-Pillar Private pensions

from which:
Year Total
employer employee
2001 35% 23.33% 11.67%
2002 35% 23.33% 11.67%
2003 34% 24.50% 9.50%
2004 31.50% 22.00% 9.50%
2005 31.50% 22.00% 9.50%
2006 29.15% 19.65% 9.50%
2007 29.00% 19.50% 9.50%
2008 29.00% 19.50% 9.50%
2009 31.30% 20.80% 10.50%
2010 31.30% 20.80% 10.50%
2011 31.30% 20.80% 10.50%
2012 31.30% 20.80% 10.50%
2013 31.30% 20.80% 10.50%
2014 26.30% 15.80% 10.50%
2015 26.30% 15.80% 10.50%
2016 26.30% 15.80% 10.50%
2017 26.30% 15.80% 10.50%
2018 25.00% 0.00% 25.00%
2019 25.00% 0.00% 25.00%
Source: www.mmuncii.ro ,own edited.
The analysis of the social insurance rate in the period of 2001-2019 shows a
tendency of decrease in the first period until 2009 when the rate grew by 2.30
percentage points, from 29% reaching 31.30% with 1.3 percentage points being
sustained by employers, while employees bore 1.0 percentage point. Starting with
2014, following a period of 5 years of stagnation of National Health Insurance (NHI)
contributions, a significant decrease is to be noticed both on the whole and the lower
levels: a drop of 5.0 percentage points of NHI contributions, thus reaching 26.30%
the NHI contributions for employees having been maintained at 10.5 percentage
points. Starting with 2018, following fiscal measures, the NHI rate drops to 25.00%
and is to be contributed entirely by the employee, while the calculation and payment
of the amount remains in charge of the employer. In case of persons insured based

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on insurance contracts as well as those with statement of assurance, the employer-

employee cumulative NHI rate is to be applied.
The alternative/complementary system of II Pillar of Pension Funds under private
administration influences the public pension system through handing over to insured
persons who have joined the II Pillar of a rate of social security contributions owed
to the public pension system in order for these funds to be managed in private
system so as to achieve a high private pension. Following the introduction of II Pillar
in Romania, its use shows an increasing trend, with a total of 7,274,865 insured
persons at the end of 2018, i.e., 199,352 more persons as compared to 2017. Most
participants in the private pension system are persons aged between 25 and 45,
i.e., 4,975,345 people. (National House of Public Pensions).
Figure 5. Average Euro contribution to II Pillar of the participants during, December

2017- Dec. 2018
Source: www.cnpp.ro , own edited
The evolution of average gross salary used to substantiate state social security
budget.
In 2019 the average gross salary used to substantiate state social security budget
was 5,163 lei.

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Figure 6. Evolution of minimum and average salary of country

Source: www.mmuncii.ro , own edited
Employment rate of population

In 2018 the working population of Romania was 9,069 thousand people of which
8,689 thousand were employed while 380 thousand were unemployed.
*Including the armed forces and related departments as well as people who work in
the informal sector and on the black market.
**Other categories of employed individuals: owners, self-employed, contributing
family workers and members of agricultural associations or cooperatives.
Figure 7. The employment rate of the population able to work
Source: www.mmuncii.ro , own edited

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In 2018 the employment rate of the population able to work (age 15-64) was of
64.8%, while the employment rate of persons aged between 20-64 was of 69.9% as
opposed to the aim of 70% established in light of Europe 2020 Strategy.
Unemployment rate decreased from approximately 4.9% to 4.2%, i.e., 0.7% less
than the previous year.
4. Conclusion
Having in mind the factors that influence the public pension system, the
management of this system must have in mind continuous sustainability taking into
account the following findings:
• In the course of 2018 proceeds from contributions to social security increased
by 19.1%, exceeding by 1% the growth of the gross salary at national level due
to the increase of the number of insured persons, mainly employees, and those
with statement of assurance, while witnessing a slight decrease of insured
persons based on insurance contract; to the increase of the guaranteed
minimum income, to the gross average earnings mostly in the budgetary
sector.
• The amounts transferred from the state social security budget to the II Pillar of
pension were in total 7.1 billion lei which constituted 99.3% of the annual
program estimated for the II Pillar of pension.
• According to the budgetary provisions for 2019, the state social security budget
associated to the public pension system registers revenues of 71,662,090
thousand lei, while expenses are 68,761,379 thousand lei, expecting a surplus
of 2,900,711 lei both in the case of commitment appropriations and budget
appropriations.( Law on State Social Insurance Budget for the year 2019)
• The financial sustainability of the public pension system is based on the
increase of the revenues from state social security projected for the interval
between 2017-2022 the main resource of which is the steady and significant
increase of the gross domestic product from 856.7 billion lei achieved in 2017
to 1,261.5 billion lei in 2022, the projected increase being of 47.25% (National
Commission for Strategy and Prognosis, 2019 Winter Prognosis).
• There are still perspectives for financing the II Pillar of Pension and the
implementation of the new law on public pensions which through its
amendments, especially the new algorithm for calculating the pensions, will
surely achieve an equity and a superior level of benefits to all retirees and
insured persons of the public pension system in Romania.
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References
1. Farmer,R. (1988) Advances in international comparative management,
Business & Economics , Jai Press
2. Grigorie-Lăcrița, N. (2005) Sistemul de pensii bazat pe contribuții și venituri
corelate, Editura Economică, București
3. Nicolescu,O., Verboncu,I. (1999) Management, Editura Economică, 3rd edition
rewieved, București
4. Văcărel,I.,Bistriceanu,Gh.D., Bercea,F et all.(2007) Finanțe publice, Editura
didactică și pedagogică, R.A. 4rd edition, București
5. *** Casa Națională de Pensii, [online],Available www.cnpp.ro [18 mar 2019]
6. *** Comisia Naţională de Strategie şi Prognoză, Prognoza de iarnă 2019,
[online],Available
http://www.cnp.ro/user/repository/prognoze/Prognoza_2018_2022_varianta_de
_iarna_2019.pdf [04 apr 2019]
7. ***Constituția României, art. 47. Nivelul de trai, [online],Available
http://www.cdep.ro/pls/dic/site2015.page?den=act2_1&par1=2#t2c2s0sba47
[02 mar 2019]
8. ***Codul Fiscal 2016, [online],Available,
https://static.anaf.ro/static/10/Anaf/legislatie/Cod_fiscal_norme_2016.htm [20
mar 2019]
9. *** Eurostat, [online],Available https://ec.europa.eu/eurostat [25 mar 2019]
10. *** Legea bugetului asigurărilor sociale de stat pe anul 2019, MONITORUL
OFICIAL NR. 196,/ Law on State Social Insurance Budget for the year 2019/
[online],Available, https://static.anaf.ro/static/10/Anaf/legislatie/L_47_2019.pdf
[20 mar 2019]
11. ***Ministerul Muncii și Justiției Sociale, Buletinul Statistic 2018
[online],Available www.mmuncii.ro [25 apr 2019]
12. *** Programul de Guvernare 2017, București, [online],Available
www.cdep.ro/pdfs/guv201706/Program_de_Guvernare.pdf [20 mar 2019]

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TRADITIONAL VS. FUZZY INDICATORS OF MODERN PORTFOLIO THEORY
VESA Lidia
Doctoral School of Economic Sciences, Faculty of Economic Sciences, University
of Oradea, Romania
lidiavesa@gmail.com
Abstract: This paper offers another perspective upon the well-known indicators of
Modern Portfolio Theory (created by Harry Markowitz): arithmetic mean or geometric
mean for return on financial assets, standard deviation or variance for financial risk,
and covariance or correlation between the assets included in the portfolio. This
perspective consists of modelling these statistical indicators, using the triangular
fuzzy numbers, due to the advantages they have. The first advantage of the fuzzy
approach is the returns on financial assets, and the financial asset risks are
expressed in intervals with minimum and maximum values, called the triangular
fuzzy numbers. This advantage makes the decision of investment more accurate,
especially considering the volatility of financial assets. Using triangular fuzzy
numbers in estimating the returns based on history of trading, can overcame the fact
that past performance is no guarantee for future results, due to the different
possibilities of fuzzification. In this paper, the returns will be fuzzified considering the
mode value (the most frequent value in a given period of time) of the returns from
the past period. This statistical value will help the investors to evaluate the frequency
of the last returns and to estimate the most probably frequent value of the returns for
the next period. So, the estimation, not only the decision, will be more reliable. The
second advantage of using the triangular fuzzy numbers in modelling the financial
return and the financial risk is their membership function, which allows the investors
to evaluate their investments, depending on the membership degree. The returns of
the assets that are closer to the mode return, will be most likely the returns for the
next period. The returns that are closer to the limits of the fuzzy intervals, will be less
probably the returns for the next period. This assumption has its own gap: the market
should have the same conditions as the last period.
Keywords: triangular fuzzy number (TFN); performance indicators; financial return;
financial risk; financial assets.
JEL Classification: G11; G10.
1. Introduction
The portfolio selection theory comes from the assumption that investors seek to
maximize the return while minimizing the risk of investments, and they are willing to
assume a higher risk only if a higher expected return compensates the risk. Based
on this assumption, the investor`s portfolio can be analyzed within two balanced
dimensions: the expected return of the portfolio and the risk of the portfolio. The
expected return is calculated as a weighted mean of the expected individual returns.
The financial risk - synonymous with volatility in Markowitz`s theory - is measured by
these tools: ” (1) calculation of expected return, (2) the variance of an expected

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return; (3) the standard deviation from an expected return, (4) the covariance of a
portfolio of securities, and (5) the correlation between investments ” (Mangram,
2013).
The portfolio diversification was a subject of interest for many researchers.

Markowitz was the author of the portfolio diversification theory or Modern Portfolio
Theory (MPT), which was developed by many following researchers. Sharpe (1964)
built CAPM (Capital Assets Price Model), Samuelson and Merton (1969) used the
stochastic programming in diversification, Watada (1997) proposed the vague goals
of the financial return and risk in portfolio selection. Carlsson et al. (2002) introduced
the trapezoidal fuzzy number as financial returns in portfolio selection; Huang (2006)
determined financial return assets as stochastic variables with fuzzy information and
Liagkouras and Metaxiotis (2018) proposed the use of fuzzy logic for mean-variance
portfolio optimization with transaction costs. (Sun et al., 2019:6).
Using fuzzy logic in Modern Portfolio Theory is a challenging direction for
portfolio optimization, due to the capacity of fuzzy logic to manage the vagueness of
input parameters (expected return and financial risk), in order to minimize the
estimation errors or to avoid the phenomenon of “Markowitz optimization enigma,”
coined by Michaud in 1989 (Marakbi, 2016).
3. Modelling Triangular Fuzzy Financial Asset Return and Risk
Modeling financial assets and risks with triangular fuzzy numbers is due to the
volatility of financial assets that form a portfolio. This volatility of assets determines
different levels of the intensities of financial return and risk: high, low, or uncertain
values of these intensities. In order to analyze the volatility of assets, the first step is
to transform real numbers in fuzzy numbers and to create an adequate membership
function. Thus, financial return and financial risk have to be transformed from the
Markowitz form to fuzzy form.
Definition 1: Let the financial asset return on the financial market be Ra , and let F
[0,1] be the rules set for all fuzzy triangular numbers. The fuzzy number ( Ra ) is
considered the triangular number of the financial asset return: R a  r , r / r  R a
, where r : Ra  [0,1] , if the membership function is the following:
 rx  ra
 1 , for ra  rx  rb
rb  ra
 1, for rx  rb
r  
rc  rx
 1 , for rb  rx  rc
 rc  rb
0, for the values out of the range 0,1

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Definition 2: Let the triangular fuzzy number that defines the financial asset return
be of the form: R a  r , r / r  Ra, for every i  1, n . The set
Ra   Ra  , R a   , for every i  1, n
1 2 is considered the level set of triangular
fuzzy number R a , where:
Ra 1   rb  ra   ra ;
Ra 2    rc  rc  rb  .
Definition 3: Let the financial asset risk on the financial market be ( a ), and let F
[0,1] be the rules set for all fuzzy triangular numbers. The fuzzy number ( a ) is
considered the triangular number of the financial asset risk: a   ,  /  a ,
where  : a  [0,1] if the membership function is the following:
 x  a
 1 , for a  x  b
b  a
 1, for x  b
  
c  x
 1 , for b  x  c
 c  b
0, for the values out of the range 0,1
Definition 4: Let the triangular fuzzy number that defines the financial asset return
be of the form: a   ,  /  a , for every i  1, n . The set
a   a  , a   , for every
1 2 i  1, n is considered the level set of triangular
fuzzy number A , where:
a          ;
1 b a a
a          .
2 c c b
Observation 1: Financial asset return may take values in the range

[rx  r  r  r  rx ] and financial asset risk may take values in the range
[x        x ] , where rx, x  R .
The two triangular fuzzy numbers that characterize the return on asset and
the financial risk are as follows:
R ai  ( rai rbi rci ) , for every i  1, n ;
a  (a b
i i i c ) , for every i  1, n .
i

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4. Modelling the financial expected return with fuzzy triangular numbers
4.1. Traditional versus triangular fuzzy return on financial asset

The financial asset return is a performance indicator that provides information about
the earnings that investors gained over a period. Assuming that no dividends were
paid over the period, the formula of financial asset return is Ra  ( Pt1  Pt 0) / Pt 0
(Chen, 2013), where Pt and P t  1 is the price of the asset in time t and t-1. If
dividends were paid, the formula of financial asset return is
Ra  ( Pt  Pt 0  D1) / Pt 0 , where D1 is dividend at time t. The return of a financial
asset over a time horizon t ( Rai ) can be described as follows:
 t 0 t1 t 3 K tn 
Rai   
 Ra1 Ra 2 Ra3 K Ran 
Proposition 1: The most frequent value of the return in the last period will be
probably the most frequent value of the return for the next period. (if the market
conditions remain the same).
This proposition can be illustrated by the following example:
Example 1: There are two financial assets A1 and A2 , which are included in a
portfolio. The data about their returns in the year N are as follows:
M1 M 2 M 3 M 4 M 5 M 6 M 7 M 8 M 9 M 10 M 11 M 12 
R a 1   
 0 .1 0 .4 0 .6 0 .5 0 .3 0 .7 0 .7 0 .8 0 .7 0 .7 0 .6 0 . 7 
M1 M2 M3 M4 M5 M6 M7 M8 M9 M 10 M 11 M 12 
R a 2   
 0 .5 0 .5 0 .3 0 .4 0 .6 0 .7 0 .5 0 .6 0 .7 0 .8 0 .5 0 .9 
From this data series, the most frequent value of the returns for A1 and A2 is 0.7
and 0.5. However, there are also maximum and minimum values for the returns of
these assets. Considering this volatility, the returns for these assets may be fuzzified
in the triangular fuzzy number as: R a1 = (0.1 0.7 0.8) and R a 2 = (0.3 0.5 0.9). The
minimum value of the fuzzy number represents the minimum value of assets return
in the year N, while the middle value is obtained through the mode function, which
is the most frequently occurring return in the year N. The membership function of
these financial assets A1 and A2 represents the probability degree of return
realization. Because of its frequency, the mode value of the assets represents the
highest degree of realisation, and the margins of the fuzzy numbers represent the
lowest grade of realisation (the probability of obtaining 0,8 for A1 and 0,9 for A2 in

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next period, is very low, because of the frequency of these values). The membership
functions of these fuzzy returns can be described in Figure 1.
Figure 1. The triangular fuzzy number for financial asset returns A1 and A2
4.2. The expected financial asset return (Markowitz`s Theory)
According to Modern Portfolio Theory, the expected financial return “can be viewed
as the historic average of a stock’s return over a given period of time” (Mangram,
2013). The expected return for asset i, using the non-fuzzy number, is calculated by
n
arithmetic mean, E ( R ai )  1 R j , where Rj is the return of the asset i in j -time,
n

j 1
when j  1, n .
Definition 5: The expected value of the return for asset Ai is the medium value of
the triangular fuzzy return R ai  ( r ai r bi rci ) (Luengo, 2010):
rai  4rbi  rci 1 2
Ef Rai    rai  rci   rbi
6 6 3
where: Ef  Rai  - triangular fuzzy expected return for asset i;
rai rbi rci - left, peak, right elements of triangular fuzzy return.
The expected return for the portfolio with Ai assets, where i  1, n , is:
1
Ef  Ra   rai  4rbi  rci 
6
Example 2 (Continuing Example 1):
According to the Markowitz Theory, the expected non-fuzzy returns (means of the
returns in the year N) for assets A1 and A2 are: 0.56 for A1 and 0.58 for A2 .

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The expected fuzzy rate return for the two assets A1 and A2 with financial returns:
R a1 (0.1 0.7 0.8) and R a 2 (0.3 0.5 0.9), considering the above formulas, are:
1
Ef  Ra1  ra1  rc1  2 rb1  1 0.1  0.8  2 0.7  ( 1 0.9  2 0.7)  0.62
6 3 6 3 6 3
1 2 1 2 1 2
Ef Ra2  ra2  rc2  rb2  0.3  0.9  0.5  ( 0.12  0.5)  0.53
6 3 6 3 6 3
From this example, it can be observed that the non-fuzzy financial return and the
triangular fuzzy return for asset A1 have different values; the same goes for A2 .
This difference comes from the fact that the non-fuzzy return does not consider the
frequency of the return values in year N, while the triangular return considers the
frequency of the peak value in year N and offers a higher weight of the most frequent
return value. This means that the fuzzy expected return is more feasible based on
trades history.
5. Modelling the financial risk with fuzzy triangular numbers
Financial risk “refers to the chance that the actual outcome (return) from an
investment will differ from an expected outcome” (Omisore, 2012). In Markowitz
Theory, the formula for financial risk is standard deviation from expected return, the
square root of variance:
j
1
i 2   R j  E ( R i ) 2
n  1 i 1
Where: E ( Ri ) - is the arithmetic mean for each asset i.
Definition 6: The risk of asset Ai , with the return: R ai  ( r ai r bi rci ) , is as follows

(Boloș et al, 2019):
1
4
  2
 i 2  r bi  r ai 2  r ci  r bi 2  r ai r bi  r ai   r ci r ci  rbi 
3
1
  1 2
 r ai  r ci  Ef ( R ai )
2
2 2
Example 4: Let the same assets from Example 1, have the same financial returns:
R a1 (0.1 0.7 0.8) and R a 2 (0.3 0.5 0.9). The non-fuzzy variances of these returns
are: 0.46 for A1 and 0.31 for A2 .
The triangular fuzzy variances for A1 and A2 are:
a 2 
1
1
4
 
0.7  0.12  0 .8  0.7 2  2 0.10 .7  0 .1  0 .80 .8  0 .7 
3
1
 1

 0 .1  0 .8  (0 . 62 )  0 .207
2 2 2
2 2

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a 2 
2
1
4
 
0 .5  0 .32  0 .9  0 .5 2  2 0 .30 .5  0 .3   0 .9 0 .9  0 .5 
3
1
  1
 0 .3  0 .9  ( 0 .53 )  0 .159
2 2 2
2 2
6. Modelling the covariance with triangular fuzzy numbers
Covariance measures the relationship between the returns for one asset and returns
for another. If the covariance is positive, the returns of the assets are positively
related. If the covariance is negative, the return of the assets is negatively related.
“It is necessary to avoid investing in securities with high covariances within
themselves” (Markowitz,1952:89).
In Modern Portfolio Theory, the covariance is used for portfolio diversification. In
order to reduce portfolio risk, an investor must include assets with negative
covariances. By adding financial assets that have negative covariances, the risk of
the portfolio is minimized.
The non-fuzzy formula for covariance is:
1 n
Cov ( Ra1, Ra 2 )   ( R1 j  E ( Ra1))( R 2 j  E ( Ra 2))
n  1 1 j
Definition 7: Considering the level sets of the returns for assets A1 and A2 :
Ra 11   rb11  ra11  ra11 ;

Ra 12    rc11  rc11  rb11 , for financial return of asset A1 ;
R a 21   rb 21  ra 21  ra 21 ;
R a11   rb 21  ra 21   ra 21 , for financial return of asset A2 ;
the covariance between financial returns of assets A1 and A2 is:
1
Cov( Ra1, Ra 2)  [(rb11  ra11)( rb 21  ra 21)  (rc11  rb11)(rc 21  rb 21)]
4
1
 {[( ra 21(rb11  ra11)  ra11(rb 21  ra 21)]
3
 [rc11(rc 21  rb 21)  rc 21(rc11  rb11)]}
1 1
 (ra11ra 21  rc11rc 21)  Ef ( Ra1) Ef ( Ra 2)
2 2
Example 5: The covariance between the returns of the assets, from first example,
A1 and A2 is: 0.0119. That means that these two assets are positively related; when
the return of first asset increases, the return of the second asset increases as well.
On the other hand, when the first asset has a decreasing return, the return of the

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second asset follows the same pattern. The fuzzy covariance is determined as
follows:
1
Cov( Ra1, Ra 2)  [(0.7  0.1)(0.5  0.3)  (0.8  0.7)(0.9  0.5)]
4
1
 {[(0.3(0.7  0.1)  0.1(0.5  0.3)]  [0.8(0.9  0.5)  0.9(0.8  0.7 )]}
3
1 1
 (0.1  0.3  0.8  0.9)  0.62  0.53  0.51
2 2
The fuzzy covariance is positively expressed in non-fuzzy number, because the

multiplying and dividing arithmetical operations have real results, not triangular
fuzzy results. The positive covariance represents a positive relationship between
the two returns of the assets A1 and A2 ; it is the same positive result as the result
of traditional covariance. In order to reduce the overall risk, the investors shoul not
include these assets in the same portfolio.
7. Conclusion
In conclusion, the advantages and disadvantages of using fuzzy logic in modelling

the indicators of Modern Portfolio Theory are summarized in the following SWOT
Analysis:
Table 1. SWOT Analysis of the Portfolio Selection with Triangular Fuzzy Number
Strengths Weaknesses
 Using fuzzy numbers - that are  The expected return and risk are
expressed in sets of real numbers, analysed based on the history of
instead of using standard real the investor`s trades. Even though
numbers - is more reliable when the decision process is more
the investor wants to estimate the flexible with the triangular fuzzy
risk or the gain for his portfolio, or number, the investor cannot
for his future transactions; estimate the possibility to obtain the
 Also, investment decision involves returns that are expressed as
uncertainty. The expected return intervals. The risk of not attaining
and the risk that the investor may the past values remains.
assume are more accurate if they  The volatility of the financial market
are expressed in sets of values, or has a systematic risk and an
triangular fuzzy number; unsystematic risk. The triangular
 The membership function of the fuzzy number does not consider the
financial asset return or the systematic risk. The values of the
membership function of the expected return can exceed the
financial risk indicates the most limits of the triangular fuzzy set.
frequent value in a given period
and the degree of attaining the

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other values of return. By using

this component of the fuzzy
number, the investor will be
informed about the realization
degree of the expected return
values, analysing the frequency of
the returns in the previous period;
 The covariance considers the
membership function of the
returns for the assets; thus, it
evaluates the correlation between
the returns, given the trend of the
returns.
Opportunities Threats
 Providing the possibility for the  If there are more assets in the
investor to estimate the probability portfolio, the calculation of
of attaining the past returns, in the Markowitz`s indicators (standard
next period, this can be a direction deviation, covariance, and
for developing the Modern correlation coefficient) will be more
Portfolio Theory with the fuzzy complicated.
number.
 Extending the analysis period in
order to obtain relevant results
and therefore to help investors to
estimate exactly the return and
the risk for the portfolio. The
longer the alaysis period – the
more accurate estimation.
References
1. Boloș, M., Bradea, I. and Delcea, C. (2019), Modelling the performance Indicators
of Financial Assets with Neutrosophic Fuzzy Numbers, [Online], Available:
https://www.mdpi.com/2073-8994/11/8/1021
2. Chen,M. (2013) Financial Time Series and Their Characteristics, [Online],
Available: http://web.nchu.edu.tw/~finmyc/tim_serp.pdf
Gharakhani, M. and Sadjadi, S. (2012) A fuzzy compromise programming approach
for the Black-Litterman portfolio selection model, [Online], Available:
http://www.growingscience.com/dsl/Vol2/dsl_2013_6.pdf
3. Luengo, E. (2010) Fuzzy mean-variance portfolio selection problems, [Online],
Available: https://core.ac.uk/download/pdf/19722311.pdf
Mangram, M. (2013) A Simplified Perspective of the Markowitz Portfolio Theory,
[Online], Available:
https://www.researchgate.net/publication/256034486_A_Simplified_Perspective_o
f_the_Markowitz_Portfolio_Theory

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4. Marakbi, Z. (2016), Mean-Variance Portfolio Optimization: Challenging the role of

traditional covariance estimation, [Online], Available: https://kth.diva-
portal.org/smash/get/diva2:1060405/FULLTEXT01.pdf
5. Markowitz, H. (1952). Portfolio Selection. The Journal of Finance 7(1), pp. 77-91
6. Sun, R., Tiefeng, M., Shuanghze, L. and Milind, S. (2019) Improved Covariance
Matrix Estimation for Portfolio Risk Measurement: A Review, [Online], Available:
https://www.mdpi.com/1911-8074/12/1/48/pdf-vor
7. Omisore, I., Yusuf, M. and Cristopher, N. (2012) The modern portfolio theory as
an investment decision tool, [Online], Available:
https://academicjournals.org/article/article1379417503_Omisore%2520et%2520al.
pdf

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SECTION: MANAGEMENT, MARKETING,
ECONOMIC INFORMATICS AND CYBERNETICS
WHAT IS AN ETHICAL LEADER LIKE? – A STUDY BASED ON BUSINESS

STUDENTS’ OPINIONS
BARIZSNÉ HADHÁZI Edit

Department of Economics and Business, Institute of Management and
Organizational Sciences, Faculty of Economics and Business, Debrecen, Hungary
barizsne.hadhazi.edit@econ.unideb.hu
Abstract: Nowadays, ethical behaviour, namely responsible behaviour towards the
stakeholders of a company, is more and more required. Companies fulfil this
expectation if their leaders are committed to an ethical approach, and if the whole
organization is permeated with a moral and ethical approach through their example.
Therefore, managers play a key role in the ethical operation of companies, and
although bottom-up initiatives and objectives are important, they will have no effect
without the support of leaders. The ideal situation is if the manager is ethically in
control, both of his subordinates and of his company, from the beginning, i.e. the
internal demands and the external expectations are both met. In my present study, I
aim to investigate ethical leadership behaviour among students in higher education
in economics, as most of them are likely to be leaders in their later careers. In my
study, I first review the most important and most frequently cited definitions and
theories of ethical leadership. Then, with the help of the Ethical Leadership Scale
developed by Brown, Treviño and Harrison (2005), I examine what the students of
the Faculty of Economics at the University of Debrecen think of leaders’ ethical
behaviour. In my research, 269 students took part, evaluating the 10 items of the
ELS. They responded on the basis of their expectations of an ethical leader; that is
to say they did not evaluate a particular individual. In qualitative analyses, I used
averages, standard deviations and simpler statistical functions in order to find
relationships among students’ answers. In our students' opinion, the most important
traits of an ethical leader are the following: “can be trusted”; “makes fair and balanced
decisions” and “listens to what employees have to say”. At the same time an ethical
leader’s least important trait is: “disciplines employees who violate ethical
standards”. Women consider “listens to what employees have to say” and “defines
success not just by results but also the way that they are obtained” more important.
Regarding smoking, previous ethical studies and work experiences, I also tried to
search for relationships in students’ answers; however, I found only some significant
differences in my data base. Considering the respondents’ status as full time or
correspondence students, there was no significant difference in the answers. In
some of the questions I examined, I found a moderate correlation, which means that
values of certain items move together among the 10 items.
Keywords: ethical leadership; business students; ethical attitudes.
JEL Classification: M19; I23.

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1. Introduction
Ethical operations are becoming increasingly important in modern organizations,

and the most common aspects of this are the development of social responsibility
and its integration into everyday operations. This endeavour is partly due to the
expectations of external market players and partly to internal, organizational
intentions and goals. Internal organizational motivation for ethical activity may come
from employees (e.g. employees’ volunteer initiatives), but may also be the result of
(senior) managerial ambitions. Moreover, we also know companies which are
established not only to acquire more and more profit for their own purposes, but also
to serve other socially responsible goals (e.g. Greenpeace). However, none of these
decisions can be fully implemented if the organization's leaders display negative
attitudes, i.e. if they are not active and do not support them. Leaders' attitudes are
key from an ethical behaviour point of view. That is why I will here consider all the
theoretical literature and important empirical research related to this topic. I started
researching in this field in order to examine the ethical attitudes of business students
participating in economic education, with the aim of exploring what ethical attitudes
they have as a prospective employees, or later as leaders.
In my paper I first give an overview of the notion and theories of ethical leadership.
In the second part of my article, I introduce my own empirical research, which was
conducted among students at the Faculty of Economics and Business of the
University of Debrecen.
In this chapter I will try to summarize some important approaches and theories
related to ethical leadership.
The most frequently cited studies in this field are linked with the names of Brown
and Treviño and their colleagues. In their study, which was published in 2000, they
claim ethical leadership is composed of two pillars: the moral personality and the
moral manager. Table 1 summarizes the elements of these two pillars. In the
authors’ opinion we can speak about an ethical leader if he/she is a moral
personality and can, at the same time, be described as a moral manager.
Table 1. The Two Pillars of Ethical Leadership

Moral Person (Ethical) Moral Manager (Leadership)
Traits:
 Integrity
Role Modelling Through Visible Action
 Honesty
 Trustworthiness
Behaviours:
 Do the Right Thing
 Concern for People Rewards and Punishment
 Being Open
 Personal Morality

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Moral Person (Ethical) Moral Manager (Leadership)

Decision-Making:
 Hold to Values
 Objective/Fair Communicating About Ethics And Values
 Concern for Society
 Follow Ethical Decision Rules
Source: Treviño, Hartman and Brown (2000:131)
In their 2005 study, Brown, Treviño, and Harrison defined the concept of ethical
leader as follows: “the demonstration of normatively appropriate conduct through
personal actions and interpersonal relationships, and the promotion of such conduct
to followers through two-way communication, reinforcement, and decision-making”
(Brown et al., 2005:120). The second part of their article presented the research that
had led them to develop the so-called Ethical Leadership Scale (ELS). Since then
this scale has been used by many researchers to evaluate ethical leadership
behaviour, and in the second part of this work I also use it in my empirical research.
The statements to be evaluated in the ELS test are presented in Table 2.
Table 2. The Ethical Leadership Scale’s items

Number of the
question Statement to be evaluated
1. Listens to what employees have to say.
2. Disciplines employees who violate ethical standards.
3. Conducts his/her personal life in an ethical manner.
4. Has the best interests of employees in mind.
5. Makes fair and balanced decisions.
6. Can be trusted.
7. Discusses business ethics or values with employees.
Sets an example of how to do things the right way in terms of
8.
ethics.
Defines success not just by results but also the way that they are
9.
obtained.
10. When making decisions, asks “what is the right thing to do?”
Source: Brown, Treviño and Harrison (2005:125)
Some authors approach an ethical leader’s behaviour by characterizing the

differences between ethical and unethical behaviour.
In Howell and Avolio's (1992) study we read the following description of the unethical
leader:
 uses power only for personal gain or impact
 promotes his/her own personal vision
 censures critical or opposing views
 demands his/her own decisions be accepted without question
 one-way communication

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 insensitive to followers’ needs

 relies on convenient external moral standards to satisfy self-interest (Howell
and Avolio, 1992:4).
The ethical leader, on the other hand, can be characterized as follows:
 uses power to serve others
 aligns vision with followers’ needs and aspirations
 considers and learns from criticism
 stimulates followers to think independently and to question the leader’s view
 open, two-way communication
 coaches, develops and supports followers: shares recognition with others
 relies on internal moral standards to satisfy organizational and societal
interests (Howell and Avolio, 1992:4).
Another excellent author in the literature on leadership is Gary Yukl, who
summarised the definition of ethical leadership as follows: “… the criteria relevant for
judging ethical behaviour of a leader include individual values, conscious intentions,
freedom of choice, stage of moral development, types of influence used, and use of
ethical as well as unethical behaviour” (Yukl, 2006). In 2002 Yukl and his colleague
also collated the features of ethical and unethical leaders. Table 3 presents the
characterization of the two leader types.
Table 3. Ethical and unethical leadership traits by Yukl and Yukl

Criterion Ethical leadership Unethical leadership
Use of leader power and Serves followers and the Satisfies personal needs
influence organization and career objectives
Handling diverse interests Attempts to balance and Favours coalition partners
of multiple stakeholders integrate them who offer the most benefits
Develops a vision based on Attempts to sell a personal
Development of a vision for
follower input about their vision as the only way for
the organization
needs, values and ideas the organization to succeed
Acts consistently with Does what is expedient to
Integrity of leader behaviour
espoused values attain personal objectives
Is willing to take personal Avoids necessary decisions
Risk taking in leader
risks and make necessary or actions that involve
decisions and actions
decisions personal risk to the leader
Makes a complete and Uses deception and
Communication of relevant timely disclosure of distortion to bias follower
information operations information about events, perceptions about problems
problems and actions and progress
Encourages critical Discourages and
Response to criticism and
evaluation to find better suppresses criticism or
dissent by followers
solutions dissent
Deemphasizes
Uses coaching, mentoring
Development of follower development to keep
and training to develop
skills and self-confidence followers weak and
followers
dependent on the leader
Source: Yukl and Yukl (2002:354)

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At the end of my literature analysis, I present some measurement tools based on

Chikeleze's work related to ethical leadership behaviour. Between 1998 and 2013,
five types of scales/questionnaires were created which are suitable for this. These
are given in Table 4 below.
Table 4. Ethical Leadership Measurements

Year Instrument Authors Measurements
1998 Perceived Leader Craig and Trust, civility, self-centered, honest,
Integrity Scale (PLIS) Gustafson evil
2005 Ethical Leadership Brown, Treviño, Fairness, trust, “Do the right thing”
Scale (ELS) and Harrison
2010 Leadership Virtues Riggio, Zhu and Prudence, fortitude, temperance and
Questionnaire (LVQ) Reina justice
2011 Ethical Leadership Kalshoven, Den Fairness, integrity, ethical guidance,
Work Questionnaire Hartog, and De people orientation, power sharing,
(ELWQ) Hoogh role clarification and concern for
sustainability
2013 Ethical Leadership Yukl, Mahsud, Honesty, fairness, integrity, sets

Questionnaire (ELQ) Hassan, and example, concern for values
Prussia
Source: Chikeleze (2014:84)
Before turning to the results of the empirical research, I must point out an important
research finding: managers' self-evaluation of their performance is not related to the
ratings of their managers or subordinates (Harris and Schaubroeck, 1988; Hogan et
al., 1994). It is therefore unlikely that managers can give a real, unbiased
assessment of their ethical leadership style. Rather, the evaluation of subordinates
gives the most accurate estimate of the ethical leadership of their superiors,
especially when the subordinates work closely with the leader and have an insight
into how the leader treats others and makes decisions (Brown and Treviño,
2006:610).
3. Methodology
Having presented the theoretical literature, here I will review the methodological
background of my own research.
The idea of my research is based upon the Ethical Leadership Scale (ELS)
published by Brown, Treviño and Harrison in 2005. This scale ultimately includes
10 statements about how respondents judge the ethical leader. In my present study,
I asked the respondents to evaluate every item on a 7-grade Likert scale, according
to their opinions about an ethical leader. I would like to emphasize that this did not
involve an evaluation of an actual leader (for example their boss), but the
expectations held by the participants emerged during the filling of the questionnaire

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(i.e. I believe this gives us a picture of ideal ethical leadership behaviour). The
questionnaires were filled in anonymously on paper and the answers were digitized.
The questionnaires were completed in February and March 2019 by students at the
Faculty of Economics at the University of Debrecen. The full sample element
number is 271, and two of the questionnaires were unusable. Consequently, I was
able to analyse 269 students’ questionnaires, of which 96 were from men (35.7%)
and 172 from women (63.9%); 1 student did not respond to this question. Regarding
types of education, 232 of the respondents (85.6%) were full-time students, the
others were attending correspondence courses. In terms of their year, 230 were first
year students (85.5%), 18 were second year students (6.7%), and 20 were third
year students (7.4%); 1 student did not respond to this question. Our students attend
the following programs: the tertiary education vocational course in Business
Administration and Management, the Bachelor’s course in Business Administration
and Management and the same level courses in the field of International Business,
Finance and Accounting. The Master’s programmes were the MA in Human
Resource Counselling , the MSc in Management and Leadership and the MSc in
Business Administration. In addition to the above, in the interest of further analysis,
I asked whether our students smoked, had taken a course in ethics during their
studies, and whether they had work experience. On the basis of these last three
questions, I made comparisons in order to explore the students' ethical attitudes
related to ethical leadership.
Considering the number of elements involved, the examined sample is adequate
but not representative. This in itself restricts the ability to generalize the conclusions
drawn from the analysis of the data, but provides the opportunity to analyse the data
obtained through simple calculations. During the analyses, I analysed means and
standard deviations, and tried to find significant differences, using independent two
sample t-tests, between different variables (gender, the existence or lack of previous
ethical studies and the existence or lack of work experience). Furthermore,
considering the whole sample, I used the Pearson's correlation indicator to illustrate
the relationship between individual issues. The value of the correlation coefficient
can be interpreted by Evans (1996), as follows:
 0.00 - 0.19 : “very weak”
 0.20 - 0.39 : “weak”
 0.40 - 0.59 : “moderate”
 0.60 - 0.79 : “strong”
 0.80 - 1.0 : “very strong” connection between the examined factors.
In the next section I present the results of my empirical research.
4. Results
Based on the analysis of my empirical database, I can state that according to the
opinion of the students of the Faculty of Economics, the most important
characteristic of an ethical leader is trustworthiness, because this statement has the
highest average. That is to say, in this question students' views are quite
homogeneous, as the standard deviation of the answers is the lowest. Based on

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average values, the next most important characteristic is fair and equitable decision-
making, and listening if your colleagues want to say something; the average value
for both these answers is over 6. The majority of the questions examined are found
in the “mid-range” with means between 5.4 and 5.9, with a slightly higher standard
deviation which indicates the division of respondents’ opinions on this issue. Our
students were least likely to associate an ethical leader with the ability to punish
those workers who violate ethical standards: here the average value was only 4.06,
although the standard deviation was the highest, at 1.40. This means that the
opinions of the respondents are most divided on this issue. Means and standard
deviations of the total sample responses are shown in Table 5.
Based on the points included in the evaluated statements, our students have
relatively high expectations of ethical leaders, as the averages on the Likert scale
were above 4 in every case.
Table 5: Respondents' opinion on the ethical leader

Std.
Statements Mean
deviation
Can be trusted. 6.61 0.68
Makes fair and balanced decisions. 6.23 0.95
Listens to what employees have to say. 6.21 0.92
Has the best interests of employees in mind. 5.91 0.95
When making decisions, asks “What is the right thing to do?” 5.67 1.27
Defines success not just by results, but also the way that they
5.62 1.23
are obtained.
Sets an example of how to do things the right way in terms of
5.51 1.23
ethics.
Conducts his/her personal life in an ethical manner. 5.45 1.28
Discusses business ethics or values with employees. 5.38 1.18
Disciplines employees who violate ethical standards. 4.06 1.40
Source: Author’s own research results or Primary data?
I try to investigate the potential correlations between the results in my data base.
The results are presented below.
I found a medium correlation between the following statements:
 Between “Listens to what employees have to say” and “Makes fair and
balanced decisions” (r=0.419 is significant at the 0.01 level).
 Between “Has the best interests of employees in mind” and “Makes fair and
balanced decisions” (r=0.489 is significant at the 0.01 level).
 Between “Has the best interests of employees in mind” and “Can be trusted”
(r=0.403 is significant at the 0.01 level).
 Between “Makes fair and balanced decisions” and “Can be trusted” (r=0.460
is significant at the 0.01 level).

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 Between “Discusses business ethics or values with employees” and “Sets

an example of how to do things the right way in terms of ethics”(r=0.468 is
significant at the 0.01 level).
 Between “Defines success not just by results but also the way that they are
obtained” and “When making decisions, asks “What is the right thing to do?”
(r=0.451 is significant at the 0.01 level).
In the analysis of the data, I tried to find significant differences in terms of gender,
smoking, previous ethical studies and work experience. The results are:
Analysing averages by an independent-sample T test (5% significance level),
women consider “Listens to what employees have to say” and “Defines success not
just by results but also the way that they are obtained” more important (question 1,
average for women: 6.39; for men: 5.91). Women also consider it more important
that success matters not only in itself but also in terms of how it is achieved (question
9, average for women: 5.78; for men: 5.30).
Investigating my data base non-smokers think “Listens to what employees have to
say” is more important than smokers do, based on the independent-sample T test
at a 5% significance level (question 1, average for non-smoking students: 6.30; for
smoking students:5.83). Non-smoking students also consider it more important that
success matters not only in itself but also in terms of how it is achieved (question 9,
average for non-smoking respondents: 5.70; for smoking respondents: 5.23). In
other words, smoking seems to make people more tolerant of the ethical behaviour
of managers in these two issues.
Based on previous ethical studies, I found only one case of stricter expectations of
the ethical behaviour of managers: those who have participated in an ethics course
think that it is not only success that matters but the way it is achieved. The average
response of those who had taken this type of course is significantly higher (5.81)
than the average of those who had not (5.52) – based on an independent-sample T
test at a 5% significance level.
In the case of work experience, there is only one significant difference in the
opinions of the respondents: those who have had no work experience said that
“Listens to what employees have to say” is more important (average 6.43) than
those who have had work experience, who found it less important (average 6.15) –
based on an independent-sample T test at a 5% significance level. The explanation
for this is probably the negative personal impressions of those who have work
experiences, or simply that they believe other aspects of ethical leadership are more
essential.
However, there is no significant difference among the means of the answers given
to the questions between respondents who are full-time and those who are part-
time students.
5. In conclusion
In my study I examined the topic of ethical leadership. First I reviewed what

differences there are between ethical and unethical leaders, according to the related
literature. The second part of my article presented the results of empirical research

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conducted among business students. Students at the Faculty of Economics and

Business of the University of Debrecen believe that the most important feature of
an ethical leader is trustworthiness, and the least important feature is punishing
those who violate ethical standards. Based on the points evaluated in the
statements, our students have relatively high expectations of ethical leaders, as the
averages on the Likert scale were above 4 in every case. Although our research
was not based on a representative sample, it may be a good antecedent for a larger
overall research study. In the future I am also planning further research on this topic,
using a more detailed questionnaire with more complex questions in order to gain a
more precise picture of student's opinions about ethical leadership.
6. Acknowledgements
The publication of this study was supported by the EU-funded Hungarian grant
EFOP-3.6.3.-VEKOP-16-2017-00007, for the project entitled “From Talent to Young
Researchers” – Supporting the Career-developing Activities of Researchers in
Higher Education.
References
1. Bencsik, A., Machová, R., Juhász, T. and Csókás, L. (2018) „Vezető/leader
versus etika avagy az etikus leaderi magatartás jellemzői” Vezetéstudomány, Vol.
49, No. 10-11, pp 93-104.
2. Brown, M. E. and Treviño, L. K. (2006) „Ethical leadership: A review and future
directions” The Leadership Quarterly, Vol. 17, pp 595–616.
3. Brown, M. E., Treviño, L. K. and Harrison, D. A. (2005) „Ethical leadership: A
social learning perspective for construct development and testing” Organizational
Behavior and Human Decision Processes, Vol. 97, pp 117–134.
4. Chikeleze, M. C. (2014) Validation of the Ethical Leadership Style Questionnaire:
A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree
of Doctor of Philosophy in Values-Driven Leadership Dissertation, Benedictine
University https://cvdl.ben.edu/home/wp-content/uploads/2016/03/Chikeleze-
ready-to-upload-dissertation.pdf
5. Evans, J. D. (1996) Straightforward statistics for the behavioral sciences,
Brooks/Cole Publishing, Pacific Grove, California
6. Harris, M. M. and Schaubroeck, J. (1988) „A meta-analysis of self-supervisor, self-
peer, and peer-supervisor ratings”Personnel Psychology, Vol. 41, pp 43−62.
7. Hogan, R., Curphy, G. J. and Hogan, J. (1991) „What we know about leadership:
Effectiveness and personality” American Psychologist, Vol. 49, pp 493−504.
8. Howell, J. M. and Avolio, B. J. (1992) „The ethics of charismatic leadership
Submission of Liberation?” Academy of Management Perspectives, Vol. 6, No 2, pp
43-54.
9. Lašáková, A., Remišová, A. and Kirchmayer, Z. (2017) „Are Managers in Slovakia
Ethical Leaders? Key Findings on the Level of Ethical Leadership in the Slovak
Business Environment” Periodica Polytechnica Social and Management Sciences,
Vol. 25, No. 2, pp 87-96.

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10. Perény, Á., Selvarajah, C. and Tanas, J. (2013) „Összefoglaló tanulmány a

vezetői kiválóság és az etika kapcsolatáról Közép-Európában, Kutatási jelentés,
Melbourne, https://sites.google.com/site/v4lead/home
11. Toor, S. and Ofori, G. (2009) „Ethical Leadership: Examining the Relationships
with Full Range Leadership Model, Employee Outcomes, and Organizational
Culture” Journal of Business Ethics, 90, pp 533–547.
12. Treviño, L. K., Hartman, L. P. and Brown, M. (2000) “Moral person and moral
manager: How executives develop a reputation for ethical leadership” California
Management Review, Vol. 42, pp 128−142.
13. Walumbwa, F. O., Mayer, D. M., Wang, P., Wang, H., Workman, K. and
Christensen, A. L. (2011) „Linking ethical leadership to employee performance: The
roles of leader–member exchange, self-efficacy, and organizational identification”
Cornell University, School of Hotel Administration
http://scholarship.sha.cornell.edu/articles/762
14. Yukl, G. (2006) Leadership in organizations, 6th edition. New Jersey: Pearson
Prentice Hall Upper Saddle River, New Jersey
15. Yukl, G. A. and Yukl, G. (2002) Leadership in organizations, Prentice Hall Upper
Saddle River, New Jersey

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A QUALITATIVE STUDY ON PASSIVE – AGGRESSIVE BEHAVIOUR AT

WORKPLACE
BUCUREAN Mirela
Department of Management-Marketing, Faculty of Economic Sciences, University
of Oradea, Oradea, Romania
mbucurean@uoradea.ro
Abstract: The current study focuses on the characterization and perception of
passive – aggressive behavior at workplace. We interviewed 12 employees, who
work in large companies in Bihor county, on the position of base and middle-level
managers.Three of the themes that emerged from the analyzed interviews, have a
particular importance in the workplace. First, majority of the participants clamed that
the PA behavior is present in their organizations and there is a tendency to spread
throughout the organization. Second, most participants viewed the PA behaviour as
beeing tolerated in their organizations. Third, most interviewees clamed that the PA
bevaviour has negative effects in the organization. The PA behaviour was deeply
analised by many researchers over the time and it has a wide variety of definitions.
We could summarily define the concept as including behaviors that convey
aggressive feelings through passive means. One of the dark side is that these pasive
means could be confusing many times. While other forms of agression like mobbing,
bullying, bossing appear as evident, the PA behavior could be misinterpreted. This
destructive behaviour could initially appear at several members and then quickly
spread throughout all the organisation. This way, the company could become a toxic
environment where the valuable employees do not want to remain anymore. The PA
behavior must be discovered in good time and stopped, before to penetrate the
whole organization. The three main themes emerged from the analyzed interviews
leaded us to interesting discussions and conclusions. We pointed out the main
possible ways to prevent and stop the occurrence and spreading of the PA behavior,
taking into account the causes of this type of behavior. We also outlined several
ways to deal with PA behavior at workplace.
Keywords: passive–aggressive behavior; workplace; negative effects; destructive;
aggressive feelings; passive means.
JEL Classification: M10; M12; M14.
1.Introduction
Passive – aggressive behavior was first used clinically in the World War II to describe
soldiers who refused to comply with officers’ demands. (Millon, 1981) The concept
has been in the spotlight of clinical theory since then for nearly a century and clinical
theorists continue to value the concept. The psychiatrists and theorists from other
fields have been variously explained the concept. However there are three widely
accepted theories conceptualized in: the Diagnostic and Statistical Manual of Mental
Disorders (4th ed.) (American Psychiatric Association, 1994) categorical construct,

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Millon and Davis’s (1996) multidimensional traits, and McCrae and Costa’s (1987)
five-factor taxonomic trait model.
First, the Diagnostic and Statistical Manual of Mental Disorders requires that „a
person with PA (negativistic) personality disorder exhibit four or more of the following
seven criteria beginning in early adulthood and in a variety of contexts (American
Psychiatric Association, 1994, pp. 734-735):
1. passively resists fulfilling routine social and occupational tasks;
2. complains of being misunderstood and unappreciated by others;
3. is sullen and argumentative;
4. unreasonably criticizes and scorns authority;
5. expresses envy and resentment toward those apparently more fortunate;
6. voices exaggerated and persistent complaints of personal misfortune; and
7. alternates between hostile defiance and contrition”.
Second, Millon and Davis (1996) proposed that their negativistic descriptor is
broader, encompassing the “total pattern” (Millon, Davis, Millon, Escovar, &
Meagher, 2000, p. 472). They specified four types of negativists: „vacillating (which
adds borderline components to PA behavior), discontented (which adds depressive
components to PA behavior), abrasive (which adds sadistic components to PA
behavior), and circuitous (which adds passive-dependent components to PA
behavior)”.
Third, the five-factor model has assumed many forms since its inception in 1932 by
McDougall and its subsequent validating factor analysis by Thurstone
(Digman, 2002, p. 17). By 1994, Costa and Widiger characterized the current five
factors (or dimensions) „as extraversion or surgency, agreeableness,
conscientiousness, emotional stability or neuroticism, and openness to experience
or intellect” (Digman, 2002).
We did not focus on the personality disorder, but on PA behavior at workplace that
could be shortly defined (Johnson N. J., Klee T., 2007) as the behavior „that convey
aggressive feelings through passive means”.
We defined the organizational passiveaggressiveness by describing a passive-
aggressive person as being someone who:
 apparently is agreeable and supportive, but behind the scene they turn their
back and sabotage
 claims that you can trust them, but their actions show the contrary
 makes promises that remain only promises
 blames “out of their control” things for not complying with their promises
 agrees with you to your face, but behind your back disagree or even
sabotage things
 places blame on someone else rather than admitting their own lack of
support for a certain matter
 gives you a positive feedback directly, but then a negative one to coworkers
and management
 gathers important information from other employees in order them to appear
more powerful compare to others around them
 makes fun of someone around them pretending they were just kidding

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 refuses to express their true feelings, wants everyone to believe that they
are big supporters
2. Why the workplace is a perfect place for passive-aggressive behavior?
Here are the reasons why the workplace is the perfect place for passive – aggressive
behavior:
 Most of the adults spend more time at work than anyplace else. Even if
mathematically, the adults could spend more time at home, much of their
time is spent mostly sleeping. Passive-aggressive behavior could appear
wherever a person spends a lot of time; so, this behavior is more likely to
appear where the adults spend more time than anyplace else, in other
words, at work.
 An employee usually does not work alone, but mostly in a team. The team
is the place where inevitably the relationships appear. In these relationships
passive-aggression behavior can occur.
 The individuals have personal emotions that must be expressed. In a formal
workplace with a professional atmosphere is more difficult for the employees
to express them; consequently, PA behavior is more likely to appear where
is no place for heartfelt and personal emotions.
 Some employees feel that their boss insult them by treating or speaking of
them without proper respect or attention, but they do not have the courage
to tell the boss how they really feel; they consider would risk their career
being sincere. So, the employees must be very careful when they choose
their words. A place where an employee cannot be sincere, direct, honest,
is an ideal place for passive aggression.
 A child who has no chance to express the anger in the childhood, will
probably seek to express it later on, when he/she must comply with an
hierarchy. A passive aggressive employee will see the boss or other persons
around him/her as being the abusive adult from their childhood and will act
consequently.
 Electronic communication encourages a passive aggressive behavior; it is
easier for an employee to transmit passive aggressive messages
electronically than face-to-face; in addition, the initial message can be
altered or lost.
 In a teamwork the employees work together, many times the accountability
do not go till every single employee. A passive aggressive team member
can sabotage the entire work without being found guilty.
 Human resources policies make dismissal difficult many times. They are
designed to protect the employees, they do not take deeply into account the
passive aggressive behavior. When confronted, a passive aggressive
employee is always ready to find explanations for his/her behavior, even put
himself/herself in a role of victim. However he/she meets the minimum
standards making the dismissal quite difficult.

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Participants
10 base and middle-level managers, working in large companies in Bihor county
were initially contacted by telephone. 7 out of 10 agreed to the interview process. At
the end of each interview, the interviewees were asked if they could recommend
similarly qualified and potentially interested persones for the same interview. This
way, another 5 persons joined the group. So, using the snowball sampling technique
we obtained a group of 12 persons who was interviewed.
Instrument
The qualitative study was performed conducting individual interviews using semi-
structured questions with each consenting participant. The intervies were face-to-
face, ranging from 45 to 60 minutes in length. All interviews used the same 10
questions. Firstly, the participants received a handout containing our description of
a passive aggressive behavior (presentated in the last part of the introduction), then
they received step by step the questions listed below.
1. Do you agree with the perception of passive-aggressive behavior described in the
manual? How would you alter the description of a passive aggressive person?
2. Have you witnessed, experienced, or worked with passive-aggressive behavior in
your workplace? Could you describe your experience using examples?
3. Were your experience with passive-aggressive behavior negligible, moderate or
significant?
4. Do you believe that the pasive aggressive behavior could spread in the
organisation? Could the entire organization be dominated by the passive aggressive
behavior?
5. Is this type of behavior tolerated in the organization? If yes, could you tell us why?
6. What are the effects of passive-aggressive behavior at work and how it is reflected
in the recipients’ behavior? Do you consider them positive or negative? Do you have
some examples?
7. Do you consider there are effects of passive-aggressive behavior to the
perpetrator? If ”yes”, are they positive or negative? Could you give us examples?
8. What are, in your opinion, the main causes of passive-aggressive behavior at
work? Could you explain us how have you came to this conclusion?
9. Could you suggest some ways to stop the occurrence and spreading of passive
aggressive behavior?
10. What is your opinion regarding the way the company must deal with passive
aggressive behavior at work?
After the interviews, there was a debrifing session. We sent copies of the transcribed
interviews to each participant and asked for their feedback.
Data analyses
The data were analyzed in five steps. The first step consisted in reading of the
transcribed interviews a few times in order the researcher to have an overall view.
Each participant has received a number that was used further on in analyses instead
of the name. The second step was identifying the key responses for each question.

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The third step involved creating a Microsoft Excel spreadsheet for each questions.
The participants’ numbers were entered vertically and the key responses,
horizontally. The fourth step was the identifying of the emergent themes. For this
purpose we counted the situations when the respondents had the same answer.
When 7 out of 12 respondents had the same opinion related to a certain theme, we
called that theme an emergent one. The fifth step supposed sending the themes
results to the participants and asking for changes if necessary, but no change was
necessary.
4. Results
Participants in this research are base or middle - level managers. They all claimed
they have had experience either moderate or significant with passive-aggressive
behavior both at their previous workplaces and the current job. The majority of the
participants clamed that the PA behavior has the tendency to spread throughout
organization, being posible even to dominate the entire organization.
The passive aggressive behavior is tolerated in the most of the organization,
sometimes even encouraged. In this situation, it is normal for the other employees
to copy an apreciated behavior. Passive aggresive behavior could spread in the
entire organization and has a distructive effect on it.
Passive aggressive behavior has a negative effect on the organization, this behavior
impacting the ability to accomplish tasks and achieve goals. It also has negative
effects on stuff morale. The work environment becomes a toxic one; the valuable
employees become depressed and want to escape from this toxic environment,
looking for employment opportunities elsewhere. The effects on the perpetrators
could be positive, as long as they are not only tolerated, but reworded, as a
consequence of their behavior.
5. Discussions
The passive aggressive behavior occurs as a consequence of both exogenous and

endogenous factors, as we discussed in part 2 of this paper, endogenous factors
making the workplace a perfect place for passive-aggressive behavior. In addition,
some changes also contribute to passive-aggressive responses in the workplace;
the changes could reffer to:
- the number of women in the workplace;
- the position of women in the workplace;
- the number of employees;
- the number of workers in the workplace;
- the communication styles;
- the type of organizational structure (formal or informal);
No matter the causes are, the passive aggressive behavior must be stoped before
spreading throughout the organization. Here are some ways to stop PA behaviour:
 Respond determined, and trust your own feelings
 Communicate that the messages you receive are confusing in your opinion

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 Ask questions about what really their behavior means

 Notice the difference between what they do and what they say
 Pay attention to the results, not to the promises.
 Maintain a positive view
 Show that you are steady and aware of the meaning of the message
 If you disagree, politely dismiss their suggestions underlining that it is
normal to disagree sometimes.
However, once it is present into an organization ways must be found to deal with it.
Here are a few suggestions:
 Check if an “yes” answer means always ”yes”! The passive aggressive
persons say “yes” even when they mean “no”
 Use face-to-face communication instead of indirect communication! There
are times when short notes are acceptable, but not always!
 Confront a passive-aggressive person with the facts! He /she must know
that you understand what is happening.
 Transmit to the passive-aggressive colleague the fact that you you have
observed his/her behavior and discuss why it is problematic
 Encourage your subordinates to give you a feedback! Give the employees
the opportunity to express their opinions!
 Do not punish the employees who disagree with you, because you will
encourage the subordinates to become passive-aggressive persons.
 Make sure that the employees clearly understood your expectations! An
ambiguous message leaves room for an aggressive passive behavior.
 Be consistent! Do not easily change your mind!
 Evaluate the culture of your organization from time to time and make sure
that one or two passive-aggressive employees do not negatively influence
other employees, or even the entire organization.
 Eliminate the persons having a passive-aggressive behavior! This way you
send the message that this behavior will not be tolerated in your
organization.
 Make place for integrity, honesty, loyalty, and respect, in your organization!
The culture you work in must a culture you can be proud of.
6. Conclusions
The aspect we theoretically and practically analyzed in this paper is a negative one
and it has critical consequences on both the organization and recipients.
The preponderance of participant-expressed views held that passive-aggressive
behavior is present in their organizations. However, we came to the conclusion that
generally, the organizatin is the perfect place for this behavior to occur. The
organization is the place where the actios provoke reactions encouraging the
spreading of this behavior throughout the organization.
The participants also held that this behavior is often tolerated and the perpetrators
even reworded. We underline that it must be discovered in good time and the
organization must be preoccupied in finding ways to stop it; under no circumstances

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should this behavior be tolerated, but it could be. Unfortunately, this thing happens
quite often. The managers are many times busy and far from the reality or the
executives are passive-aggressive and what they report are different from reality. In
this situation, the managers must carefully observe the actions of the people
reporting to them and allow all the employees to share their possible worries without
any fear of reprisal.
Related to this issue, the respondents claimed that sometimes this behavior is not
descovered and descouraged, but reworded, so that it has positive effects on the
perpetrator. However, they all claimed that the effects of this dishonest behavior is
negative and it could distoy the entire organization.
References
1. American Psychiatric Association. (1994). Diagnostic and statistical manual of
mental disorders (4th ed.), Washington
2. Digman, J. M. (2002). Historical antecedents of the five-factor model. In P. T.
Costa, Jr., & T. A. Widiger (Eds.), Personality disorders and the five-factor model of
personality (pp. 17-22). Washington, DC: American Psychological Association.
3. Millon T. (1981) Disorders of Personality: DSM-III Axis II, New York: John Wiley
and Sons
4. Millon, T., & Davis, R. (1996). Disorders of personality: DSM-IV and beyond.
Oxford, UK: Wiley
5. Millon, T., Davis, R., Millon, C., Escovar, L., & Meagher, S. (2000), Personality
disorders in modern life. New York: John Wiley
6. McCrae, R. R., & Costa, P. T., Jr. (1987). Validation of the five-factor model of
personality across instruments and observers. Journal of Personality & Social
Psychology, 52(1), 81-90
7. Johnson N. J. and Klee T., Passive-Aggressive Behavior and Leadership Styles
in Organizations, Journal of Leadership & Organizational Studies, November 2007,
Available: http://journals.sagepub.com/doi/abs/10.1177/1071791907308044

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PERCEPTION AND ACCEPTANCE OF GOAT CHEESE IN COMPARISION

WITH SHEEP AND COW CHEESE – AN EMPIRICAL STUDY
CSAPO Zsolt1, PENTEK Adam2, CSAPONE RISKO Tunde3

1
Department of Enterprise Development, Faculty of Economics and Business,
University of Debrecen, Debrecen, Hungary
2
Department of Agricultural Informatics, Faculty of Economics and Business,
3
Department of World Economy and International Business, Faculty of Economics
and Business, University of Debrecen, Debrecen, Hungary
csapo.zsolt@econ.unideb.hu
pentek.adam@econ.unideb.hu
risko.tunde@econ.unideb.hu
Abstract: Goat milk production is a dynamic and continuously expanding branch,
which determines the life of millions of people, as well as constitutes an important
part of the national economies of many countries (SILANIKOVE et al., 2010). Goat
milk and the cheese made from it, was venerated in ancient Egypt, with some
Pharaohs supposedly placing these foods among the other treasures in their burial
tombs (SMITH, 2006). Across the globe, goats can be kept almost everywhere, even
poor surroundings. Goats can play an important role in the human nutrition of the
continuously increasing human population. Goats are able to provide high quality
products under diverse climate conditions and in extreme environments. Globally,
more people drink milk from goats than from any other animal (SILANIKOVE, 1994).
Goat milk plays a decisive role in feeding starving and malnourished people in
developing countries. At the same time in developed countries and also in Hungary
these products are “luxury” consumer goods. Due to its favourable effects on human
health, goat milk has found a niche for itself in the trend towards healthy nutrition, as
well in developed countries. The main objective of our empirical research was to
analyse the respondents’ perception and acceptance towards goat milk cheese in
Debrecen, Hungary through blinded testing of cow, sheep and goat cheese. The
empirical research has been carried out in the autumn, 2018 and beginning of 2019
with a sample of 202. Based on the results it can be stated, that respondents had
almost the same opinion on the tested cheeses made from cow, sheep and goat
milk, which is in contrary with the findings of some previous studies that goat milk
products have a “special smell or flavour. Based on the correlation test it can be
stated, that there is no significant correlation between the age of respondents and
the affordable cheese price, (how much respondents would pay for it) and between
the income and the cheese price. The affordable price proved to be the highest for
the goat cheese which may reflect its perceived high quality.
Keywords: cheese; goat; sheep; cow; consumption; marketing.
JEL Classification: M31.

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1.1. Goat keeping and goat milk production in Hungary

Until the end of the 1990s, goat breeding in Hungary was relatively unimportant.
However, new demand for so-called alternative products meeting the requirements
of healthy nutritional programmes began to appear in the country, as well. Initially,
this new demand was met with imported products, since the national goat population
and goat dairy products could not compete with imported products (MARTICSEK et
al., 1999). Due to many efforts, today, local goat milk and manufactured goat milk
products can meet any and all market requirements (SZIGETI, 2004).
100
90
80
70
60
50
40
30
20
10
0
Figure 1. Goat population in Hungary between 2000 - 2017 (thousand heads)

Source: KSH, 2018a
Figure 1 shows the goat population in Hungary between 2000 - 2017. The number
of individuals and companies keeping goats as a livelihood generated income or
business reasons is probably a few hundred in Hungary. The number of farmers
keeping some goats as a hobby or providing the family with goat milk is probably a
few thousand (KUKOVICS, 2007a). There are around 3-5,000 goat keepers in
Hungary (the exact number is not known) and less than 80% keeps less than 10
goats. The breeds mainly belongs to Hungarian breeds, but 10% stem from imported
breeds, such as Saanen, Alpine, Boer or Anglo-Nubian (KUKOVICS, 2008a). Many
poor people keep goats in Hungary, in mainly underprivileged regions (KUKOVICS,
2007b). The production level (and number of animals), as well as keeping conditions
are lagging behind the data for France, Spain, Italy, Greece and the Netherlands
(KUKOVICS, 2008b). Production level of the sector is weak and has been struggling
with several problems for many years. The number of goat breeders and goats

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continuously fluctuates and the data are patchy. With the growing importance of
healthy nutrition and lifestyle, growing demand is expected for goat milk and goat
milk products that could contribute to the development of the goat sector
(KOCSISNÉ GRÁF, 2011).
The main product of the goat sector is milk. The estimated goat milk production is
around 3-5 million litre per year, but only 0.6 million litres are manufactured by milk
factories. The main income of milk producing farmers comes from milk and
manufactured goat milk products. It is common in the sector that goat breeders sell
the produced goat milk and self-made dairy goat products directly (HUNGARIAN
CHAMBER OF AGRICULTURE, 2017). Figure 2 shows the goat milk production in
Hungary between 2000 - 2016.
12
10
Figure 2. Goat milk production in Hungary between 2000-2016 (million litres)

Source: KSH, 2018b
SZIGETI (2004) and SZIGETI (2005) report on the results of an empirical research
study carried out in Hungary. Only a small ratio of respondents reported only very
rarely buying and consuming goat dairy products. The most often purchased product
was cheese. The main reason for refusing goat dairy products were: they did not like
the taste of goat dairy products, they did not even know these products, these
products are not easy to find and buy. The main reasons for buying these products
are: healthiness, taste and quality. The respondents were concerned that goat dairy
products were expensive. Another empirical research study (SZIGETI el al., 2014)
revealed that the opinion of Hungarian respondents had not changed much since
the time of the previous studies.

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1.2. Nutritional value of goat, sheep and cow milk

The use of goat milk as an excellent food source is undeniable. It has beneficial
effects for health maintenance, physiological functions, in the nutrition of children
and elderly people (BILLION, 2003; ALBENZO et al., 2006; DOMONKOS and
GEINER, 2009; YANGILAR, 2013).
Goat milk differs from cow or human milk in having better digestibility, alkalinity,
buffering capacity and certain therapeutic values in human nutrition and medicine
(HAENLEIN and CACCESE, 1984; PARK and CHUKWU, 1989; PARK, 1994).
Goat milk is important for prevention of cardiovascular disease, cancer, allergy and
microorganism and used for stimulation of immunity. Goat milk is recommended for
infants, old and convalescent people (HAENLEIN, 2004; ZENEBE et al., 2014).
Comparing the biological value of goat, sheep and cow milk protein, FENYVESSY
(2009) stated that the protein of goat milk was the most valuable, followed by the
protein of sheep and cow milk. The ratio of essential amino acids was 46.7% in cow
milk, 48.0% in sheep milk and 52.5% in goat milk (AGNITHORI et al., 1993 and
FENYVESSY et al, 2001 in FENYVESSY 2009).
Goat milk has predominantly smaller fat globules compared to cow milk and is easier
to digest (FEVRIER et al., 1993; JANDAL, 1996; LÓPEZ et al., 2003; RAMOS et al.,
2005; OLALLA et al., 2009; YANGILAR, 2013). Thus, goat milk is a valuable
alternative for babies, adults and nursing mothers, also (BALDO, 1984; HOST et al.,
1988).
Goat milk has been recommended as a substitute for patients allergic to cow milk
(TAITZ and ARMITAGE, 1984; PARK, 1994; GUO et al., 2004; YANGILAR, 2013).
40-100% of patients allergic to cow milk proteins tolerate goat milk (ZEMAN, 1982;
PARK, 1994). The uniqueness of goat milk, yoghurt and cheese in human nutrition
has several aspects: goat milk can be used for the treatment of direct or indirect cow
milk allergy (GREZESIAK, 1989 in ANAETO et al., 2010).
When analysing the characteristics of goat milk, JANDAL (1996) reports on its
several aspects:
Physicochemical aspects: Goat and sheep milk is white in colour compared with cow
milk, which is yellowish because of the presence of carotene. Goat milk has a
stronger flavour than sheep milk, and is alkaline in nature, which is very useful for
people with stomach acid problems.
Medical aspects: Goat milk is prescribed by many doctors for children who are
sensitive to cow milk, and is an alternative for people who are allergic to cow milk.
Nutrition aspects: The fat of goat milk is more digestible than milk, and the fat
molecules are smaller and have a greater surface area.
Biological aspects: Goat milk is easier to digest because of its natural
homogenization, which is superior to the mechanical homogenization of cow milk.
Immunological aspects: The non-allergenic properties of goat milk are due to the fact
that most of the milk proteins are unable to pass through the walls of the digestive
tract in their original, undigested, allergenic states.
Goat milk and manufactured goat milk products have a three-fold significance in
human nutrition, as HAENLEIN (2004) summarises:

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- feeding more starving and malnourished people in the developing world than
from cow milk;
- treating people afflicted with cow milk allergies and gastrointestinal
disorders, which is a significant segment in many populations of developed
countries;
- meeting the gastronomic needs of connoisseur consumers, which is a
growing market share in many developed countries.
Although PARK (2010) and MOWLEM (2005) mention two formidable barriers in
marketing goat milk products: negative public perception of “goaty” flavour, and
seasonal milk production, which prevents year-around uniform marketing.
1.3. Nutritional value of manufactured goat dairy products: cheese

Cheese is a fermented dairy product, which has hundreds of varieties. It is probably
the most popular and well known value added dairy product (PAL, 2014 in PAL et
al., 2017). The proportion of goat milk processed into cheese and yoghurt is higher
in comparison to cow milk (MORAND-FEHR et al., 2007; RIBEIRO – RIBEIRO,
2010). The high fat-content of goat's milk makes it very suitable for cheese-making,
and some delicious cheeses can be made (PEACOCK, 1996).
Chesses hold the greatest economic value among all manufactured goat milk
products. Agricultural Handbook No. 54 of the USDA describes over 400 varieties of
goat cheese and lists over 800 names of cheeses, many of which are made from
goat milk or combinations of goat with cow, ewe, or buffalo milk (PARK, 1990 and
SANDERS, 1969 in PARK, 2010).
There are goat cheeses made from raw and pasteurized milk. In many countries, the
manufacture of goat cheese from raw milk is prohibited due to food safety issues
(e.g. brucellosis). The type of milk used significantly influences the finished cheese
(LOEWENSTEIN et al., 1980).
Hundreds of types of cheese are made around the world. Northern and Southern
European countries have developed many types of goat's milk cheese, and the
recipes for some have spread outside Europe. Few countries in the tropics
traditionally make cheese, and even fewer make cheese from goat's milk. This
reflects local traditions and the small quantities of milk produced by most goats in
the tropics, rather than any lack of potential. India and Central and South America
are the main areas in which goat's cheeses are produced. About 7.5 litres of milk are
needed to produce one kilo of fresh cheese, but over 10 litres are needed to make a
kilo of hard cheese. The harder cheeses often become popular with urban residents
as they become richer and are able to afford them. It is good for poorer farmers to
take advantage of the increase in wealth of urban dwellers and sell them valuable
products, provided that the farmers get a fair price for their products. (PEACOCK,
1996).
Soft and semi hard varieties of cheeses are made from goat milk. In European
countries, these cheeses are marketed as premium cheese. Greece and France are
the most important goat milk cheese producing countries in Europe. In India, goat
milk has been used for making hard cheese. Goat cheese is easier on the human
digestive system and lower in calories, cholesterol and fat than its bovine

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counterpart. Goat milk cheese is rich in calcium, protein, vitamin A, vitamin K,

phosphorus, niacin and thiamin (ANON, 2012 in BHATTARAI, 2012).
In some cheeses a relatively strong „goat like” flavour is preferred but for other
products the absence of characterising flavour is favourable (YANGILAR, 2013). The
specific „goat flavour” may be undesirable in milk for direct consumption but for
cheese production its presence can be much sought-after (MORGAN – GABORIT,
2001).
2. The Applied Research method
For analysing the perception and acceptance cheese made from goat, sheep and
cow milk, blinded test was used, as a primary research method. Respondents were
asked to test the 3 different cheese.
The three cheeses have been purchased directly from local producers, so they are
handmade quality products. Respondents did not know what kind of cheeses they
tested. Cheeses were numbered (No.1: cheese made from cow milk, No.2: cheese
made from sheep milk and No.3: cheese made from goat milk).
Table 1. Characteristics of the sample n=202

Gender %
Male 34
Female 66
Age groups
15-24 years 33
25-35 years 15
36-45 years 24
46-54 years 14
55-64 years 6
65- years 8
Place of residence
Capital city 1
City of county 36.6
Town 50.5
Village 8.9
Educational level
Elementary school 13
Secondary school 59
University degree 28
Perceived income level
Significantly under the average 3
Under the average 17.8
Average 68.3
Above the average 5
Significantly above the average 5.9
Source: own research, 2018, 2019

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Characteristics (outside- and inside look, smell, taste, fatness and colour) of the 3
cheeses were tested by the respondents using Likert scale 1-10 (1 meaning the
worst and 10 meaning the best). The affordable price of 100 gr of the 3 different
cheese were also asked, as well as the preferred way of consumption.
The survey was conducted in the autumn 2018 and the beginning of 2019 with the
involvement of 202 respondents. Location of data collection was a postsecondary
school and companies in Debrecen, Hungary. Paper based data collection was
carried out during the blinded test. Data were processed in SPSS. Regarding
statistical methods, mean, median, standard deviation coefficient (H) and coefficient
of variation (H2) were calculated. The coefficient of variation is the ratio of standard
deviation to the mean expressed as percentage. Coefficient of variation can be
defined as the coefficient of standard deviation with respect to mean which is
generally expressed in terms of percentage. Coefficient of variation is used to
compare the variability of two or more series. Standard deviation coefficient (H) is
the square root of the coefficient of variation.
The introduction of the sample is shown in Table 1. It shows that the proportion of
female to male in the sample is almost two times higher. Regarding the age
distribution of the sample, the proportion of age group 15-24 is the highest. The
place of residence is mainly city of county and town (36.6% and 50.5% respectively).
The highest level of school respondents have completed is secondary school (59%).
The perceived income level of respondents was average for most respondents
(68.3%).
3. Results
Respondents had to evaluate the three different cheeses using Likert scale 1-10 (1
is the worst and 10 is the best). Five different characteristics were evaluated by the
respondents like outlook, smell, fatness, taste and colour. The cheeses to be tested
were marked with numbers and were offered on separate plates. Cheese No 1.:
cheese made from cow milk, Cheese No 2.: cheese made from sheep milk and
Cheese No. 3.: cheese made from goat milk. When tasting the cheeses respondents
were asked to fill in a questionnaire.
Evaluation of cheese No 1 (cheese made from cow milk) can be seen in Table 2.
Table 2. Evaluation of cheese No. 1 n=202

Value Characteristics
Outlook Smell Fatness Taste Colour
Mean 8,39 7,99 8,28 8,04 8,55
Median 9,00 8,00 8,00 8,00 9,00
Standard deviation 1,703 1,938 1,578 2,030 1,911
Regarding cheese No. 2 (made from sheep milk) the same evaluation system was
applied, results are shown in Table 3.

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Mean 8,32 8,27 7,00 7,68 8,21
Median 9,00 8,00 7,00 8,00 8,00
Results for cheese No. 3 (made from goat milk) can be seen in Table 4.

Mean 8,12 8,03 7,89 7,46 8,24
Median 8,00 8,00 8,00 8,00 9,00
Results of the empirical research show in all cases, that the mean is relatively high,
around 8 in case of each characteristics with only slight differences. The median is
the value separating the higher half from the lower half of a data sample. In case of
our research, the median is around the mean. Regarding standard deviation, a low
standard deviation indicates that the data points tend to be close to the mean of the
set, while a high standard deviation indicates that the data points are spread out
over a wider range of values. The standard deviation shows in all three cases that
our data are not homogenous. The results show that the perceived characteristics
of the tested cheese were rather similar for respondents, however the data were
heterogeneous. This results is in contrary with the findings of some previous studies
(PARK, 2010 and MOWLEM, 2005), that goat milk products have a “special smell
or flavour”.
We asked our respondents how much they would pay for 100 gr cheese? The mean
was 200 HUF for cheese No. 1, 240 HUF for cheese No. 2 and 250 HUF for cheese
No. 3. It shows, that respondents would pay the highest amount for goat cheese.
We can suppose that this high price is connected to the perceived best quality.
We asked our respondents how they would eat the tested cheese. They had to
consider the following options: alone, grilled and use as a kitchen row material. They
had to rate these option on a scale 1-3, where 3: the most and 1: the least. Answers
can be seen in Table 5, 6 and 7.
For the cow cheese we can state that the preferred way of consumption is alone
(mean=2,40), followed by as a kitchen row material (mean=2,35), while the grilled
version (mean=2,09) is the least preferred way of consumption. For the sheep
cheese we got the same order, but the means for the first two versions (mean=2,16
and 2,14 respectively) were much lower. In case of the goat cheese the most
preferred way of consumption is as a kitchen row material (mean=2,30) followed by

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alone (mean=2,24) and the grilled version is the least preferred way of consumption
(mean=2,07).
Table 5. How would you eat cheese No. 1? (made from cow milk) n=202
Value How to eat it
Alone Grilled Use as kitchen row material
(to pizza, soup, etc.)
Mean 2,40 2,09 2,35
Median 3,00 2,00 3,09
Standard 0,910 0,871 0,837
deviation
Table 6. How would you eat cheese No. 2? (made from sheep milk) n=202
Value How to eat it
Mean 2,16 2,08 2,14
Median 2,00 2,00 2,00
Standard 0,961 0,929 0,885
deviation
Table 7. How would you eat cheese No. 3? (made from goat milk) n=202
Value How to eat it
Mean 2,24 2,07 2,30
Median 3,00 2,00 2,00
Standard 0,958 0,884 0,827
deviation
It can be stated, that in all cases the mean and median are quite close to each other.
The standard deviation is low, thus the data are homogenous. It can be stated, that
respondents would like to eat in the same way all the three cheeses.
The coefficient of variation (H2) calculated by the division of the external variance
and the total variance, shows how the salary category determines the amount to be
paid for cheese. This value is 0,493%. The standard deviation coefficient (H)
defines the strengthness of the relationship between the above mentioned two
criteria. It is 0,07%. This means that the amount to be paid for the cheese does not
depend on the income level of respondents.
The coefficient of variation (H2) calculated by the division of the external variance
and the total variance, shows how the age category determines the amount to be
paid for cheese. This value is 3,289%. The standard deviation coefficient (H)
defines the strengthness of the relationship between the above mentioned two

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criteria. It is 0,18%. This means that the amount to be paid for the cheese does not
depend on the age of respondents.
5. Conclusion
Goat milk products are not among the everyday consumed dairy products in
Hungary due to several reasons. Among these reasons we have to point out that
these products are not easy to purchase, since they can be purchased mainly
directly from the farmers or at large supermarkets. The price of these products is
relatively high and last but not least they said to have (or at least believed to have)
a special “goaty” flavour and smell. Our empirical research with a sample of 202 in
Debrecen region, Hungary explored the perception of goat cheese regarding its
outlook, smell, fatness, taste and colour is almost the same as in case of the tested
cow and sheep cheese. The price our respondents would be willing to pay was the
highest for the goat cheese. Regarding the preferred way of consumption, it is rather
similar for all the three tested cheese (cow, sheep, and goat). They would consume
it alone as a cheese plate, grilled or even as an ingredient to other meals, such as
pizza, soup, etc. Based on these results we can state that the perception of goat
cheese was not worse than of the tested cow and sheep cheese. Even its smell was
not perceived as a negative feature. However further investigation is needed to
study the perception of smell of goat cheese. As it is known from empirical studies,
the “goaty” flavour of goat milk products is mainly undesirable, but in case of goat
cheese it is highly favoured and sought. Our respondents were willing to pay the
highest price for the goat cheese (250 HUF/100 grams). We can suppose that this
price is connected to the highest perceived quality, however this price is still much
lower than the current market price of goat cheese in Hungary. The goat milk as an
excellent food source is undeniable. When marketing Hungarian goat cheese, its
taste, ways of consumption (recipes) and local handmade nature should be
emphasised.
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DROPPING OUT OF VOCATIONAL TRAINING – HUNGARIAN EXPERIENCES
CSEH PAPP Imola1, DAJNOKI Krisztina2

1
Szent István University, Faculty of Economics and Social Sciences, Gödöllő,
Hungary
2
University of Debrecen, Faculty of Economics and Business, Debrecen, Hungary
papp.imola@gtk.szie.hu
dajnoki.krisztina@econ.unideb.hu
Abstract: Despite the improving level of education in Hungary, the proportion of
people with low school qualification who are permanently excluded from the labour
market is still significant. For them – even under current labour market circumstances
– the supply of jobs is very limited, hence, their employment rate is decreasing, while
their unemployment and inactivity are rising. The study focuses on the issue of
secondary school dropout in international and Hungarian, theoretical and empirical
contexts. The importance of the subject is due to the fact that early school leaving is
a complex phenomenon that affects a range of areas outside the educational and
training system, therefore the management of the problem is a priority. Using the
methodology of questionnaire surveys and semi-structured conversations, the study
aimed at the exploration of the school life of people who dropped out of vocational
training, the conditions of dropping out and the applied compensatory measures.
The sole solution for the people concerned is public employment and the various
types of aid that further increase their marginalization. Results of the study pointed
out the impact of family background, the positive experience of school reintegration,
and the role of career choice based on misinformation or compulsion. Conclusions
of the study provide an adequate framework for the development of an action plan
that may serve as a basis for future prevention, intervention and compensation
developments. The conclusion of the research is that due to the strong family ties of
the dropped out people it would have been rational for the school to focus on
preventive measures in the form of closer contact with parents. Increasing the role
of homeroom teachers might also be a key factor in preventing early school leaving.
The results point to the conclusion that the presence of career guidance sessions is
not sufficiently emphasized in educational institutions. As a suggestion, it could be
argued that higher level teaching of learning techniques and the elimination of skill
deficits could be a key element of education not only in the field of adult education
but already in ninth grade, trying to prevent dropping out before it is realized.
Keywords: drop out; Hungary; labour market; return to education; vocational
training.
JEL Classification: I26; J29.
1. Theoretical background: risk factors
Summing up publications by overseas authors, Freeman and Simonsen (2015)

classified the risk factors of early school leaving into two categories: social status

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factors (qualification level and employment of parents, gender, age, social

disadvantage, native language, mobility, family structure, etc.) and alterable risk
factors (failures in learning, retention, attendance and absence, misbehaviour, early
aggression).
From among the risk factors of early school leaving, others also emphasize the
impact of family. Hickman, Greenwood and Miller (1995), Knesting (2008), Terry
(2008), Kroon et al. (2016), Stratton et al. (2017) and Dommers et al. (2017) found
that completion of vocational training is strongly influenced by family-specific
impacts.
According to Hungarian experts (Liskó, 2004, 2005, 2008; Kertesi and Kézdi 2008,
2010, 2011, 2013; Szanyi-F, 2013; Hegedűs and Podráczky J, 2013), one of the
properties influencing the schooling prospects of children is the residence of families:
above average amount of high school students live in big cities, while the majority of
students of vocational institutions live in small towns and villages. The second
characteristic is the existence/nonexistence of an intact family (the lower the level of
training children are participating, the more likely their parents are divorced or one
of the parents has deceased). Further links have been pointed out by other research
(Budavári-Takács and Szalma, 2009, Czech-Papp, 2010, Czech-Papp and Hajós,
2014) concerning later dropout, the earnings of parents, income status of families,
age of the child by the time the parents lose their job and ethnic composition of
families.
Relating to alterable risk factors, research findings of Lee and Breen (2007) and Suh,
Suh and Houston (2007) have shown that not only poor school achievements lead
to high school dropping out – 43% of underachieving students involved in the study
have successfully completed high school. Students who were absent multiple times
and had a pessimistic look towards the future were exposed to the greatest danger.
In the scope of her research involving Dutch students, Elffers (2013) found
differences in terms of the so-called behavioural engagement in the case of groups
of students threatened and not threatened by dropping out. Definition of the concept
can be described by active engagement in school activities, such as regular
attendance of the classes, timely arrival, attention towards the teacher, and
execution of the work assigned to them. Insuperable challenges were reported by
involved students in the scope of the research of Frederick and Goddard (2010), and
Van Caudenberg and his associates (2017).
The starting point for Kigon and Boekaerts (2005) was that the high dropout rates in
secondary vocational training can also be explained by the fact that the students
concerned do not really identify with their school (they do not really fit in). In the
course of the study, self-regulation ability of students, their internal motivations and
the willingness to meet external expectations were analysed. As a result, the first
three key factors were identified as the judgment from teachers and fellow students,
the usefulness of school subjects and the degree of alienation from the school.
High school failures are closely related to the serious shortcomings of basic skills
acquired in primary school, so the success of high school depends considerably on
primary school (Livingston, 1959) and on the preceding years (kindergarten years).
The findings of Hungarian researchers are in line with international results (Kertesi

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and Kézdi, 2010, 2011, 2013). One of the main causes of dropout is the failure to
pass, retention, weak mid-semester achievements. Absences show a significant
correlation with the occurrence of primary school failures (Fehérvári, 2008; 2012;
Mártonfi, 2008). Almost 40% of all young people in vocational schools have failed to
pass in primary school at the end of at least one of the years (Mártonfi, 2004). Also
the ones who had to repeat some of their primary school years due to failure to pass,
usually enrolled in a vocational school due to compulsory schooling but there is a
70% chance that they do not reach the final examination to become a skilled worker
(Mártonfi, 2014). Dropout from vocational training occurs mainly in the first and
second grades before the actual professional training begins.
According to the findings of Bodacz-Nagy (2011), 38% of those who were compelled
to choose a professional training failed at the end of the year, while only 22% of
those who desired to learn the selected profession. Initially, the majority of those who
dropped out did not want to study a profession, they intended to acquire a secondary
school graduation (Fehérvári, 2012), or they originally did not intend to study that
particular profession but for some reason they were forced to (Czech-Papp, 2006,
Bodacz-Nagy, 2011; Domokos, 2000). Compelled choices lead to dropping out at a
significantly higher rate than choices based on own interests or intentions.
As for the further fate of secondary school dropouts (Liskó, 2003; Fehérvári, 2008;
Köpeczi-Bócz, 2013; Cockx and Picchio, 2013; Fehérvári, 2015; Iannelli, Duta,
2018), it is expectable that: one-quarter of them succeed to stay in another school;
one-third find some work (mainly occasional ones, illegally employed, paid in cash);
40% of them will be unemployed, but they will have intention for further education.
2. Material and method
The aim of the research is to determine how to reduce dropping out from vocational
schools.
Consequently, the study focuses on family circumstances, school career and current
job market status of vocational education dropout students
The abductive nature of the research does not require the establishment of
hypotheses, but the exact formulation of research questions is of paramount
importance. The research questions of present study are related to the family, career
choice and school conditions characterizing dropout students; how the involved
students were affected by the period following the dropout, and how the returning
opportunity of learning influenced them. Such abductive research is particularly well
suited to topics where only limited knowledge is available and the researcher is able
to rely on the mental models of those involved.
3. Results of the questionnaire survey
The questionnaire part of the empirical research work was based on a paper-and-
pencil survey of 103 individuals who dropped out of vocational training; the
questionnaire mostly contained closed questions and 5-point Likert scale. The
questionnaire survey was aimed at exploring the socio-demographic characteristics,

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school life, dropout circumstances of dropped out individuals as well as the taken
compensatory measures. The survey was conducted in four counties of Hungary
with average economic (labour market) indexes in the spring of 2017. Data was
processed by means of descriptive statistics and crosstab methodology.
3.1. Demographic data

The surveyed sample is not representative (n = 100), considering that it is based on
a group of individuals, which is relatively difficult to reach. Gender distribution is
almost equal: 47% of the respondents are male and 53% are women. The
participants are young people, the average age is 27 years, one-third (33%) is under
the age of 25 years, the youngest respondent is 16 years old, the oldest is 52. As for
their place of residence, smaller settlements are typical: 51% live in villages, 46% in
small towns, while 3% on remote farms.
Three-quarter of the respondents (75%) dropped out of vocational schools (ISCED
2/3 C) – currently known as vocational secondary schools – one-quarter (25%) of
vocational secondary schools (ISCED 3 A) – currently referred to as specialised
secondary schools. More than one-third (39%) dropped out of first grade of the
secondary school, nearly half of them (45%) from second grade and 16% from the
third grade. 21% of the respondents continued their studies after dropping out (13%
learned a profession, 8% passed the final examination).
School qualification of parents is low; almost half of the parents (58% of mothers,
46% of fathers) attended primary school only. There is no fundamental difference
between the school qualification of mothers and fathers. In the case of the majority
of respondents (56%), the parents live together; the number of those who were
raised in a one-parent family is slightly less (44%).
More than half of the respondents (52%) are unemployed.
Early school leavers included in the examined sample are young people living in
small settlements who are characterized by parents with low school qualification and
unemployment status. The education level of the involved respondents is usually
higher than that of their parents.
3.2. Circumstances of dropping out

Most of the individuals surveyed in the scope of the study (53%) left school due to
an excessive amount of absences (14% of them left due to pregnancy), one-fifth
(21%) left because of failure, 19% left to pursue other professions (three-quarter of
them have successfully finished that), and 7% were dismissed for behavioural
problems (Figure 1). Of those who dropped out of secondary school because of
failing classes, only 2% have previously failed in primary school.
The surveyed respondents – based on their replies – were not bad students. By their
own admission, their average grades were the weakest in mathematics: 2.43,
followed by literature: 3.01, followed by history: 3.02 (Hungarian education system
uses a classification of grades ranging from 1 to 5, where 1 means failure and 5 is
the best grade). All of the respondents received the highest grades in the case of
their professional subjects with an average of 3.23.

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I chose another behavioural problems

profession… 7%
I failed
21%
I had too much absence

53%
Figure 1. Distribution of the reasons of dropping out

Source: own examination
Concerning the observations, there is no fundamental difference between theoretical

and practical subjects (Figure 2).
excellent
good
technical subjects
fair history
mathematics
satisfactory
Hungarian
unsatisfactory
0 20 40 60
Figure 2. Distribution of the grades of respondents

However, the replies concerning the importance of learning theoretical and practical
subjects showed a greater difference (Figure 3). Dropped out individuals clearly
considered practical training more important than theoretical education. The
significance of activities in the school educational workshop was 3.83; practical
training at companies was rated at 3.50, while theoretical education received a score
of 3.23. Some inconsistency is detectable between the average of received grades
of respondents in the case of professional subjects (3.23) and the mean score (3.53)
assessing the importance of practical training.

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very important
practical training at
quite important companies
variable practice in school

workshops
less important
theoretical subjects
not at all
0 10 20 30 40
Figure 3. Distribution of the opinions of respondents concerning the importance of

theoretical and practical subjects
The mean value of educational help received in secondary school is much lower than
it was in the case of primary school (Figure 4).
almost always
classmate
many times
friend
variable older student

homeroom teacher
few times father
mother
no at all
0 20 40 60 80
Figure 4. Help received by respondents for their education in secondary school (%)
Students received the most help from their mothers in this case as well (3.01),
followed by the role of the father (2.71) and then the homeroom teacher (2.5).
Respondents assessed the received help from older/senior students only with a
mean score of 1.63. The largest decline in terms of mean value was found in the

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case of the homeroom teacher: while in primary school this value was 3.32
(equivalent to the father), it was only 2.5 in secondary school (Figure 5),
3,5
3
2,5
2
1,5
1
0,5
0
mother father homeroom older student
teacher
Figure 5. Assessment of the amount of help received by respondents during
secondary school
Thus, the amount of received support for learning in secondary school is

considerably lower and decreases the most in the case of the homeroom teacher.
One-quarter of respondents (27%) did not ask for any sort of contribution from their
homeroom teacher. One-third (35%) of the respondents did not ask for any help from
anyone, while 24% considered their demand for support medium-level.
As for the discussion of non-education related problems, the score of mothers is the
highest: 2.9, followed by the role of the father with 2.65, then followed by the role of
friends (not schoolmates) with 2.6. The influence of the father and the group of
students at the same age are almost the same. Considerably less help was used by
the participants of the sample for their non-school related problems. The role of the
homeroom teacher in solving non-school problems was very low (1.84). 57% of the
respondents did not ask any private help from their homeroom teachers.
Focusing on the family background, in the case of more than half of the
respondents (56%) their families did not agree with or explicitly opposed early
school leaving. One-fourth of the sample (24%) experienced indifferent
attitude, while one-fifth (20%) of the respondents received supportive
reactions (Figure 6).

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the absolutely supported it

10%
the supported it
10%
they opposed it
46%
they had no
opinion about it
24%
they did not agree with

it, but they accepted it
10%
Figure 6. Distribution of the attitude of family members towards early school leaving
Dropped out individuals clearly consider practical training more important than
theoretical education, however this is not reflected in their grades and achievements.
The extent of learning support in secondary school is significantly lower than in
primary school and the largest decline is observed in the case of the homeroom
teacher. Nearly half of the respondents (40%) do not discuss their personal problems
with anyone. Almost half of the respondents had someone else in their families who
dropped out of school as well. The majority of the parents of those who had dropouts
in their families did not agree with early school leaving (91%).
4. Conclusions
Life-path of young people involved in the study can be a starting point for training
reforms. Findings at the end of the analysis - due to the low sample size - are mostly
thought experiments, but we hope that we might also contribute to the scientific and
everyday discussion on early school leaving.
Findings relevant to complex research are the following:
Due to the strong family ties of the dropped out people (significant learning and other
problem-solving assistance from the mother; most of them intend to establish a
family in the future), it would have been rational for the school to focus on preventive
measures in the form of closer contact with parents. Family influence can help
prevent early school leaving.
Increasing the role of homeroom teachers might also be a key factor in preventing
early school leaving, because their frequent presence and the covered topics of their
lessons might draw attention to the context of training and labour market, that
learning is necessary for student to be able to be employed later.

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The results point to the conclusion that the presence of career guidance sessions is
not sufficiently emphasized in educational institutions. These sessions are often led
by homeroom teachers due to funding reasons or in the absence of a qualified
professional. It is therefore proposed to increase the presence of career guidance
within the education system. Respondents are not aware of their employment
opportunities either; the lack of knowledge concerning the labour market is common.
Currently, career counsellors or employment advisors work in all major settlements,
schools, child welfare services, employment offices; their help is available for
students. Intensive inter-sectoral cooperation is also of importance.
Excessive number of subjects taught in ninth and tenth grade not directly relating to
the given profession was mentioned in the questionnaires and in the course of the
conversations as one of the reasons of dropping out of school. Therefore, it would
be worthwhile to apply a practice-oriented "learning by doing" type of education in
vocational schools. Students should develop a sense of usefulness towards learning.
As a suggestion, it could be argued that higher level teaching of learning techniques
and the elimination of skill deficits could be a key element of education not only in
the field of adult education but already in ninth grade, trying to prevent dropping out
before it is realized. During their training, students need to be able to resolve their
frustrations and inhibitions caused by their existing or earlier school conflicts. Re-
thinking and changing educational methods might helpful for that.
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EXAMINING ORGANIZATIONAL CULTURE WITH OCAI AMONG EMPLOYEES

OF A SERVICE COMPANY
FILEP Roland
Károly Ihrig Doctoral School in Business Economics and Organizational Studies,
filep.roland@econ.unideb.hu
Abstract: The issue of organizational culture is a much researched area; several
related models have been created over the previous decades and it is still a current
topic. In this paper, following a brief theoretical overview of the topic, I have
measured the organizational culture of a service company with the Organizational
Culture Assessment Instrument (OCAI) questionnaire developed by Cameron and
Quinn. The questionnaire contains a set of 4 statements, to be considered in 6
dimensions (dominant characteristics, organizational leadership, management of
employees, organization glue, strategic emphases and criteria of success), each
corresponding to 1 culture type (clan, adhocracy, market, hierarchy). In recent years,
many research studies have been written using the OCAI questionnaire among
different kinds of organisations, including logistics enterprises, family firms and
universities. We have the ability with OCAI to determine the values that are perceived
and considered ideal by employees, both for the individual units and for the whole of
the organization. I have used descriptive statistics, and one-sample and paired t-
tests to obtain answers to my research questions. As regards hierarchy-adhocracy,
employees perceive the culture they currently experience and the one they consider
ideal to be the same. With the exception of the organisational leadership (2)
dimension, they feel the culture to be close to a hierarchical one, and distant from
an adhocracy. The need for change appeared in the market-clan cultures; the culture
that was perceived to be dominant was more of a market culture than the others, but
respondents considered a clan culture was the ideal, a finding which was similar to
a previous research study on logistics companies. The direction that was considered
desirable is not necessarily an ideal direction of intervention for a profit-oriented,
service organization; however, it may be worth taking into account the results of the
decisions affecting the culture of the managers of the company examined, and
managers of other companies that achieve similar results.
Keywords: organizational culture; person-culture fit; OCAI.
JEL Classification: M14; J24.
1. Introduction
I present my empirical research among employees of a service organization in this

paper, which was designed to assess the organizational culture that was currently
perceived and considered ideal by the staff, without specifically referring to the
company name; I use the name "service organization" to guarantee anonymity.
Following a brief theoretical overview of the topic, I have evaluated the

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questionnaires completed by 24 employees of the service organization examined. I

used the Organizational Culture Assessment (OCAI) questionnaire developed by
Cameron and Quinn, which is based on the Competing Values Framework
(Cameron and Quinn, 2006). The following research questions (Q1, Q2) were
formulated:
Q1: Which of the four cultural types of the Competing Values Framework includes
the organizational culture perceived or considered ideal by employees?
Q2: Is there a difference between perceived and ideal cultures?
The issue of organizational culture is a much researched area; several related

models have been created in the previous decades and it is still a current topic. Covin
and Slevin (1990) distinguished between technical and organic culture. According to
the typology of Handy (1993), the culture of every organization can be classified into
one of the following: power, role, task and person cultures. Marcoulides and Heck
(1993) developed a model and examined how the visible features of culture can
influence the performance of an organization. According to Sein (2010), the role of
culture has a dual, stabilizing function, but it is also capable of learning so it also has
an innovation role. Based on empirical research involving companies in different
industries (Baetge et al., 2007), the organizational culture, performance and success
of companies co-exist. Ogbonna and Harris (2000) also used empirical research to
show the relationship between leadership, culture and performance.
Figure 1: The Competing Values Framework

Source: Cameron and Quinn, 2016: 35

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Cameron and Quinn (2006) created the Organizational Culture Assessment

Instrument (OCAI) questionnaire, based on the Competing Values Framework. This
has led to the development of a tool for measuring culture, which enables the culture
of business enterprises to be measured, too. In their organizational culture model,
four different types of culture were distinguished in two dimensions, where the two
dimensions represented internal or external focus, and flexibility or stability (Figure
1).
In recent years, many research studies have been written using the OCAI
questionnaire. Ujhelyi and Kun (2016) conducted research with university students,
Ližbetinová and her research associates (2016) examined logistics enterprises, and
Zhang and Li (2013) examined the culture of family firms. Using OCAI we have the
ability to determine the values that are perceived and considered ideal by
employees, both for the individual units and for the whole of the organization (Ujhelyi
and Kun, 2016).
Below, I describe the culture types shown in Figure 1 above, based on Cameron and
Quinn’s model (2006).
For a hierarchy, formal rules and policies hold the organization together. Strong
formalization and structuring are characteristic, and efficient and well-coordinated
leaders control employees with various rules and regulations. The organization is
committed to efficiency, stability and predictability over the long term.
In the culture of the market, the cohesive force is the constant emphasis on victory,
and a strong results orientation. Leaders are rigorous and tough competitors. In the
long term, their goal is to set and achieve challenging goals to increase market share.
An organization with a clan culture focuses on loyalty and tradition, and the
commitment of the employees to the organization is high. The workplace provides a
friendly environment, and people share many things, like a large family. Leaders act
as mentors, characterized by teamwork and consensual decision-making, and
emphasize that the development of individuals is a long-term benefit of the
organization.
In the case of adhocracy, commitment to experimentation and innovation is the
"glue" between members. Leaders and employees are risk takers in a dynamic, ever-
changing environment. The long-term goal of the organization is to achieve rapid
growth and to acquire new resources. The creation of new products and services
represents success for the organization, so it is important to adapt to change and to
be open to new challenges.
3. Methodology
After the theoretical review I present my own empirical research below. My culture
survey questionnaire, following Cameron and Quinn’s (2006) original, contained 4
statements to be considered in 6 dimensions, which I supplemented with some
demographic detail. The 4 statements (A, B, C, D) in each of the 6 dimensions each
correspond to 1 culture type (clan (A), adhocracy (B), market (C), hierarchy (D)). It
was necessary to allocate 100 points per dimension to the respondents among the

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4 statements, where the higher score was the one that was considered more
characteristic of their organization. In the questionnaires, the respondents had to
evaluate the culture they perceived to be ideal. 24 questionnaires were collected in
total by the service organization on a paper basis in a voluntary and anonymous
form. The gender breakdown by age is shown in Table 1 below.
Table 1. Distribution of sample by gender and age (capita)

No age
19-25 26-35 36-45 46-65 Over 65 All
Men 0 5 1 1 0 7
Women 2 7 6 2 0 17
All 2 12 7 3 0 24
Source: Author’s own research results
4. Results
I present my results below, in a structure similar to Ujhelyi and Kun’s (2016) work.
The first part of Table 2 contains 4 statements per dimension. In cases of accidental
response, a value of 25 is expected per statement. In the case of the 24 statements
(6 dimensions x 4 questions = 24), the average respondent values for the current
culture differed from the expected value of 25 in 18 cases. These t-test values
indicating the deviations are marked with "**" in column "t". The statistical
significance of the deviation was checked by a one-sample t-test at the 5%
significance level.
Compared to a random distribution (taking into account the results of the t- test), a
higher value was added to the current culture for 1C, 2C , 3C, 4C, 5C, 6C, and lower
one for 1A, 1B, 2A, 2D, 3A, 3B, 4B, 5A, 5B, 5D, 6A, and 6B. In relation to the ideal
culture, the evaluation of 3A, 4A, 5A, 5C, and 6C increased compared to a random
result, and the evaluation of 1B, 1C, 2B, 3B, 3C, 4B, 4C, 5B, 5D, and 6B decreased.
The results show that the culture of the service organization is perceived by workers
in all dimensions as a market culture, and much less a clan culture, and that, with
the exception of the organizational leadership (2) dimension, they are close to a
hierarchy culture and perceived to be far from an adhocratic one.
When defining the ideal culture, dominant features were significantly above average
for the clan (true, the market was above average, too), and below average for
adhocracy and hierarchy. As regards the desired leadership (2), strategic emphases
(5) and the criteria of success (6), the respondents’ expectations were that the
organisation is characterised by a culture which is close to a market and to a
hierarchy; however, they expect a below average level of market like culture in terms
of the operational style (3), and the organisational glue (4).
The difference between the present and the ideal culture was examined with paired
samples t-tests, and I found it significant in the case of the statements “A” and “C”
for all dimensions. In the case of organizational leadership (2), statements “B” and
“D, and in the case of Management of Employees (3) “B”, and Organization Glue (4)
“D” were also significant; in the Strategic emphases (5) section, in the case of the

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statement marked by a “C” there appeared the greatest difference between the
currently experienced and the ideal cultures.
Table 2. Values of OCAI Dimensions

Dimension Current Ideal Difference
Std. Std.
Name T Mean Deviation t Mean Deviation t t
1. Dominant
A 21.58 6.31 -2.65** 28.21 7.75 2.03 -3.55**
Characteristics
** **
B 21.88 6.22 -2.46 22.92 4.64 -2.20 -1.15
** **
C 32.63 8.13 4.59 21.88 6.89 -2.22 5.73**
D 23.92 9.29 -0.57 27.00 7.19 1.36 -1.80
2.Organizational
Leadership A 13.88 7.74 -7.04** 27.08 8.33 1.23 -5.32**
B 24.75 7.41 -0.17 21.46 7.87 -2.21** 2.44**
**
C 40.17 11.64 6.38 27.58 11.33 1.12 5.39**
D 20.79 9.51 -2.17** 23.88 9.82 -0.56 -2.80**
3. Management ** **
A 10.83 6.02 -11.53 33.13 8.82 4.51 -9.33**
of Employees
B 15.63 3.93 -11.68** 21.67 5.45 -3.00** -5.80**
C 50.75 14.64 8.62** 17.08 4.40 -8.81** 9.98**
D 22.79 12.46 -0.87 28.13 7.49 2.04 -1.98
4. Organization **
A 25.63 5.58 0.55 32.29 6.08 5.88 -10.25**
Glue
B 22.29 6.08 -2.18** 21.88 5.67 -2.70** 1.00
** **
C 27.29 5.31 2.11 22.29 5.10 -2.60 7.43**
D 24.79 6.99 -0.15 23.54 7.29 -0.98 2.76**
5. Strategic ** **
Emphases A 17.33 6.57 -5.72 29.17 7.76 2.63 -6.03**
B 16.75 6.56 -6.16** 17.92 6.06 -5.72** -2.03
C 48.04 9.48 11.91** 33.71 8.90 4.79** 6.94**
D 18.50 7.68 -4.14** 19.21 6.07 -4.67** -0.61
6. Criteria of **
A 15.33 6.77 -7.00 26.88 6.22 1.48 -5.60**
Success
B 17.33 5.31 -7.08** 18.58 5.79 -5.43** -1.66
C 44.38 11.82 8.03** 32.75 8.02 4.73** 5.53**
D 22.96 9.29 -1.08 21.79 7.77 -2.02 1.16
(A) Mean of clan 17.43 8.09 -6.98 **
29.46 7.81 5.99**
-9.95**
(B) Mean of
19.77 6.80 6.16
adhocracy -5.23** 20.74 -4.80** -1.79
(C) Mean of market 40.54 13.33 13.53 **
25.88 9.75 0.99 12.84**
(D) Mean of
22.29 9.43 8.1
hierarchy -2.03 23.92 -1.10 -2.67

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Explanation: Under current and ideal values, t is the one-sample t-statistic, while the
difference column represents paired t-statistics. The character "**" indicates a
significant value at the 5% level.
3.C: "Tough competition, high expectations and result orientation." According to the
employees, for this statement an ideal value would be both significantly lower than
the current situation, and also lower than the average value.
In terms of the average of the 6 dimensions, I discovered (see the last four rows of
Table 2) that the culture of the service organization's employees was perceived as
more market-oriented and less clan-like. The ideal culture would be considered clan-
like and hierarchical, and with fewer market and adhocracy characteristics. The
current and ideal value of the clan and the market differed significantly. A more clan-
like culture than the current one, and a less market-like one would be ideal; this
finding was similar to previous research (Ližbetinová, L. at all, 2016) carried out on
logistics companies.
The results of the OCAI survey are illustrated with a radar-diagram (Figure 2).
Figure 2: The current and ideal organizational culture among employees of the
service company
The current culture perceived by employees can be described in the following terms:
 Dominant characteristics: performance and task-oriented to an average
degree, but it is less direct, more family-friendly and less innovative.
 Leadership: Leaders are perceived as more pro-active and aggressive, and
less helpful and supportive and more innovative than static.

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 Management of Employees: competition and performance are significantly

higher than average; however, teamwork and participation are less typical than
average.
 Organization Glue: Rather a market and hierarchy culture.
 Strategic Emphasis: Performance and competition are also strong here.
 Criteria of Success: The market and the hierarchy play a bigger role.
The culture considered ideal by the respondents is different:

 Dominant Characteristics: Characterized by a more direct, family-like spirit,
with lower performance orientation; control and structuring are even more
powerful.
 Leadership: Efficient operation comes to the fore against innovation;
performance orientation is lower, but still higher than in the clan
 Management of Employees: not characterized by tough competition and
performance expectations.
 Organization Glue: An above-average commitment to the team and little
focus on performance and goal achievement.
 Strategic Emphasis: Strong emphasis on performance and competition,
albeit to a lesser extent.
 Criteria of Success: The market and the hierarchy play a bigger role, just like
in the current culture, although the proportions change.
5. In conclusion
Based on the above, I obtained answers to my research questions (Q1, Q2).

According to the employees of the service organization I investigated, the present
culture is more market-like than the others (Q1), while the culture considered ideal
by the respondents would change to a clan-like one and would remain hierarchical
(Q2).
The divergence from the market is marked; respondents think the organization
should move towards the clan. As for the details, the responses suggest that the
move from market to clan would be desirable in each of the first, third and fourth
divisions; the proportions in the third and the last two divisions have changed
significantly, but the market is still stronger, and in terms of hierarchy-adhocracy,
only the proportions change in the second division, where the current culture is
considered less smooth, and the more efficient organization is the ideal.
The fact that respondents want, for example, a lower result orientation is not
necessarily an ideal intervention, as we are dealing with a profit-oriented, service
organization. It may even mean that the values of the employees are not in harmony
with the basic values of the organization, and an attempt must be made to change
the former. What can be deduced as a conclusion is that there seems to be a
difference between employee perceptions and desires, something that the
organization's management may want to consider when making decisions about
culture.

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Within the framework of this research, or research into other organizations with
similar results, it may be worth examining in a separate research study, whether the
values that are considered dominant are in line with the values the management
wants to develop, and whether the values considered ideal are in line with the values
required by the management. Depending on the needs of the organisation’s leaders,
it may be worth examining in the framework of comparative research carried out in
several organizations whether is there a statistical link between organizational
culture and performance as is described in the literature.
6. Acknowledgements
Researchers” – Supporting the Career-developing Activities of Researchers in
Higher Education.
References
1. Baetge, J. et al. (2007) ‘Unternehmenskultur und Unternehmenserfolg: Stand der
empirischen Forschung und Konsequenzen für die Entwicklung eines
Messkonzeptes’, Journal für Betriebswirtschaft. Springer-Verlag, 57(3–4), pp. 183–
219.
2. Cameron, K. S. and Quinn, R. E. (2006) ‘Diagnosing and Changing Organizational
Culture: Based on the Competing Values Framework’, Personnel Psychology.
Jossey-Bass, 59(3), pp. 755–757.
3. Handy, C. B. (1993) Understanding organizations. Oxford University Press.
4. Ližbetinová, L. at all (2016) The Application of the Organizational Culture
Assessment Instrument (OCAI) to Logistics Enterprises, “Naše more” 63(3)/2016.,
pp. 170-176
5. Marcoulides, R. H. and Heck, G. A. (1993) Organizational Culture and
Performance: Proposing and Testing a Model. Organization Science, vol. 4, no. 2.
May, pp. 209–225.
6. Ogbonna, E. and Harris, L. C. (2000) Leadership style, organizational culture and
performance: empirical evidence from UK companies. International Journal of
Human Resource Management, vol. 11, no. 4, August, pp. 766–788.
7. Schein, E. H. (2010) Organizational culture and leadership. Jossey-Bass.
8. Slevin, D. and Covin, J. (1990) Juggling entrepreneurial style and organizational
structure - How to Get Your Act Together?, Sloan Management Review, Vol. 31,
No.2., p. 43-53.
9. Ujhelyi, M. and Kun A. (2016) ‘Szervezeti kultúra vizsgálata OCAI modellel a
debreceni egyetem műszaki menedzser hallgatói körében’, International Journal of
Engineering and Management Sciences, 1(1), pp. 1–8.
10. Zhang, X. and Li B. (2013) Organizational Culture and Employee Satisfaction:
An Exploratory Study International Journal of Trade, Economics and Finance, Vol.
4, No. 1,

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THE INCREASING SIGNIFICANCE OF WORKPLACE EXPERIENCES
HÉDER-RIMA Mária
Károly Ihrig Doctoral School of Management and Business, University of Debrecen,
Hungary
heder.maria@econ.unideb.hu
Abstract: Talented employees appear to be one of the most necessary groups of
human resources from a corporate perspective; however, the general shortage of
workforce significantly affects this area as well. In order to ensure their own
development, organizations need to introduce methods that differ from their
previously applied practices, as this transition is required by rising shortage of
workforce and changing employee preferences. One of the novel approaches of HR,
which an increasing number of managers tend to agree with, is the importance of
providing positive experiences for employees. Workplace experiences largely
determine attachment and loyalty to the organization and thus they might have a
direct impact on organizational retention and the reduction of fluctuation. From
amongst experiences provided by a workplace, the flow experience might be of
paramount importance, which might depend on optimal harmonization of individual
skills and job responsibilities. Therefore, the needs of existing and potential
employees should be taken into account with intensifying emphasis. The study
includes a summary of the aspects that represent the needs and changing
preferences of labour market entrants (career starters) and employees in Hungary.
The two target groups constitute the potential employee stock from an organizational
point of view, therefore being aware of their needs might be crucial for ensuring the
necessary human resources. There is a parallel between the demands of career
starters and employees, but there are differentiating factors that point to the diverse
ways of thinking of each age group. Different ways of thinking postulate different
needs. Although the presence of financial factors is important for both groups, it can
be said that in the case of young labour market entrants, flexibility is more important
than financial aspects, which can be decisive in terms of working hours and working
environment as well. In the case of already experienced employees, objective
aspects are mostly predominant in terms of their expressed expectations, such as
salary, stable job and financial stability. Overall, the study also shows the factors that
are the least important in the light of the surveyed aspects. According to these
findings, it can be concluded that for the attraction of labour market entrants, less
emphasis is necessary on company name, corporate vision and social responsibility,
and the focus should be shifted towards the local circumstances within the company
such as the scope of direct colleagues, and availability and open communication of
the management. In the case of already experienced employees, applied
technology, reputation of the company and the quality of provided services and
products are less important than workplace atmosphere and the balance of work and
private life. Based on the study, it is possible to provide targeted experiences by
emphasizing the areas that are the most relevant to each group.

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Keywords: flow; experience; talent; HR; employee expectation; labour

management.
JEL Classification: J24; J81; M51; M54.
1. Introduction
From the standpoint of organisational efficiency it is not a negligible fact that

corporations need to have the best work force to stay succesful, competitive and
profitable in the long run in the global economy which operates in a more complex
way. The employment, keeping and development of talented people with great
knowledge and qualities make it necessary to deal with talents consciously and
when it comes to confident management the talented employees appear as critical
resource in the organisational operation in case we want to achieve the best results.
It is not enough to have the most talented experts we need to manage them the
right way since they mean the most critical segment of labour shortage. The forming
of talent management systems is not an easy task the source of management
difficulties is most often to be found at the leadership level which stems from the
lack of change of attitude. The question arises that in case we form a conscious
talent management system whether we will have the possibility to achieve greater
results by acquiring less resource? The answer is – yes. That is the reason why we
have to make a strategic emphasis on finding, reaching and attracting talents and
retaining them for the long-run since the right recruitment could be the answer to
various development questions. One of the most obvious tools of retaining them is
to fulfil the employee needs within a realistic framework which induces that because
of the caring operation a certain devotion can be created towards the organisation
which through the strengthening of loyalty supports the organisational retaining
force. One of the typical employee expectations of the 21st century is to experience
and reach a higher level of work-related experiences. If the organisation can give a
meaningful answer to this growing demand then it is expected to receive a rather
positive feedback in the employee environment. To live through employment
experiences ideally can be connected to the perfect experience that is to live the
flow. If organizations find methods to provide employees knowingly with a possibility
of having a perfect work experience, they will be able to largely improve their
attractiveness, enhance employee loyalty, and thereby contribute to the explicit
increase of workforce retention. The objective of the study is to – by means of
secondary analyses – highlight the possibility of creating a flow experience within
the workplace environment and thus of a potential retention strategy for talented
employees. To this end, the article presents a comprehensive analysis of how the
most recent relevant surveys in Hungary summarize employee preferences and
what sort of employment programmes exist to support this approach.

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2. The possible connection of talent management and workplace experiences
The latest researches prove (Manpower, 2018) that the ability to attract talents is
one of the biggest differentiating factor among the competing companies. There is a
growing market for those tools and services which can help the organisations survey
their internal system and find the employee who can fit into this corporate culture
and strategy and what is most important to the given position. The latest talent
analysis tools and strategies not only help to define the right employee but also to
find and support retaining the person who fits there.
Based on the definition of one of the theoretical experts of the field (Czeizel, 1997)
the talent is a certain amount of potential and promise that the individual would
achieve outstanding results in one particular profession, which is on the hand socially
useful and on the other hand it fills the individual with satisfaction and a sense of
achievement. Connected to the final part of this definition the significance of
experiences comes to the centre as a possible tool connected to the talents. If we
think of gaining experiences and strife to reach the perfect experience then we must
mention Csíkszentmihályi’s flow theory. Based on his theory the flow experience is
an area of our lives that we can achieve even during our everyday activities we do
not need an extremely regulated environment for that. A typical feature of this feeling
is such an extent of joy which causes our concentration to reach such a high level
during the activity that we can only focus on what we are doing and we shut out the
outside world totally. A natural concomitant of this is the distortion of the sense of
time as well as the loss of me consciousness since we totally identify with the activity
we are doing. The reward value of an activity providing such experience can be so
high that people tend to do this kind of activities only because of this – so a well-
thought out reward system is not necessarily more efficient in motivation
(Csikszentmihalyi 1990). ). A natural concomitant of this process is that in the case
of such activities we feel in accordance our existing competencies with the tasks to
make as well as rule the process wholly. (Figure 1). The figure clearly demonstrates
the significance of a harmonized balance between optimal challenges and existing
skills. The knowledge of individual skills and proper calibration of ideal difficulty levels
for tasks might determine the emotional state of the subject in the course of certain
activities, namely what impressions or in other words what experiences determine
their particular action.
From the point of view of work activities, the most effective performance is
expectable if the level of difficulty of the task is medium or high for the given
employee, and the relevant individual skills are at least on medium or high level.
Along this theory, boredom and anxiety, as well as transient states between these
two emotions can be avoided. When being in the state of flow, the individual operates
by exploiting his/her maximum capacity, providing the highest possible performance
(Charms, 1968; Deci, 1975).
The primary research subject of flow research is the relationship between the
environment and the individual (Oláh - Kapitány-Fövény, 2012), while from the
aspect of HR, this can mean the synchronization of the employee and his/her job.

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The central idea of the theory is that the challenge offered by the task to be
accomplished and the existing skills of the individual abilities are in harmony
(Csíkszentmihályi, 1997), so that the workload is optimal, which is one of the main
objectives of HR activities (Lengnick-Hall - Moritz, 2003). In the course of another
related survey, it was also found that the experience and description of the perfect
sensation is almost the same regardless of culture, degree of modernization, age,
gender, and social situation (Delle-Fave et al, 2011), which suggests that the flow
experience can be reached in a work environment regardless of the position and
social background.
Figure 1. 8-channel model of flow

Source: Massimini – Carli, 1988
When we draw the conclusions we can say that we can have outstanding
performance that is talented, most probably in those areas which we can do with joy
and commitment. Due to the well-operating HR processes we can achieve this not
just during our free-time activities but at the level of work. Ambitions towards the
above are primarily based on management considerations from the corporate side,
because the shortage of professionals is currently one of the greatest threats to the
achievement of corporate goals. Competent professionals typically belong to the
group of talented employees, but the complex problem that is due to their absence,

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cannot be resolved with a quick solution, which the management team is also aware
of (PWC, 2019).
3. Deliberate formation of work experience
A possibility which simultaneously supports attraction and retaining is to form

consciously the employee experiences and within this flow experience connected to
the workplace and to the organisational strategy (AON, 2018). Although work
experience management is not among the basic, traditional HR functions but by
applying it corporations can achieve high-level employee satisfaction – which can
induces loyalty and higher level productivity as well, which is ultimately the general
goal of most organisations – it should be considered to include it and use it in practice
among the already existing HR functions (Héder et al, 2018).
For the conscious formation of workplace experience acquisition the corporation has
to be clear how people relate to work in a general sense and in contrast what kind
of attitude formation is the goal in terms of workplace relation. Typically, one third of
our lives is made up of work. Still we have a strange attitude to this: sometimes we
receive the most absorbing or most satisfying minutes, pride and identity still this is
what most people try to avoid (Csíkszentmihályi, 2010). Considering that work is
general and still different it means a great difference in our lives whether our work
brings us joy or not. If somebody finds the flow in his/her work and in his/her
relationships with people then his/her whole life could take a favourable direction.
Although a lot of people think that work is necessarily unpleasant there are a lot of
evidence that work is a joyous activity and often it can be the most enjoyable part of
our lives. We must call attention to the fact the level of joy and complexity is directly
proportional so it means that we will not get happy by the work which can be done
in a very simple way but by the tasks which pose a challenge because of their
complexity and still we are able to overcome those (Csíkszentmihályi, 2001). It was
known in older times as well that the work which we live as a flow activity is one of
the best methods to develop human abilities. According to Marx (1956) men and
women build themselves up through the production activity, that is “human nature”
in itself does not exist we create it only through work to the effect of which we can
become from instinct-driven beings to conscious humans with goals and skills.
The turning point is caused by the labour market change that is from the point of
view of those who had the power to change the working environment did not care
about whether the work gives any joy or not – but nowadays we can recognise a
significant change in this area. While before the top leaders kept in mind only the
productivity however if the employees do work which gives them joy they would live
it not just as an individual profit but sooner or later it would guarantee higher
efficiency which could lead to a faster achievement of corporate goals. Nowadays
this point of view seems to gain a foothold in the corporate operation – primarily
because of the lack of talented employees – especially in connection with those
employees who are in key positions and because of their outstanding talent play a
vital role in maintaining the successfulness and competitiveness of the corporation.
It is because the employee preferences have changed personal needs tend to

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appear more frequently which include among others that the work should be
attractive, result oriented and enjoyable (Deloitte, 2017).
4. Employee experience in the light of practical expectations
Employee experiences can be interpreted as a certain part of workplace-related

experiences, which comprise the entire corporate life path from applying to a
position to keeping in touch following termination of employment. Applicant
experiences belong here, which are the experiences gained during the selection
process, the impressions gained during integration, and the day-to-day work within
the organization. These experiences establish the development of a commitment
towards the organization and thus the ability for the company to retain the most
outstanding talent (AON, 2018).
Thus, impressions gained by employees day by day, namely the experiences along
which they are connected to the company, might play a decisive role in the
attractiveness and retention ability of the workplace and in the management of
fluctuation as well. According to a recent survey, a large proportion of HR managers
agree with the significance of the research field and they consider it to be of utmost
importance (PWC, 2018b). Due to the novelty of the topic, there are relatively few
previous studies, but in Hungary, some studies of larger volume (PWC, 2018a; AON,
2018; Randstad, 2018, PWC, 2019) have become available in recent years.
Implementation of the above-mentioned research activities is primarily related to
labour market service-providers, and thus the findings of these studies are
particularly focused on business life. The main objective of these analyses is to
identify the most recent preferences and trends on the employee and carrier starters
side in order to find out the aspects along which it is worth to develop such corporate
activities, if an organization becomes open to novel HR approaches. The importance
of examining the two target groups is confirmed by the fact that other research has
also focused on analysing the expectations of career starters and employees, which
also supports the emergence of different preferences (Pierog et al, 2018).
Between November 2016 and March 2017, PWC Hungary (2018a) revealed the job
selection preferences of nearly 13,000 students and young graduates aged 16-26
years, who studied in secondary and higher education. Survey findings were not
representative and were conducted in the form of an online questionnaire.
Consequently, it is not possible to treat the findings as a generally acceptable truth,
but they may be suitable to draw approximate conclusions from the perspective of
the examined generation. The questionnaire asked the respondents about 36
factors, relating to the aspects young people are planning to take into account upon
finding employment. Analyses were carried out by means of relative reference
analysis, which means that researchers compared the elements to each other
instead of comparing them to predetermined values. The research revealed that the
most important aspect for young people is flexible work, which means flexibility in
terms of space and time, so that the given job can be carried out anywhere and
anytime. The second most important factor is basic salary and remuneration, while
the third factor in the overall order of importance are the actual colleagues, namely

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the nature and composition of the working group. Cafeteria took the fourth place,
followed by open and honest communication from the management as an employee
expectation. It may also be useful to examine all the factors that are located on the
external edge of the preference field. Based on the opinion of respondents entering
the labour market or still being in the education system, company name, vision,
strategy and social responsibility activities of the future employer are the least
important factors in terms of relative importance. These factors have the lowest
impact on the career choices of young people entering the labour market based on
the examined sample.
Research findings published by Randstad revealed the opinion of labour market
actors in a similar way in 2018, but in this survey, expectations of employees were
identified. The analysed age group is between 18 and 65 years of age, where the
sample is representative in terms of gender, although it is over-represented for the
25-44 age group. The results of this survey reflect the main aspects along which job
selection is carried out for employees who already possess work experience. It is
interesting that similarly to previous years, financial aspects were identified as the
most important factor, followed by workplace atmosphere and a secure employment.
Overall, based on the opinion of the target group, workplace atmosphere and flexible
options have gained popularity compared to previous years, although the latter is
only in the sixth place of the list. According to the survey, the least important aspect
in terms of employment are the reputation of the company, state-of-the-art
technology, high quality service and social responsibility. It is also a surprising finding
that the interesting nature of job-related tasks is only important for 15% of the
respondents, which appears to be decreasing over the last two years. This factor
was important for 23% of the respondents in 2017 and 35% of the respondents in
2016.
Comparing the findings of the two surveys, we can see an interesting result in terms
of overlaps and differences between the potential employee opinions of labour
market entrants in many cases without experience, and the opinion of already
experienced employees (Table 1).
Table 1. Factors determing job choices of carrier starters and employees

Factors most Job choice preferences of Job choice preferences of
determing choices carrier starters employees
1 Flexible work Financial aspects
2 Basic salary Workplace atmosphere
3 Colleagues Workplace stability
4 Extra payments Financial stablity
5 Honest open work/private life balance
communications
Factors least Job choice preferences of Job choice preferences of
determing choices carrier starters employees
1 Company name Good repute
2 Vision and strategy Modern technology
3 Corporate social Quality of products and
responsibility services

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Source: Own editing based on PWC, 2018a; Randstad, 2018
The conscious exploration and shaping of the research field is crucial, because when
the company wishes to attract talented employees it is an important aspect that the
messages of the company are consistent with the real, everyday work experience of
employees working for another company. This also means that employee
experience must be in line with employer branding, that is, in order to successfully
attract and retain employees the needs and preferences of the target group must be
known, the requirements of the existing workforce must be understood and the
employee experience must be consciously managed (PWC, 2017).
5. Conclusions
According to the surveys, the opinion of labour market entrants and already working
employees is well comparable, even though the results of the survey of the two target
groups were carried out with different methods there are similarities in terms of the
final findings. This suggests that responses of career starters are thoughtful and
realistic, as there are parallel answers in the case of several factors. However, the
dissimilarities are due to differences in the expectations of each target group of
various age. Based on the summary, it can be stated that financial aspects are an
important factor for both employees and career starters. Although financial factors
continue to play an important role, there is a noticeable tendency of change between
the opinions of the two groups. According to the data of career starters, the
importance of salary may even be overruled by potential flexible work, which may
indicate the changing needs of the younger generation, and the demand for freedom
and autonomy. Although the aspect of work/private life balance has been mentioned
in the case of employees within the first five most determining factors, it is preceded
by objective factors such as financial aspects and predictability, the latter appearing
as secure employment. In terms of career starters, honest, open communication also
plays an important role, and when it is interpreted together with flexible work, a
parallel can be found with the flow theory. According to flow theory, one of the
prerequisites for achieving this state is full immersion and commitment in work, which
might be supported by flexible working hours, as this can be done through
individually set time schedules. As an additional linking point, honest open
communication can also be interpreted as the aspect of regular feedback. Factors
that are least relevant in terms of job selection have been indicated by both career
starters and employees. This information is useful for employers to develop their
communication by considering it, since their attractiveness is not supposed to
depend primarily on these factors.
In summary, it can be stated that if organizations are aware of the preferences of
their own employees and their potential target groups, they are able to shape their
internal and external processes consciously and efficiently, they can aim for a
positive work experience and in an optimal case, implement measures that support
the achievement of the flow experience. By considering these aspects, they are able
to retain their outstanding employees and achieve new ones more successfully,

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which in long-term might contribute to corporate efficiency and performance growth,

thus conscious provision of employee experience can also be interpreted as a
strategic issue.
6. Acknowledgements
„ SUPPORTED BY THE ÚNKP-18-3 NEW NATIONAL EXCELLENCE PROGRAM OF

THE MINISTRY OF HUMAN CAPACITIES”
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1. Charms, R (1968): Personal causation. New York: Academic Press
2. Csikszentmihalyi, M. (1975). Beyond Boredom and Anxiety. San Francisco:
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3. Csikszentmihalyi, M. (1990). Flow: The Psychology of Optimal Experience. New
York: Harper and Row
4. Csikszentmihalyi, M. (1997). Finding Flow: The Psychology of Engagement with
Everyday Life. New York: HarperCollins
5. Deci, E. (1975): Intrinsic motivation. New Jork: Plenum.
6. Delle Fave, A., Massimini, F., & Bassi, M. (2011): Psychological Selection and
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Growth. New York, NY: Springer. https://doi.org/10.1007/978-90-481-9876-4
7. Lengnick-Hall, M.L. – Moritz, S. J Labor Res (2003): The impact of e-HR ont he
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https://go.manpowergroup.com/talent-shortage-2018#thereport 2019.02.06.
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experience, Journal of Educational Technology
10. Oláh A. – Kapitány-Fövény M. (2012): A pozitív pszichológia tíz éve. Magyar
Pszichológiai Szem-le, 67. 19−45.Petróczi Erzsébet (2007): Kiégés −
elkerülhetetlen? Eötvös József Könyvkiadó, Buda-pest.
11. Pierog, A. – Gergely, É. – Dajnoki, K. (2018): Vezetőkkel szembeni kompetencia
elvárások. In: Dobrai et al. (szerk.) Ferenc Farkas International Scientific Conference
pp.478-492, 15 p. Pécs, Magyarország
12. PWC (2017): Munkavállalói élmény és munkavállalói preferenciák. A két terület
tudatos menedzselése megoldást jelenthet a munkaerőhiányra
https://www.pwc.com/hu/hu/szolgaltatasok/people_and_organisation/evp/evp_kiad
vany_final.pdf 2019.01.10.
13. PWC (2018a): Az idejük feletti erősebb kontroll lehetőségét, magasabb fizetést
és őszinte kommunikációt várnak el a jövő munkavállalói
https://www.pwc.com/hu/hu/sajtoszoba/2018/evp_2018.html 2019.03.22
14. PWC (2018b): Preparing for tomorrow’s workforce,today. Insights from a global
survey of business and HR leaders
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IwAR2p3YgpsOtJN__aVpnNJVeNwrJnFYHJXLd6TVITwc2ZFF6RjuF22orosCI
2019.02.05.
15. PWC (2019): PWC Magyarországi Vezérigazgató felmérés. A cselekvés ideje.
Visszafogott növekedés, fókuszban a belső folyamatok
https://www.pwc.com/hu/hu/kiadvanyok/assets/pdf/PwC_CEO_survey_kiadvany_
HU_2019.pdf?fbclid=IwAR2opz5DOxGq8N4AsrcU4Hq6ATszut1CkKvvqIfv1taox_8
f3k8XFKCCoN8 2019.03.01.
16. Randstad (2018): Ezek a vállalatok idén a legvonzóbb munkáltatók
https://www.randstad.hu/sajtokozlemenyek/randstad-hirek/ezek-a-vallalatok-iden-
a-legvonzobb-munkaltatok/?fbclid=IwAR2TxHklENEE7FqKvwbSjfx2-
My9q9AiVmwmLrQk4JEwBN-mrhj9ZX5lSPU 2019.03.20.

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SERVICE: FROM GENERAL VALIDITY IN ECONOMICS, TO DOMINANT

LOGIC IN MARKETING
JIVAN Alexandru, NACHESCU Miruna

West University of Timisoara, Timișoara, Romania
alexandru.jivan@e-uvt.ro
miruna.nachescu@e-uvt.ro
Abstract: The paper aims at revealing certain core service elements and features
of the nowadays economy that come from services' economics but have general
validity. The approach is purely theoretical and we make no mathematical or
empirical propositions or developments. The roots from the classical economic
thought and from the services literature concerning the service feature are also
underlined as characterizing the whole economy developed to the level of a
generalized market. The capital role of the business literature (and especially of the
marketing developments) in the field of service and services is evoked, but the
concern of the paper is for the economics approach, underlining that the most
common approaches of this last one are scanty in involving the issue of serving and
of service immaterial marks in its very substance. Certain details describing the
characteristics of immaterial activities brought by the services economy literature are
also evoked, in the purpose of seeing that their validity is not limited to the only most
immaterial economic activities, but it is general, at least in the immaterializing
nowadays economy. Thus the necessity of including their approach in the scientific
theoretical perception of economic phenomena can be revealed, and the importance
of capturing such marks in general economics is shown. Therefore, the presentation
is focused just on those traits that are not particular (neither for material production,
nor for immaterial), but consistent with all the economic activities, no matter their
degree of materiality or immateriality. The paper concludes that such elements and
approaches should be more profoundly included in economic analyses and more
accurately described in theoretical plotting of nowadays economy. Such a research
will be of use to scholars and generalists, in improving their approaches and in
directing their researches on attempts to take into account widened (and thus more
realistic) horizons, if compared with the most usual (rather particular) ones.
Keywords: services economy; service economics; generalized service; Bastiat.
JEL Classification: L80; D49; E23; O14.
1. Generally Introduction
We live in a world where the number of services was very much growing in the last
half of century, and it still is. Moreover, certain services have high shares, mainly in
the most developed economies. It is mainly the case of the services capturing the
highest technical level.

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The immaterial component of all “productions” or economic activities and of all

human activities is growing, having as consequence the modifying of practically the
whole economy and society.
In such conditions of nowadays, economics remain grounded on the industrial
bases, as it was built beginning with the industrialization periods – when “a kind of
«production crowning» (during the period of industrial take off) [and thus] a censoring
of judgements started” (Jivan, 1993, p. 21). As a result, in the most usual economic
approaches, important parts of the economic reality are still remaining marginal if
compared with the characteristics, features and approaches set during that periods
of dominance of the growing industrial production. Such common materialistic and
industrialist approaches are still defining mainstream economics, in despite of the
growing complexity and immaterial character of nowadays economy, in the
knowledge based society.
Our paper proposes an unorthodox approach, grounding an inquiry after service
economics and also possible developments for general economics. It is a part of a
larger research (please see our bibliographical list), by which certain orthodox
approaches are put under question and openings to widened horizons are brought
in economics.
As expected, the main background of our paper is from the literature concerning
service and services, but also from the general economics. In fact, our stress is not
on the business literature (mostly developed in the marketing field): but we focus
mainly on the general economics, we adopt an economics' approach.
The background of our research is not shortly presented in the introduction – as
usually in a research paper – but it (and certain content of it) represents the very
matter of our presentation and, therefore, it comes in the next sections of the paper.
Thus the conceptual elements concerned – that can usually be ignored by common
economics literature – are pointed out in the suitable sections and their most
important literature sources as well.
We also explanatorily note from the very beginning that our paper is a theoretical
one, and we do not develop mathematical models and operate no empirical
developments.
We focus on certain features defining the nowadays economy that were seen in
services economy, and the core one is the defining service mark. Those specialists
(theoreticians of service and of services economy) have firstly perceived such
characteristics, noted and pointed them out, and developed a suitable economic
literature, in service economics and in business literature; the specialists in market
were the first ones who understood the importance for their science of developing
the suitable approach for services. Thus the marketing literature became very rich in
the field of services.
Such treats of the nowadays economy are very important. It is true: they were
revealed by service' economics mainly as features of services and of services'
economy; but their general relevancy and their validity for the whole actual market –
at least in the case of the most important of them – cannot be denied. We observe
that they should no longer be kept in just a marginal approach of it. The fact that
certain such marks are generally significant and that their importance for the whole

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economy – i.e. including the material goods' production and market too – is, in our
opinion, either underestimated, or not well understood. Thus, such service
characteristics are taken into account just at lower levels, levels that are not
consistent with their spread and general significance. O perhaps they are not enough
seen and, therefore, adequate developments are not enough involved in the most
usual analyses of general economics approach.
2. Approaches, definitions, conceptions and the generalization of 1993
In this section and in the next one, we focus on certain important developments
concerning the service mark, or connected, in the purpose of noticing main roots of
it, even if certain of them are forgotten or less known.
As Romanian author, the discussing concerning the literature on the service issue
is appropriate to start with referring to the fact that, around the year 1930, Mihail
Manoilescu employed, in his analyses on the differences between countries
(concerning mainly the productivity of those economies), the criterion of capital
level, i.e. of the technical level of the industries developed in such economies, but
not the criterion of materiality of such industries. We notice such view of the
Romanian author, because it is relevant against the classical approach in
economics, which was – and still is – very much focused on material-immaterial
distinction.
In the sixty years of the XX-th century, William J. Baumol (Baumol, 1968) provided
his famous researches concerning the cost disease. Thanks to the developments
brought by the service economy, we can today (in nowadays) better understand
realities linked to the service issue and, thus, we can already show up that such
approach was fundamentally made on materialist (industrialist) perceptions on the
economic realities. We can have now a better understanding in what can be suitable
for the immaterial activities that characterize our nowadays economy inside the
knowledge society.
Very important contributions are brought by Jacques De Bandt (see De Bandt, 1991
and other many papers) and Jean Gadrey (see references concerning Gadrey, 1992,
1996 and other many researches could be referred). Gadrey better defined services,
designing the representation of a service activity by a triangle taking into account (1)
the supplier, provider or, better said, performer, (2) the client and (3) the reality
transformed (that represents the result of the activity concerned).
One of the most important contributions to analysing the services economy is that
concerning the issue of productivity (De Bandt, 1991; Gadrey, 1996), consistent with
the particularities revealed by those authors and by other researches in the field.
Such researches may ground important approaches, like, for instance, the
generalized manner in understanding the economic activities (Jivan, 1993).
“Considering the economic phenomenon from the market point of view and not only
from the production point of view, [...] the whole system of economics is centred on
exchange. The economic model is one-sided and imbalanced if it is centred on
production, because it ventures to perceive, to conceive and to analyse all other
aspects of reality under a distorting angle. [...] If we really accept exchange as being

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the centre of economic life (and not the production), and if we approach the economic
activity by starting from its functionality, then we can see that all human activities are
made to be supplied to our fellows. In a market economy the necessities are covered
through the indirect way of exchange.” (quotations from Jivan, 1993)
The quoted paper comes as a synthesis of the service economy that was already
well developed in the beginnings of the last decade of the XX-th century, as a
qualitative further step, scientifically stimulated by the Services World Forum.
The core point of this research is the general scheme of an economic activity. The
components detailed in this scheme are: (a) the conception/conceiving and
organising the activity; (b) obtaining the resources (materials, information etc.); (c)
realising other works (manipulating or/and modifying the resources, manufacturing
objects etc.); (d) delivering or to fulfilling the command. “The functions fulfilled by
each economic agent in the economic and social mechanism exist under the form of
services that are done to the beneficiaries, to the business partners and to the
society as a whole. [...] We live in a world with some economic phenomenon of great
amplitude which demonstrates another type of economic growth than that classical
one based on productivity and quantitative measures: it’s about a functional growth,
a service-type growth.” (Jivan, 1993)
The representation of a service activity made by Gadrey (1992) by his well-known
triangle (see supra) may be taken as a starting and inspiration point of the
“generalized scheme of an economic activity” (Jivan, 1993), but in the more recent
paper here quoted, the general character was seen and pointed out: the stress is
especially on the general validity of such scheme (design). That scheme is
representing, either the case of services, or that of the material productions. It
reveals the service character of economic activities developed in a generalized
market economy. Such an approach is consistent with the invisible hand of Adam
Smith (defining for the market economy), being valid not just for the most immaterial
performances, but actually for all “productions” and business (and even for non-
market services): it represents (in a unique scheme) the core spirit of serving.
Therefore it was later called the scheme of the general service (Jivan, 2000).
The characteristic traits of services are based on their immateriality, supposing a
defining human inter-relation (between diverse categories of economic actors); the
orthodox “production” (performance) and “consume” (benefit) are not distinct
processes, but just a single unique one. Each performance is also unique, even
personalized, defining the variability of services, which amplifies the defining
heterogeneity of the tertiary sector. Such features are described in the already well
set theory of services (see, for instance, Gadrey, 1996, Jivan, 1998).
In the new theory issued by Jivan (1993) and developed afterwards, such marks are
not just certain particularities of some part of the economy (i.e. valid particularly for
the case of immaterial activities): but they become characteristic for the material
production too.
More generally speaking, such features are shown (Jivan and Năchescu, 2017) as
being more and more valid for the whole economy: in the conditions when nowadays
economy is growingly immaterial. The servicity theory (Jivan, 1993 and 2000) also
shown that the marks here reminded generate capturing the characteristics of a

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monopolistic kind of competition and other features of the market that make it being
“untypical”, i.e. very different against the orthodox type of competition; and such
competition being more and more valid for the whole economy. In other papers (see
our references from the bibliographical list) we detail also other important teachings
coming from service economics, such developments being much contributively in
the important matter of productivity, which can be generous in developing
economics, here included the problem of putting under question the valences of
marginal calculations in the conditions of the growing immateriality of the economic
activities in nowadays.
After all, the main element to be pointed out – as ground for all features of services
and even of all nowadays economy – emerges from the service defining element
itself.
3. Forerunners and followers
Pierre de Boisguillebert considered the material goods and the services as having
the same position against the final consumption (according to Jivan 2016, p. 21); in
this respect he deserves to be considered a forerunner of the conception of the
generalized service (Jivan, 1993, 2000).
The physiocrat François Quesnay was taking into account the destination of the
activities, despite the “form of productions” (the form remains the criterion still
employed in the modern times for defining the difference between the first two
economic sectors, on one side, and the tertiary sector on the other): he included in
his famous “sterile class” either activities like that of handicraftsmen, or trade,
transport and other services (Jivan, 2016, p. 115).
The approach of Theodore Levitt (1974) is considered by Christian Grönroos as
meaning that “people do not buy goods and services for basically different
purposes” (Grönroos, 2008, p. 301). The same researcher Grönroos quotes also a
paper of himself from 1979 (in Swedish), adding that: “The citations from 1979 [...]
imply that goods and services are consumed in essentially the same type of
process.” (Grönroos, 2008, p. 301).
It may be right that certain such possible forerunners are just in terms of meaning
and implications, but it is fair to mention them, as we founded them as having a
logical connection.
In any case, no matter what other possible forerunner could be considered as valid,
but it is sure that the fundamental forerunner was and remains Frédéric Bastiat: from
the classical economics he generated the idea of the general service: economic
activities are all services. It was not important for him if the concrete form was that
of material goods or of services (immaterial), but the importance was given by the
fact that a work (effort) of an individual brings satisfaction to another: this is the way
human activities develop (Bastiat, 1982, p. 118). The researches we mentioned (and
also those that follow) can be considered as having the value-service as their
conceptual base.
It can be seen that certain contributions brought by service economics after 1993
are valid not strictly for the immaterial activities, but for the entire nowadays

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economy. We refer, for instance (as made in Jivan, 2014), to circular economy,
functional economics (Stahel, 1997), "economics of experience" (Pine and Gilmore,
1999). In the same way it may also be seen the representation of product and
innovation in terms of characteristics, in a Lancasterian perspective (Gallouj and
Weinstein, 1997; see also Djellal and Gallouj, 2008, where the characteristics-based
perspective is referred). For all the quotations in this paragraph, please see Djellal
and Gallouj, 2008.
More recently, the service character of economic activities is also seen as unitary in
diverse ways. For instance, Gadrey and Gallouj (Eds., 2002, p. 225) say that a
continuum is seen between goods and services (by Pim den Hertog), rather than a
distinction. It can be mentioned that another way of retaking the concerned idea is
approaching the general service as a logic of marketing: e.g., even more recently,
service was approached as a “dominant” logic; Vargo and Lusch (2004, 2008)
developed very much the issue, making it famous in business (for the particular case
of marketing: it is about the well-known SDL – service dominant logic). Another
famous manner in which the service concept arrived to be developed (re-orientated)
in marketing is that of CDL (customer dominant logic). It was initiated by the Northern
School, and evolutionary developments are well shown /set in Grönroos, 2008. The
conception of Grönroos (2008) is from the aria of the customer dominant logic
adopted by the Northern School where Grönroos is a most important representative.
We just mention it and we do not develop the ideas of such approach, but it should
be underlined that it is also in a marketing approach, bringing another further
approach, after SDL. Those most recent developments are the most well-known
angles of approach: on the business line.
It is true that the marketing specialists were the first interested by the reality of
services that was very obviously growing in the seventh, eighth and ninth decades
of the previous century: they saw that there is about selling and promoting another
king of “products”: immaterial ones; and from such reality, their researches emerged
and were very much developed. In such a perspective – i.e. on the marketing line –
it is normally to reach important degrees of detailing and of considering thoroughly
and, as a consequence, it was successful to get fame (as we already said that is the
case of service dominant logic and others).
But, in a historical rigorous view, we remind that the approach of the generalized
service in the market economy was arisen basically in a general approach (as an
economics' development), many years before the famous developments for the
business aria that we just mentioned: i.e. the general scheme of an economic activity
(Jivan, 1993; and moreover, if we go much backwards in time, the basis of such
approaches was put by Frédéric Bastiat, in the classic period of economics; going
even more back, certain roots can be considered to be find at François Quesnay or
even at Pierre de Boisguillebert, as previously shown; see supra in this section).
4. Resulting requirements (synthetically)
We conclude and underline that, in despite of the fact that the issue of the
generalized service was conceived and firstly concerned in the general economics,

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the aria where it get the most important developments is mainly marketing: such idea
next developed in a distinct way. The business specialists took and very much
developed the matter, even bringing certain famous concepts.
We consider that certain scientific contributions of the researches concerning
services economy must be better taken into account in actual economics, as
representing marks for nowadays economy, i.e. including for the “material” part of it,
not just for the already relatively immaterialized.
Synthesizing, the main aspects revealed by such contributions refer to certain
characteristics pointed out by the researchers in the field with respect to services'
and services' market characteristics. Among such characteristics, the relative
immateriality (rather than the usual agricultural or industrial stressed materiality) is
included on the first place, followed by many others coming out from it or connected.
We remind as exemplificative: the non-discrete character of the “productions” (the
volume of quantities rather cannot be commonly measured in quantitative units or
counted), the growing importance of the psycho-emotional, “image” and subjective
elements (if compared with the very concrete and objective ones), the determination
existing from diverse and complex factors, generating various conditions and
variable complexity, here including education, culture, diverse trends and general
attitudes in the societal context, and also the growing and complex information and
challenges and incentives (advertising, publicity and promotion here included, but
not alone) and the complex structure of the offers. The regulations – diversely issued
and become manifest – are other important factors. In the same respect, we may
add the existence of activities “exterior” to the market (that influence the market
performance), the rather rigidity of the offer on the market, in connection with the
variability of the demand, the subjective character of the market and the modified
role of the price (tariff) on the market too (this last one is a large specific issue that
may be developed as a distinct matter). Lets mention also the growing role of
qualitative aspects (rather than those of volume and quantity of the elder times), the
amplified inter-connectivity on the market and in the society as a whole; the tendency
for personalizing performances and experiences as well as possible and, thus, their
character rather unique, and the frequently oligopoly situations come to enrich this
picture.
“When a higher quality product is offered, a service to the client is made in the same
way as when a supplementary service is offered or when the price of the offer is
lowered (on the same offer).” (Jivan, 1993).
Despite the small interest of general economics in better capturing and involving the
contributions brought by services economy and service economics (Jivan and
Năchescu, 2017), we remain convinced that nowadays' realities require such
approaches, in the intention of making economics better revealing the actual
economic facts, being more realistic, on the new horizons allowed by certain
developments got in the services' economy literature. Business represents particular
domains (specific areas of acting in the market) and, comparatively, the generality
represented by economics offers a more widened perspective for development,
containing much reserve for such a generous scientific issue.

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But unfortunately, the mainstream economics remains billeted, in certain respects,

as like it was set up in the period of the industrialization (centuries ago) and keeps
forms and settings that are no longer very adapted all of them to nowadays
knowledge society and economy based on the most recent advanced knowledge.
We refer mainly to the material-centred (or production-centred) approach. In this
respect, we admire the business aria, which, as already said, keeps better in touch
with the last decades' developments in the economic life (we refer mainly to the
growing immateriality of the economic activities).
All such features are much weightier and influential if compared with how they were
when the theoretical conception concerning competition (pure and perfect) and the
general equilibrium model (of Leon Walras) were set up. Their impacts are actually
much more important and therefore cannot anymore be perceived as marginal. Their
conceptual analysis and functional interpretation must not remain as marginal to the
former model: they even tend to become the core of the dominant economic
mechanism in the economy we have in nowadays knowledge society.
Such realities are not simple accidental facts that are just influencing the model kept
by the common economic science as being in the core of the logic of market
mechanisms' functioning (orthodox model set up a few centuries ago, in the period
of industrialization); but, in nowadays, it can be seen that the mentioned traits and
features define themselves as being main important aspects of the actual economy.
Therefore, seeing properly their role is a need of actualizing and developing the
economic sciences – such task being very difficult in the conditions of their growing
complexity.
5. In conclusion
In the previous sections, certain important elements and traits of services, revealed
by the services literature developments, were mentioned or pointed out. In that what
concerns the service conception itself, presented by Jivan (1993), the classical
economics role in issuing it was also shown, and a short suggestive inventory of
certain important recent contributions too.
The elements and traits of services we revealed have not just specific validity –
particularly for the most immaterial activities –, but are actually defining for
nowadays economy as a whole and, therefore, they are suitable for general
economics' development as well.
In despite of the arising of the issue inside the economics literature, in the nowadays
dominant economics, such issue remains in a relative marginal place and
paradoxically was assumed and developed rather in the business literature,
evolving from its general validity (i.e. for all the economic activities) to the role of a
logic or optics of approaching the marketing work.
We underline that, the contributions we evoked from the literature concerning service
and services, elder or more recent, have not a validity limited to only the services,
but they are characteristic also for the material productions: because (1) all economic
activities involve services, because (2) they all economic acts are connected to such
immaterial activities, because (3) they become growingly complex (getting traits

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formerly described as particular for services) and, over all, (4) they have the spirit of
serving as core and defining mark in the generalized market economy. Such
features, elements or marks are consistent with the general scheme of an economic
activity (the general service), as described in Jivan (1993) and, therefore, they
deserve being taken into account as core in the general economic science too. We
mean that the most important developments brought, on the matter, in the marketing
literature (namely specially as a dominant logic) represent an important, but
insufficient turning to account of the mentioned contributions from the service and
services literature: it should be said that the scientific capitalization of such
developments is not enough; they deserve a turning to the best account in
economics approaches too.
In sustaining our opinion, we quote from Mihail Manoilescu (our translations): „[...]
the conclusions that are unilateral in a forced way, which are commanded by
calculating produced values, must be adapted in every moment to the structured
multilateral frame of reality [...]” (Manoilescu, 1986, p. 78.) “The theorists [...] are
merely disputing the facts if such facts do not meet certain theories [...]” (idem, p.
123), and the quoted author speaks about “the necessity to crush the false buildings
of the [...] economists” (idem, p. 138).
By its approach, our paper makes openings and, in the same time, requires
developments in the direction concerned: i.e. in enriching and reviewing certain main
issues of the common economics in the view created and provided by service
economics (in the field of market, productivity and others; see also our papers Jivan
and Năchescu 2017; Jivan, 2018; Jivan and Năchescu, 2018 a; Jivan and Năchescu,
2018 b; Jivan, Curea-Pitorac and Tînjală, 2018).
References
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3. De Bandt, J. (1991) Les services, productivité et prix, Paris: Economica.
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12. Gallouj, F. and Weinstein, O. (1997) “Innovation in Services”, Research Policy,

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Economic Sciences, Tom XXVII, 1st issue, July, pp. 94-103.
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Indicators”, Proceedings of the 32nd IBIMA Conference: 15-16 November 2018,
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Operationalization of Productivity” Ovidius University Annals, Economic Sciences
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30. Olson, M. (1972), ‘Evaluating Performance in the service sector’, in Moss, M.

(ed.) The Measurement of Economic and social Performance, New York NBER:
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evolution”, Journal of the Academy of Marketing Science, Vol. 36 No. 1, pp. 1-10.

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THE ANALYSIS OF THE EUROPEAN COMPETITION POLICY BASED ON

STAKEHOLDERS' INFLUENCE
PETRARIU Ioan-Radu
Faculty of International Business and Economics, The Bucharest University of
radu.petrariu@afer.ase.ro
Abstract: This paper analyses the importance of stakeholders’ actions on the
effectiveness of the European competition policy. The national governments,
European decision-makers, advisory institutions and civil society take the form of
interest groups that have expectations, invest resources and advocate on
competition policy. The paper follows the process of adopting a specific strategy
(insider/outsider), depending on the type of the interest group and it divides the
organizations in those with ”strong ties” and ”weak ties”. The goal of each interest
group is to arrive at the main European competition law authority, the European
Commission. As it has the full power to investigate cases and manage the process,
as well as implementing decisions based on proposals, influencing this institution
represents a real challenge for the stakeholders. In this process, some relevant
aspects are the perfect timing for lobby, the dimension of the lobbying coalitions and
also the capacity of attracting supporters of the cause. Interest groups do not have
equal amount of influence power nor the resources but they do change the policy,
according to their particular interests, by choosing the right strategies, partnerships
and means to influence the decision-makers.
Keywords: European Union; Competition Policy; stakeholders; interest groups;
citizens; trade unions; business / employers’ associations; consumer organizations;
regional authorities; governments; European Commission; European Parliament;
European Council; EU Council; Economic and Social Committee.
JEL Classification: F13; F15; F42; J58; K21; K33; L44.
1. Interest groups – approaches and strategies
National governments, European decision-making and advisory institutions,

companies, employers, citizens, employees, and trade unions that organize them,
including civil society as well, take the form of interest groups that have
expectations, exert different levels of pressure on competition policy, and determine
to rethink its design. The study of interest groups represents the analysis of the
organization, aggregation, articulation and intermediation of the societal interests
within the definition of public policies (Beyers et al., 2008). As Tatham (2015) points
out, as states concede elements of their sovereignty to the supranational level of
their international organizations, as in the case with the 28 EU Member States, sub-
national interest groups (e.g. local/regional authorities, citizens’ organizations, trade
unions, or employers’ unions) mobilize at the supranational level of the state in an
attempt to influence European policies. Superior effects on the influencing process

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are held by the most representative players, as well as the most endowed regions
that institutionally are well-developed or that have a numerous population (the
cumulative effect applicable not only to regions but also to other interest groups).
In the literature that addresses this, we find research papers that analyses the way
and the circumstances in which the interest groups are mobilizing. As Beyers and
Kerremans (2012) demonstrates, naturally, regardless of the sector of activity or of
the country, local/regional/national interest groups tend to lobby particularly (or at
least first) around close to the decision makers. Yet, when they are missing or they
are weak, the possibility that the group interests to call on to others levels of
government increases, the decision being usually made according to the policy in
question (and obviously its national or common nature), using a cost-befits analysis.
Regarding the channels through which they have access to influencing European
policies, as I have explained before, belonging to European network or to an
influential network among decision-making institutions can be a solution. Eising
(2007a, 2007b) affirms that European officials are discussing among them as much
as they discuss with the representatives of the organizations that have various
interests. The access is defined as the frequency of connections/meetings and is
determined by four aspects:
 the European institutional context (this means the allocation of power
between the European institutions and the favourable circumstances of
contacting and accessing the European decision-makers);
 the dependence of the state resources/business environment (The
business environment bears the costs or benefits of the advantages of the
European legislation issued by the European institutions, so it is important
for it to be in touch with the representatives of the institutions. On the other
hand, the European institutions needs qualitative and accurate information
because based on them, there are taken the best and acceptable decisions
that can be implemented. Additionally, the business environment could be
a good source of information and becomes useful and approachable
especially if it has a large economic and/or a European dimension);
 the organization of the interest group (the access to the financial resources
and the specialization are advantages; e.g. EU institutions generally consult
a multitude of stakeholders; instead, taking into account the multi-level
governance structure, political leaders prefers technical expertise, the
economic influence and the capacity of organization to be able to represent
as many interests as possible and to build a common platform at European
level, ahead of national interests; also, they prefer as discussion partners
big firms to the detriment of business associations);
 its strategy regarding the way how they decide to represent the interests
(three types: insider – through direct and close relations with European
officials and parliamentarians; outsider – pressure through media or public’s
assistance; nationalist – the selection of dialogue partners using language
or nationality criteria.
From a strategic point of view, as Beyers (2004) advocates, the interest/aim pursued
could be gaining access and, implicitly, gaining a favourable decision and/or

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creating a “voice” for calling attention or for creating a political/institutional conflict.

Depending on these and on various institutional variables, they have a particular
influence in deciding eather to adopt a specific strategy or combining more
strategies (the most popular mix being “go public”/insider with outsider).
The decision of following a certain strategy also depends on the type of interest
group. Professional associations and organizations that represents citizens’
interests are more prone to adopt outsider/“go public” strategies; even they have
access to generous resources. Inside strategies (access) prove to be more useful
when the decisions are taken at Commission level (e.g. implementation of
competition policy or the legislative proposals on this topic), while outsider strategies
under public support would be most likely be the best option for the case of the
Council, the Parliament, and generally the political or party representatives, who are
more sensitive to the subject related to the public perception.
Chalmers (2013) supports and develops the idea discussed by Eising (2007a):
lobbying is based mainly on providing information by interest groups. Due to the
time passing pressure faced by European decision-makers and due to the lack of
sufficient human resources made available to have access to all categories of
information in all sectors of activity, the informational network of interest groups
allow them easy access to influence the policies. These networks are divided in two
groups. The first are those with “strong ties” built on mutual trust, inside them
circulating usually redundant information. The second are those with “weak ties”
composed of known players with diffuse connections from various expertise groups,
inside this group the flow of new ideas and information being more vivid and intense.
Several factors determine the way and the moment in which interest groups
influence the various policies. First of all, if the influence activity takes place as a
part of an organized campaign and, especially, a funded one: the balance tips in the
favour of business interests that have more financial resources. Klüver (2011)
emphasizes that as long as decision-makers are usually approached about the
same policy by several interest groups that simultaneously want to influence it, the
success of lobbying is somewhat independent of the type of interest group brought
into discussion, but the success rises as the number of lobbyists involved increases,
and especially if it is carried out within lobbying coalitions composed of interest
groups that pursue the same interest and push political decision-makers in the same
direction.
The success of lobbying/the power of influencing a policy depends on to a significant
degree on the relationship between the importance/prominence of the policy under
discussion and the dimension of the lobbying coalitions/interest groups that wants
to influence the policy. In the case of an interest group being part of the largest
coalition, the importance of policy for the European space has a positive effect.
Thus, emphasizing the importance of the policy that the interest group want to
influence in order to attract attention and implicitly attract supporters of the cause is
one of the successful approaches.
The European Commission ensures the implementation of European competition
law. As Lowe (2008) mentions, it is important to underline that the main European
competition law authority is the European Commission that has delegated to DG

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COMP the full power to investigate cases and manage the process, as well as
implementing decisions of the competent Committee/Commissioner. The
Commission takes final decisions on proposal and political documents (e.g.
directives, communications) and on various cases based on proposals made by
Commissioner for Competition, makes legislative proposals to the Council’s
attention.
2. The main interest groups
Citizens represents the main beneficiaries of competition policy. For a better

understanding, it is necessary to clarify the meaning of citizens that have to be
understood as consumers even the large majority of them are in the position of
workers/employees. Generally, although this policy has an undeniable direct impact
on citizens, the influence on the policy by them can be exercised in a more tangible
and effective way only through the elected deputies in the European Parliament but
it is limited, as the competition policy is not the subject of the co-decision procedure
like about 75% of the European Union policies. Competition policy is rather the
aptitude of technocrats involved in an apolitical decision-making process based
more on expertise, in which the democratic aspect of some debates is preferred to
be present as little as possible. The most significant and powerful moment for the
European Parliament is voting, together with theEuropean Council, the
Commissioner responsible for coordinating this policy, nominated by the
Commission’s President among the proposals of the national governments.
Although the European Competition Commissioner has implemented a structured
dialogue with Parliament as a form of implementation of the consultation provided
in the Treaty on the Functioning of the European Union, Parliament considers it
important but not sufficiently consistent with regard to its democratic control function
over the Commission.
A larger possibility for citizens to influence the policy is through National
Governments representatives in the EU Council, competition policies issues being
addressed within the Competitiveness Council. In addition, the citizens’ view could
be endorsed by the Heads of State/Heads of Governments that participate at the
European Council summits. Taking into account the increasing transnational/global
profile of companies and national tensions that are particularly sensitive to
availability of employment matters or unemployment rate, Member States, at group
level, have been more focused on precise matters related to State aid contributions.
Yet, both in State aid rules and merger control, making concessions to satisfy the
national interest can influence the proper functioning of the markets. In the report
from 2010, Mario Monti asserted that in the case of mergers there is the need of
removing the “2/3 rules” which gives jurisdiction to national competition authorities
where more than two-thirds of turnover of companies which merge take place in a
single Member State. In order to encourage the emergence of some “European
champions”, this situation is proposed to be eliminated (inherently, this implies the
relocation of the central European administration – European “one-stop shop” – and
the cooperation between national competition authorities needs to be increased),

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because it favours the support of states national companies by using national veto
rights. As regards to State aid, the proportional and European-directed control is still
considered a condition for a possible allocation of resources to non-performing
public investments and therefore, their depletion.
In the design of various European policies, the European Union (just like the rest of
the Member States) uses social dialogue formula since 1985. It involves discussions
on social and labour issues, consultations, round of negotiations, as well as
common actions of social partners (particularly associations of employers and trade
unions). These initiatives can be bipartite (when it refers to those two categories of
partners mentioned above) or tripartite (when the three parts of the dialogue are
trade unions, the associations of employers and the representatives of the
European Union institutions).
As the trade unions represent an important stakeholder in the design of the
European competition policy, the influence of the employees consolidates in a
regulatory framework by the appearance of the European Works Council in 1994 as
a result of Council Directive no. 45 on September 22, 1994. Another factor is the
procedure for information and consultation of employees of “community-scale
companies”. The directive clarifies the notion of “community-scale” of a company
and it also clarifies a “community-scale group of companies”. In the two types of
organizations, a European Works Council may be set up or it may be applied the
procedure for information and consultation at the request of at least 100 employees
or at request of their representatives from at least two companies in at least two
Member States. This can be achieved through the dialogue between a special
negotiating committee (purposely composed of employees and elected by them,
with a minimum membership of 3 representatives and a maximum of members
equal to the number of Member States, respecting a balanced activities and gender
distribution) and the central management of the company with the support and at its
expense, under a written agreement.
Because of the trade union pressure from European Trade Union Confederation –
ETUC and the European Trade Union Federations, new European Directives that
regulates the efficiency of European Works Councils update the previous normative
version. The concept of “consultation” of employees is linked to the elements of time
and procedure optimization that allow expression in a dialogue and take into
consideration employee representatives’ opinions in the company decision-making
process. On this occasion it is officially recognized the important role that social
dialogue partners can play, both representative and competent trade unions
organizations, the employees’ representatives and employers’ organizations. The
latter have to be informed during the negotiation stages in order to proper supervise
the process of creation of European Works Councils and to encourage best national
and transnational practices. European Works Councils, whose transnational role is
better highlighted, can have a small committee to ensure daily performance of the
activity.
Trade unions have required to be informed by the Commission when companies
submit notifications for a merger of acquisition. At the same time, they have
requested the Commission’s trade unions consultations not to be limited to an

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ordinary meeting, but to create a real dialogue space and to maintain employees’
representation structures during the actual merger or acquisition for not putting in
order not to endanger interests of employees. This proves a great interest in politics,
but the two categories of social partners generally have a low influence power. The
consultations with them are limited to art. 153 of the Treaty, to elements related to
the social rights of workers: promotion of employment, improvement of working
conditions, social protection, representation, and human resources development.
Companies and associations consider that competition policy helps eliminate cartels
and seeks to avoid the abuses of dominant position and to settle various
agreements between companies, having effects on the efficiency of companies and
markets and contributing to economic growth in the European Union. However,
companies believe that politics is a problematic instrument with many rules that has
led to a very complex and complicated economic system, far too restrictive and
inflexible. These generally have little interaction with the Commission and with DG
COMP, with the frequency of contacts being higher only if they must interact
because of economic interests or are under investigations. They are generally
skeptical about the decisions taken by the Commission, about how the Commission
decides and invokes the legal arguments, some of them questioning whether their
points of view are taken into account.
Employers’ organizations have begun to take on an increasingly important
European dimension (BUSNESSEUROPE is relevant and active at EU level)
compared to other non-business groups (e.g. trade unions, professional
associations, and various citizens’ organizations). One of the reasons previously
invoked is the material resources that their member can mobilize in their desire to
influence the policies that directly affect them.
Most of the business associations are regularly consulted (including online) by DG
COMP on the development of new guidelines. The vast majority of them have
regular interactions with authority, which resulted in satisfaction. In the case of
financing/acquisitions/mergers/surveys, a dissatisfaction of associations is about
the burden of reporting information on their business (the reporting format, some
requested information is considered redundant, the need to allocate human
resource for this activity) and the short response time that makes their activity
difficult.
Consumer organizations, environment organizations etc., civil society in general,
because of the diversity of their profiles have, as Dür & De Bièvre (2007) points out,
diffuse benefits and costs in relation to competition policy. Their interests are
punctual (graphically recorded as limited), and generally have limited resources and
little ability to influence regulatory design. The European Consumers’ Bureau
(Bureau Européen des Unions de Consommateurs - BEUC) is based in Brussels
and represents 41 national profile organizations from 31 European countries. BEUC
monitors the decisions of the European institutions and has assumed as an
important goal to protect the interests of European consumers. A second European
consumer institution recognized as a dialogue partner of the European Commission
is ANEC. This organization advocated for standardization by promoting the creation
of technical standards for the implementations of European policies and regulations.

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The European Commission carries out consultations in the field of consumer

protection and their interests with national organizations and the two European-level
organizations within the European Consumer Consultative Group – ECCG). This
consultative group meets three times a year and represents a source of information.
It offers consultancy for the Commission, promotes community actions and provides
opinions (upon Commission’s request or with its’ agreement). The Commission shall
appoint the members of the Group, one full member and one alternate member per
Member State, based on three proposals made by the Group. Given the
Commission’s recent concerns, inside the Group functions two groups: one for
energy and one for the Single Digital Market.
The main consultative body of the European Union institutions (Council,
Commission, Parliament) is the European Economic and Social Committee (EESC).
Since 1957 (Part Five “Institutions of the Community”, Title I, Chapter III, art. 193-
198, The Treaty of Rome) it is divided in a tripartite structure. The three groups
include employers, employees, and other interest groups from civil society; the third
category consists of organizations that protect the common interests of consumers,
farmers’ associations, environment associations, NGOs, representatives of
economic, civic, professional and cultural field. The Committee is composed of 350
members in the present appointed by the EU Council based on nominations by each
government of the Member States up to proportionate shares to the population of
the given country, which have a renewable five-year term. The task of the Council,
which meets annually in 9 (nine) plenary sessions is to provide opinions (for clarity,
it is essential to underline the fact that they are not mandatory) to legislative
proposals. Moreover, it also provides recommendations on topics considered to be
newsworthy and important, being from a functional point of view a civil society
consultation mechanism (including consultation of national and regional Economic
and Social Councils), and opinions gathering, structuring and response
mechanisms.
The three constituent groups are distinguished by various public positions on topics
such as industrial policy, the competitiveness of European industry, European
innovation and good practices, employees' rights, the development of alternative
solutions such as collaborative economics, social innovation, SMEs access to
credit.
Competition policy issues catches EESC’s general interest, particularly when the
Commission’s Competition Policy Report is discussed. In the first round is discussed
in groups, then is discussed in the EESC section entitled “The Single Market,
Production and Consumption” (INT) and at the end is put to the plenary vote.
There have been plenary opinions, both requested and on their own initiative. They
contain recommendations on State aid (more transparent allocation of resources
and the implementation of ex-ante and ex-post assessment tools); merger control;
the transition to an ethical European market based on the holistic concept of the
economy of common good serving the citizens; the effects of digitalization on the
service sector and industrial changes; supporting creative and cultural industries.
Regional authorities (local/regional governments) as Öner (2004) underlines, even
if at the beginning they opposed the process of European integration (due to fear of

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losing democratic control and the benefit of market principles), after the 1980s they
started to accept and then support it (the integration being perceived as a new
platform for affirmation of identity and extension of autonomy), and have turned into
institutions supporting the growth of European Union law, the structural funds having
a consistent contribution to this particular evolution. Although, they rather act on the
implementation side of legislation than on the participation in the decision-making
process.
Figure 1. Stakeholders matrix (of interest groups)

Source: personal working and analysis process
The Committee of the Regions (CoR), created in 1994, according to the Treaty (art.
305 – 307 of TFEU) is the second consultative body alongside the Parliament, the
Council, and the Commission. It is composed of maximum 350 members (appointed
for a five-year term by the Council based on proposals made by Member States
within the certain quotas limits depending on the number of population) that are local
and regional elected representatives of the 28 Member States (e.g. local/county
councillors, mayors, presidents of county councils, members of regional
parliaments). Their role is to transmit the views of local/regional authorities in order
to be included in the European decision-making process. The three European
institutions mentioned above are obliged to consult the Committee of the Regions
in areas such as economic and social cohesion, employment, health, educations,
youth and culture, transport, energy, the environment and climate change,
otherwise it can submit a complaint to the European Court of Justice. Just as EESC,

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the Committee of the Regions can issue their own-initiative opinions. The CoR
meets annually in 6 (six) plenary sessions in which it discusses and decides on the
opinions prepared/adopted within the specialized committees. Competition policy
and State aid are handled by the Committee on Economic Policy of the Committee
(ECON), alongside industrial policy, economic and monetary policy, the internal
market, economic governance and the European Semester, trade policy.
Depending on the coordinates analysed above, in Figure 1 we can find the most
relevant interest groups associated to the European common competition policy,
positioned according to their vision of this policy, being scaled the interest and power
of each to influence it.
3. Conclusions
Resources endowment of interest groups increases the possibility of this group to

mobilize and then to carry out influencing activities on the policy, and the richer the
organization is it has a more privileged access to European and national decision-
makers (e.g. the European Commission, the governments of the Member States)
(Dür and Mateo, 2012). This is also demonstrated by Klüver (2012), which
emphasizes that information transmitted by a stakeholder group to the Commission
is an important tool for influencing the political decision. And even interest groups
do not have equal access to decision-makers, nor the same amount of influence
power, the volume of information to which they have access and which they deliver
to the Commission increases according to the group’s resources endowment level.
The Commission’s proposal for an Interinstitutional Agreement to simplify legislation
and ensure a better/efficient/transparent law-making process at EU level highlights
the willingness to extend European models of governance, implying all levels
(“shortening” the national-European inter-levels communication channels and the
use of “direct lines” through the REFIT platform: the governments group for national
government – the Commission, respectively, the Interest Groups for European
citizen – European legislator). This proposal is made in order to extend the direct
consultation of citizens and interest groups when drafting European legislation,
including the use of online procedure, and the use tools to assess the impact of
various policy measures on citizens and employees in particular, an ex-ante and ex-
post policies assessment type.
References
1. Beyers, J. (2004). “Voice and Access: Political Practices of European Interest
Associations”, European Union Politics, Vol. 5, Issue 2, pp. 211–240.
2. Beyers, J., Eising, R. and Maloney, W. (2008). “Researching Interest Group
Politics in Europe and Elsewhere: Much We Study, Little We Know?”, West
European Politics, Vol. 31, Issue 6, pp. 1103–1128.
3. Beyers, J. and Kerremans, B. (2012). “Domestic Embeddedness and the
Dynamics of Multilevel Venue Shopping in Four EU Member States. Governance”,
Governance, Vol. 25, Issue 2, pp. 263 – 290.

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4. Chalmers, A. W. (2013). “With a Lot of Help from Their Friends: Explaining the
Social Logic of Informational Lobbying in the European Union”, European Union
Politics, Vol. 14, Issue 4, pp. 475–496.
5. Dür, A. and De Bièvre, D. (2007). “Inclusion Without Influence? NGOs in European
Trade Policy”. Journal of Public Policy, Vol. 27, Issue 1, pp. 79-101.
6. Dür, A. and Mateo, G. (2012). “Who Lobbies the European Union? National
Interest Groups in a Multilevel Polity”, Journal of European Public Policy, Vol. 19,
Issue 7, pp. 969–987.
7. Eising, R. (2007a). “Institutional Context, Organizational Resources and Strategic
Choice. Explaining Interest Group Access in the European Union”, European Union
Politics, Vol. 8, Issue 3, pp. 329–362.
8. Eising, R. (2007b). ”The Access of Business Interests to EU Institutions: Towards
Elite Pluralism?”, Journal of European Public Policy, Vol. 14, Issue 3, pp. 384–403.
9. Klüver, H. (2011). ”The Contextual Nature of Lobbying: Explaining Lobbying
Success in the European Union”, European Union Politics, Vol. 12, Issue 4, pp.
483–506.
10. Klüver, H. (2012). ”Informational Lobbying in the European Union: The Effect of
Organizational Characteristics”, West European Politics, Vol. 35, Issue 3, pp. 491–
510.
11. Lowe, P. (2008). ”The design of competition policy institutions for the 21st
century — the experience of the European Commission and DG Competition”,
Competition Policy Newsletter, Vol. 8, pp.1-11.
12. Monti, M. (2010). A New Strategy for the Single Market: At the Service of
Europe's Economy and Society: Report to the President of the European
Commission José Manuel Barroso, European Commission: Bureau of European
Policy Advisers (BEPA).
13. Öner, S. (2005). Relations between the EU and sub-regions and their impact on
the European nation-state. In Tarrósy, I. and Rosskogler, G (Eds.). Regional Co-
operation as Central European Perspective (pp. 33 – 48), Pécs, Hungary.
14. Tatham, M. (2015). “Regional Voices in the European Union: Subnational
Influence in Multilevel Politics”, International Studies Quarterly, Vol. 59, Issue 2, pp.
387–400.

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MANAGING CIVIL ORGANISATIONS: CIVIL MANAGEMENT MODEL
PIEROG Anita
University of Debrecen Institute of Management and Organisation Sciences,
Debrecen, Hungary
pierog.anita@econ.unideb.hu
Abstract: The presence of civil organizations in modern societies has become
commonplace. A well-functioning economy and society cannot be imagined without
civil organizations. The role of non-governmental organisations has been
appreciated over the past decades, as there are social and economic problems that
neither the state nor the economic sector can do or undertake, which are taken over
by the civil sphere. I examined the activities and management features of civil
organizations (associations, foundations). Based on the results, it can be concluded
that there exist management tasks in these types of organisations that do not appear
in the activities of the managers operating in economic sector organisations.
Moreover, these tasks appear to differ significantly from those of an economic
organisation. These differences have been summarized in a civil management
model.
Keywords: association; foundation; management tasks; activity; operation.
1. Introduction
The Civil Code, which came into force in 2011, clearly defines the scope of civil
organisations operating in Hungary. The law states which organizations can be
considered to be non-governmental organisations, and these are classified as either
associations or foundations.
Accurate data on the number and operation of organisations is still lacking. There
are several reasons for this. Official sources often provide different data. The Central
Statistical Office (CSO) has been conducting various surveys since 1993, including
non-profit organizations. Non-profit Organisations are a large category that includes
non-profit business organizations as well as classic civil organisations. As a result,
the HCSO can only provide approximate data on their number, activity, and
aggregation with the non-profit sector. For this reason, it is still difficult to find
statistics on civil organisations. While the publication of the civil law provided us
however with an exact description of what we mean by civil organisations, statistics
still do not apply them. Another source is the General Court since associations and
foundations are required to register with a court of law. However, the areas of activity
appearing on the court's website and the scope of activities in the CSO surveys are
different, so comparability is not possible.
The CSO data for 2017 is the most recent for organizations, activities, and other
statistical data. On the basis of these, it can be stated that there are still the most
important NGOs (association, foundation) within the non-profit sector. Of the 61.1

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thousand organizations, nearly 54,000 belong to this category (Statisztikai Tükör,

2019).
As every organisation needs to be registered with a court of law, it would be possible
to find out exactly how many organizations are currently active via the Court's
website. However, because statistical reporting is optional, one cannot rely on these
records. In addition, the court's search engine is far from optimal, as it does not even
allow their exact number to be determined.
Research on civil organisations has expanded in recent times. While studies were
primarily concerned with their activities and social impacts, more and more
disciplines are focussing on the subject of civil organisations. Nevertheless, it can
be said that there are still a small number of empirical studies. It would be worthwhile
to deal with the topic, because organisational activity is changing and from time to
time there are tasks in society that would require a higher level of insight (e.g., the
subject of migration).
Research on the management of civil organisations is also known in small numbers.
There is no real literary data that can be used to compare knowledge with other
organisational types. The available literature draws parallels between the
management of civil and profit-oriented organisations, which is why books and
descriptions for their organisational development and management are based on
what can be used in business organisations.
From 2009, I have been dealing with the management of civil society organisations.
My assumptions were that the nature of these organizations was different, their
operational features greatly influenced management methods and management
tasks. This assumption has also been confirmed, which makes it possible to set up
a model that specifically describes the management of civil organisations. The model
is based on test results for management tasks.
2. Management tasks
Over the past hundred years, the responsibilities of leaders have been defined
differently by various authors. Basically, the current social approach of the age was
determined in the first 50 years. After that, not only the social norms but also the
results of the research carried out in different types of organizations had an impact
on what management tasks came to the fore. A grouping summarizes the changes
in management tasks over the past 100 years (Figure1).
In addition, management tasks can be further grouped according to different
approaches. On the basis of research published by Bába and Berde (2010),
management tasks can be divided into two groups: process and content tasks.
Process tasks include those that are primarily related to organizational processes:
information acquisition, communication, planning, decision, provision, organization.
Content drop-outs are those that cannot be clearly placed in the logical order of the
previous group. This is because they can be linked to multiple functions at the same
time. These include motivation, formation of organizational culture, change
management, quality management, organizational development, human resource
management. These tasks are linked to the driving process by their content.

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Figure1: The change in leadership functions

Source: Own construction following Very (2009)
In 1994, the University of Debrecen, Institute of Management and Organisational

Sciences, created a specific leadership task grouping based on the work of Donelly
et al (1992) (Table1). Compared to its first release, its focus is now expanding,
thanks to new research. Different driving task groups can be classified into four main
categories.
In the original list, organizational forms and management tasks belonged to the main
group of organization management: organisational development, organisational
communication, information management, organisational culture, group
management, change management, and organizational structure. In 2012, civil
management was included. The human resources management main group
includes all tasks related to HR (motivation, conflict, etc.). This group was expanded
in 2007 by Equal Opportunities Human Resources Management, which deals with
the management of people with disabilities from organizations and individuals
themselves (Berde and Dajnoki, 2007). The 4EM area can be linked to several

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human resource management or organization management topics (Dajnoki, 2012;

Dajnoki, 2010). Management has also undergone significant changes over the past
decade. Increasingly, emphasis needs to be placed on the right workforce, resulting
in new HR functions (Wiwczaroski and Richter, 2017). These include i.e. knowledge,
retention, generation, competence, talent, and diversity management, and including
health care and HR branding. (Dajnoki and Héder, 2017).
Table1: Functional study of management

Process Human Resource
Organizational Education and labour
management Management
Management Studies market Surveys
Studies Studies
1.1 Organisational 2.1. Planning as a 3.1. Motivation, 4.1. Employment of
forms and managerial activity encouragement young graduates in
management tasks Hungary
1.2 Organisational 2.2. Decision 3.2. Conflict 4.2. Labour market
development making management consequences of the
mass graduation of
graduate education
1.3. Organisational 2.3. Decision 3.3. Human resource 4.3 Problems of
communication execution planning, organization educational sorting
theory and empirical
testing
1.4. Information 2.4. Organizing 3.4. Labour force 4.4 Internationalization
management selection of higher education
1.5. Organisational 2.5. Controlling 3.5. Competency
culture tests
1.6. Group 2.6. Quality 3.6. Performance
management management reviews
1.7. Leadership, 2.7. Time 3.7. Human resource
structure, and management development
hierarchy
1.8. Change 2.8. Security 3.8. Career
management management management
1.9. Innovation 3.9. 4EM – Chance of
management Equality Human
Resource
Management
1.10. Leadership style 3.10. Talent
and change management
management
Source: Berde, 2018
In addition to maintaining health, worker expectations and satisfaction are also

important (Deutsch and Gergely, 2015 Szondi and Gergely, 2018). Knowledge
sharing and management have been emphasized in large companies and
multinational organizations, but the SME sector is also beginning to recognise the

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importance of this (Juhász, 2015). However, SMEs have to follow other models
(Gályász et al., 2017). Due to the changes caused by globalization and the recent
wave of migration, both future, and current employees are highly affected (Dajnoki
et al. 2017; Wiwczaroski and Richter, 2018).
While higher education institutions also require special management tasks and
thinking, civil organizations, which are specific structures, call for another set of tasks
and a different mindset altogether. The reason for this is that the management of
public and private institutions is very different in terms of regulation and
opportunities, and globalization has had a big impact on them (Kőmíves et al, 2018).
Other specific organizations include sports organizations, primarily sports
companies (Bácsné Bába, 2015). They are different in both financing and accounting
activities, they have special features and therefore require a different management
attitude (Bács and Bácsné Bába, 2014; Bács et al., 2015). They are different in both
financing and accounting activities, they have special features and therefore require
a different management attitude. Response to Change, Lead to Change (Ujhelyi and
Filep, 2018), ethical leadership behaviour (Barriz, 2016) has been the central issue
of leadership for decades.
3. Methods
I conducted my examinations in Hajdú-Bihar county between 2010 and 2013. I have

determined the results that established the summery model to be presented later. I
compared my own results with other problems and results defined by the literature.
During my research, I analysed various management tasks among civil
organisations. I conducted surveys among civil society leaders and asked their
opinions about the importance of each management function. In this case, the leader
is the person entitled to make a decision, i.e. in the case of an association, the
unnamed representatives, as defined in the statutes, in the case of foundations, the
person named in the charter, representative, chairman or other senior executive.
The questionnaire, compiled in 2011, was tested during a trial recording, which was
conducted between December 2011 and May 2012. Based on my experience, I
recast the questionnaire, and with the final questionnaire, I completed the research
between December and September of 2012. During my research, the range of
organizations to be assessed was determined by representative sampling. The
sampling was based on the County Court website and its database. This is explained
by the fact that the most up-to-date information on NGOs is available on the website
of the County Court. Regarding the categories of earnings of the General Court,
organizations in the categories that are registered, modified by the notification and
modified by the final decision can be considered active. However, the complete
representativeness of the difficult-to-meet expectation of the organizations remaining
in the base population after the necessary constraints provided a good basis for
systematic sampling. I selected the organizations surveyed from organizations in the
category listed on the County Court's website with K systematic sampling. This
means that all k members are selected from the base population. In addition to the
headlines, I also determined how to select the additional addresses so that if a

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selected address is unavailable for some reason, it could be replaced so that the
specified sample size could be reached in any case. During the 2012 survey, 1407
registered organizations were registered in the county registry on the base day (7
October 2012). All of this was 5th in the base population, which was 282. The others
were placed in a group of possible additional titles (1126). A total of 282
questionnaires were prepared during the survey, which I carried out with the help of
interviewers. In the sample, the form of operation was mostly associations. The
breakdown by operating form shows that the sample was 69.5% (196) association
and 30.5% (86) foundation. Regarding the distribution of civil organizations of Hajdú-
Bihar County by operation form, it can be said that several associations operate as
foundations.
The civil society organizations in the sample perform the most cultural activities
(41.1%). One-third of them are sport leisure and hobby activities (37.8- 29.8%), their
management and operation even show many differences and peculiarities within civil
organizations (Szabados, 2015), 33.7% of them do education. About one-tenth of
the organizations deal with health care and 14.2% with environmental protection.
Those who nominated the other category in each case were called religious activities
as an occupation. The data I obtained show a similar picture to that of the HCSO.
A large number of respondents are men with tertiary education, mainly in voluntary
organizations. The proportion of the 40s, 50s in the sample is almost the same, but
the 30s are not negligible. The examined managers are 70% over 40 years old. It
can be inferred from this that some kind of life experience is required to undertake
such an activity. Most managers have less than 10 years of professional experience,
75% of them work with less than 10 people. More than half of the respondents spend
more than 20 hours on the affairs of the organization every week, around 40% of
those who have less than 10 hours.
The definition of civil organisations is the basis of my main findings and model. There
is no clear definition in the law or in literature on non-profit theories. The reason for
this may be that the range of civil organisations is much narrower than the non-profit
definition.
Based on the literature, my research results and my experience, the NGO is a non-
profit organization that is usually set up on a citizens' initiative to solve a specific task
and performs its activities within a formalized framework.
4. Results
Based on the results of my research, I set up a civil management model, which I will
present in the table below (Table2). In the case of civil organisations, the basis of
leadership and management tasks is clearly the activity of the organisation. Based
on the results, I also consider the "sleeping" organisations to be a meaningful
structure, which are not active, they are kept alive only by program. They represent
their assumed duties by their mere existence. The availability of organizations can
be used to distinguish between operating and "sleeping" organisations, that is,
addresses/phone numbers in official databases are current. In addition, the measure
of activity may be the operating costs of organisations. More than half of civil

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organisations operate with an annual income of less than $ 500,000. This low level
of resources does not cover an organisation's annual operating costs or allows for
extremely low activity. This statement is reinforced by the low level of conflict in
organisations, the low level of staff, members and volunteers, and the difficulty of
accessing the data.
Table2: Civil management model

organisational/management
civil characteristics parameters
characteristics
operating (active) not availability, operational
activity operating costs
(inactive/”sleep”) level of conflict
organisational management task principle
self-inspiration, manager/volunteer
motivation psychological member/employee
encouragement
group communication towards the external
communication tools environment
informal communication in organisation
short-term within a year
plan action
campaign
problem detection attachment to the
organisation
empirical internal values manager
decision making internal organizational
interests
compliance with external received grants
requirements
goal rational task implementation
organizing
efficiency
low activity
conflict
commitment
Source: Own construction, 2019
The second element of the model is a factor determined by grouping the

management tasks of the organisations. According to the opinion of the respondents,
the tasks related to the management of the organization are the most important ones.
It can be concluded from this that primarily the realization of tasks is an important
human resource management function not related to the participants.
In the case of motivation, I base the examination of two different factors on the
characteristics and parameters of the model. One of the reasons why we take part
in an organization's activity, why do we take a "civil role"? In the case of managers
and volunteers, based on the examination of their own motivation, it can be stated
that they are driven primarily by internal motivation. Commitment and altruism play
a role in engaging in civic work as a second tertiary activity, providing a livelihood. In
the case of employees and members working in the organisation, the psychological

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incentives are clearly outstanding, according to the respondents. These are

supposed to be associated with participation in the internal urge.
Communication and organizational communication can also be outlined on two
sides. Group communication tools are primarily used for the outside world. The most
important are events, exhibitions, conferences. While in the case of internal
communication, communication is primarily informal. Discussions and meetings are
not often used.
It can be said that planning related to the activities of the organisation is short-term,
as they always focus on their actual, current actions. There are no long-term vision,
primarily social goals and financial conditions have a prominent role.
The decision is of paramount importance for the management tasks. In decision-
making, problem-finding depends on the person in charge. Accordingly, one’s own
intrinsic values, and the organisational values that these define will lay the
foundations for problem perception. Clearly, the leader is the central person on this
topic. In addition, the constraints on compliance with external factors play an
important role in decision-making Organisational tasks related to the activity, in
accordance with the planning and the organisational management of the task is goal
rational. The most important thing is to ensure coordination, financial conditions and
personal conditions. The goal is to realize the specific tasks that the organisation
itself or the "consumer" expect to take on the activity of civil organisations.
The amount of conflict and its frequency is low. This can be related to several factors.
One of these is the activity of organisations. However, the implementation of tasks
involves interactions in each type of organisation, and interactions generate conflicts.
Thus, low levels of conflict can also refer to low activity. What is clear, however, is
that if an organisation is not active, then there can be no conflict. Accordingly,
project-like activities do not necessarily generate conflicts. In addition, the level of
conflict is low for organizations operating within the normal framework. The
explanation for this is that the participants participate in the operation from their own
commitment and emotional attachment to the activity of the organisation. Because
of this, the goal, values, beliefs are common, so conflicts can develop less easily.
5. In conclusion
Emphasizing the model's factors, it can be said that civil management, as a new
management area, has specific features. These can be formulated as follows:
- strong internal motivation of the members of the organisation
- effectiveness of psychological motivation
- the appreciation of informal communication
- short term planning
- external influence of decisions
- value-based, empirical decision-making
- task-centered organization
- conflicts are primarily value-based and information-based.

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6. Acknowledgements
Researchers” – Supporting the Career-developing Activities of Researchers
inHugher Education.
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21. Wiwczaroski, Troy, Richter, Borka. (2018): Intercultural Negotiations: The
Challenge for Teachers and Trainers. In: Ildiko Némethová, Daniela Breveníková,
Troy B. Wiwczaroski, Borka Richter, Mária Bláhová (szerk): Global Business
Practices: Communication, Leadership, Negotiations, and Ethics Probleme und
Chancen der Globalisierung, Band 12. Verlag Dr. Kovač: Hamburg. pp. 115-168.

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DECISION MAKING FACTORS IN PURCHASING THE ANALGESICS BRANDS

ON ROMANIAN PHARMACEUTICAL MARKET
RUSE Ana Valentina, CRISTEA Maria Adelina, CIOBANU Oana Maria,

ROMAN Polixenia Aurora
The Bucharest University of Economic Studies, Marketing Faculty, Bucharest,
Romania
ana.ruse@mk.ase.ro
adelinamcristea@yahoo.com
ciobanuoanamaria@gmail.com
polixeniaparescura@yahoo.com
Abstract: Nowadays promotional activities play a very important role, especially in
pharmaceutical sector. This statement is supported by the huge amount of marketing
expenses of the top pharmaceutical companies (Olson, 2015). We were interested
to investigate the way people choose the analgesic brand and to identify how
powerful are advertising features, recommendations or previous experience in the
decision making process. Taking into consideration that on the Romanian market
are available a limited number of notorious brands and many local brands, we
wanted to investigate the attributes of brands and products taking into account in the
purchase decision of the pharmaceutical industry. This is a quantitative research of
the romanian consumer. We used four focus groups as a research tehnique. The
findings reveal that among the most important product features are the quality of the
product which is reflected through its quick action (releasing the pain) and no side
effects. Because of the fact that most of the analgesics are over the counter drugs
(OTC) and they can be bought without prescription, the pharmacists’
recommendation represent one of the key factor in choosing a brand, among
previous positive experience and promotional strategies. A good brand is according
to the respondents, one which is well promoted on the television. Therefore, the
consumer is attracted to powerful brands, effective products and the pharmacist’s
recommendation may play an important role because of his authoruty in the field.
Powerful brands are those that can afford to promote effectively and those that are
notorious or very well known in the local market.
Keywords: promotional activity; decision making; analgesics; brand notoriety.
JEL Classification: M31; M37; M38.
1. Introduction
In this paper, we were interested to explore consumer’s opinion regarding

promotional activity, to identify the main elements taken into account in the decision
making process of an analgesic brand. Also, our interest was to determine what type
of promotional message has a greater impact on the purchase decision. Based on
the research aim, further investigations and research should complete the whole
picture regarding the consumer’s perception of analgesic brands.

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The key argument of researching how and why customers choose a specific
analgesic brand is that big companies allocate huge budgets in order to promote
their products, in most cases, greater that the research-development budget. Our
curiosity is to investigate how marketing activities interfere with the customer’s
choice, what are they looking for when choosing a brand and what marketing tools
have a higher impact on their purchase decision. The hypotheses are that people
are more sensitive to pharmacists’ recommendations than other sources such as
friends or relatives and this is in most cases the key factor in their brand decision;
due to previous research, another hypothesis is that consumers trust a
pharmaceutical brand mainly because of their previous positive experience Donohue
et al. (2009).
A study of OZONE Foundation shows that 73% of the Romanians use self-
medication, from which 22% use it once a month, most of them are women, half of
them consider that they have the capability to do that and one of seven parents treats
their baby without consulting a physician (Senciuc, 2012). The relevance of self-
medication in pharmaceutical reglementation is that on the one hand, intense
promotion of drugs increases the demand and therefore, self-medication. On the
other hand, significant differences are noticed between different people with degrees
of education: the more educated people are, the less they use self-medication. In a
global perspective, differences of education are common in almost every country
and this is another reason why laws, regulations and codes of ethics or guidelines
should be powerful instruments to secure the citizens. Another aspect taken into
account by the consumer is the medical condition (problem): the consumer is
predoisposed to self medicate only he perceives the condition as a serious one, it is
likely to go to a specialist.
Marketing activities are condemned in pharmaceutical market by many actors
because of the fact that health is so important that should not be influenced by
promotional activities. Taking into account ethical considerations in marketing
activities, (Lege5.ro, 2015) shows the fact that on the Rromanian market,
promotional activities of the prescription drugs are forbidden. Also, it is forbidden any
decieving information regarding drugs, or any affirmation which can not be proved
scientifically.
Communication, which includes marketing activities, is defined as the two-way
process of reaching mutual understanding, in which participants not only exchange
(encode and decode) information, news, ideas and feelings but also create and
share meaning (Business dictionary, n.d.). This model in the pharmaceutical industry
pictures the main actors: the sender may be the drug manufacturer, state,
pharmaceutical wholesalers, physicians, pharmacists or other organisations, while
the public who receive the message is made of patients, competitors,
pharmaceutical wholesalers, physicians, pharmacists and other organisations. The
message may include: drug properties and what makes it different from the others,
side effects, dosage, application, to whom it is addressed and the media (means of
communication) may be oral, virtual, personal and non-personal. Although marketing
is part of the communication, these two concepts are separated by their aim:
marketing activities are olny those activities which are meant to promote something

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(products, brands, ideas, services, organisations etc.) in order to obtain economic

benefits.
The marketing mix appeared in 1964 due to Neil Borden, who was inspired by James
Cullinton. They have discovered many elements of the marketing mix and
succeeded to organize them in a coherent form, where each element has many sub-
elements (Stanciu, 2002). The elements of the marketing mix are: product,
promotional activities, prices and placement or distribution (Waterschoot and Van
den Bulte, 1992). There is a promotional submix, which has specific elements such
as: sales promotion, advertising, public relations, events and experiences, direct
marketing and personal selling (Kotler et al., 2009). Nowadays, advertising means
television commercials, brochures, banners and even commercials available on the
internet. This method is an effective and expensive way to promote the product
because it reaches to numerous people.
Another important element is sales promotion which has the role to push the
products to consumer through special offers, price reduction, free products,
merchandising, gifts etc. These techniques are used in order to increase sales which
can be done in two ways: intensively by increasing the amount of the products
bought or extensively, increasing the number of the clients due to promotional tools
used. In the promotional activity of pharmaceuticals, there are many regulations
which limit advertising over the counter drugs (OTC) to consumers and it is forbidden
to advert prescription drugs (Rx) to patients.
Personal selling is part of the promotional submix and it implies that the pharmacist
recommends a specific product to the customer. Taking into consideration that
Romanians often go to the pharmacist before consulting a specialist such as a
physician, the customers can be very quickly persuaded by the pharmacists advice
because he is percieved as the specialist (Pilarczyk, 2011). Another instrument of
promotion is rewarding prescriptors and people who have the power to increase
demand. In communications, the source must be powerful, attractive and credible in
order to get to the receptor (Popescu, 2003) because nowadays each person is daily
in contact with 3000 up to 5000 promotional messages. In pharmaceutical industry
powerful drug manufacturers are trying to persuade physicians, who have these
characteristics, to recommend their products intensively, although global ethics limit
very much such activities to lilttle amount of money spent.
Beside promotional activities of the marketing submix, marketing is also about
product, pricing and distribution techniques and these four elements represent the
marketing mix, known as the 4Ps (product, price, placement and promotion). Using
an integrated marketing communication system, a company can increase the brand
equity. American Marketing Association (2017) defines brand equity being the value
of a brand and it is based on consumer attitudes about positive brand attributes and
favorable consequences of brand use. The term has evolved since 1960 when it was
associated with a logo to a legal instrument meant to protect a brand capital through
a trademark. Another association of brand is a shorthand which implies that in
general, consumers who have limited time in order to decide what to buy, tend to
buy from companies they know (Chevan, 1992). On the other hand, a well known
brand may be perceived as something safer because knowing the company, their

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values, the price-quality ratio, you have a psychic comfort. According to Kapferer
(2004) cited in Maurya and Mishra (2012) perceived risk could be economic (linked
to price); functional (linked to performance); psychological (linked to our self-
concept); social (linked to our social image) and experiential. All these risks tend to
diminish when it comes to well-known (trustful) brands.
Inevitable, a brand is correlated also with the attributes of positioning. Positioning
refers to the place of your company in the consumer’s mind or the perception of the
public regarding the characteristics of your brand. These associations may reffer to
price, quality, name, packing, emotions, personalities who promote the brand,
values, campaigns, previous experiences, places etc. Positioning in strategic
marketing is the third step after segmentation of the market and targeting specific
segments from the marketing to whom you will address.
The brand value of a pharmaceutical company initially came mattered in order to
inform people about the company’s existence and about its products, therefore to
increase awareness. Now, there are many companies who use the same active
substances so each of them must differentiate from another in order to attract
consumers. Branding pharmaceuticals is about expressing value, about expressing
something else about the product that is valuable to either the patient, physician, or
any relevant audience (Seget, 2006).
We used the focus group method in this research in order to investigate the main
factors taken into consideration by the consumer of the analgesic drugs. Four focus
group sessions were conducted and recorded in Bucharest, Romania, in 2018. From
a total of 24 participants, 75% were women and 25% were men. Their age variates
between 20 and 65 years old and all of them were high school graduates or above.
The aim of this paper is to determine which are the key elements in decision making
process of analgesics` purchasing. Other research objectives are: defining a
successful analgesic brand, exploring the consumers’ perception of advertising
analgesic durgs and identifying the main elements of a persuasive advertising. We
took into consideration various factors discovered in previous research such as
advertising techniques, brand reputation and notoriety and recommendations.
Further quantitative investigations are needed in order to measure the influence of
each factor.
Based on prevoius research, the hypoteses of this study are:
1. The consumer is influenced by factors such as: recommendations, brand
notoriety, advertisements.
2. The main element that influences the purchase decision of an analgesic is
the pharmacist.
3. The consumer wants a qualitative product which means that the drug
should have the promised effect.
4. A successful brand is well promoted.
5. The trust in a brand is proportional with previous positive experience.

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3. Findings
The focus group recordings were transcripted, collected data was organized,
synthesized and compared. The most important results were selected and are
presented below.
Analysing nonverbal and paraverbal signs in communicating with the respondents,
we observed that while they were talking about promotional activities of analgesics,
some of the respondents’ attitude was rather angry. Some of them even declared
that they are annoyed by the great amount of drug commercials. On the other hand,
they recognized the value of promotional activities and some of them agreed with
the fact that a promoted brand gain costumers’ confidence and it is probable to buy
it because it is about their health. Other participants were completely against the
promotional activities and stated that the more advertisements of a drug brand they
see, the less are the chances to buy it.
3.1. Elements that influence the purchase of a specific brand

Most of the respondents were at first confused by this question and they have
mentioned almost all the elements that may influence one’s decision: previous
experience, physician’s recommendations, pharmacist’s recommendations, family,
friends, promotional activities. During the discussions, they had the time and the
opportunity to prioritize the most influential elements.
Some of the participants stated that they use a brand because of previous positive
experience. Also, they explained that they were taught by parents to take a specific
brand and they prefer it because it successfully takes away the pain. In the same
situation were respondents who are used with a substance such as Ibuprofen and
they know it works. On the other hand, one of the participants said that Bayer was
years ago, one of the greatest drug manufacturers, therefore, a long period of time
she used their products. Recently, she discovered that Romanian products
(Paracetamol) are better because they protect the stomach, unlike Bayer’s
Paracetamol.
A discussion regarding the trust in some of the most important influential factors
emerged: two respondents from different focus groups said that they don’t have the
time to go to a physician for each of the health problems, therefore they ask the
pharmacist’s recommendation. The reaction of the other participants was negative
towards pharmacists’ intention: some of them stated that pharmacists will
recommend you only the most expensive products because “They don’t care about
your health. They have a target to reach, therefore their recommendations are the
least trustworthy”. Some of them mentioned the physician, but another respondent
said that even physicians are controversial and it is possible to have the same
attitude towards patients, such as pharmacists “in order to get a free trip”. Other
participants said that only the physician has the power to tell you if there are side
effects of substances that may put you in danger and he knows if you are allergic to
a substance. Therefore, they trust the physician. One of the respondents said he
believes both points of view, but physicians can present you more brands.

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One of the respondents said he prefers a well known brand which is promoted on
television because he doesn’t have time to go to a physician nor the trust a
pharmacist. Two respondents stated that friends are a trustful source of information
because they are not interested to manipulate you like a pharmacist and also, they
may have some experience using those products.
An important idea emerged is that they feel that promoted brands are in the spotlight,
while the brands that are not promoted are fading. One of the respondents was very
categorical and stated that every time he sees a commercial, he feels he is sent to
buy that drug even if he doesn’t need it.
3.2. The most important characteristics of the analgesics are: quick action and
no side effects
“Certainly, to take away the pain as quickly as they say” was the response of the
majority of the respondents. Some of them exemplified that there are cases when
the pain does not disappear after 20 minutes or the time the manufacturer ensures
it should have an effect. “The promoted effects do not exist. You can realize this after
2 hours of waiting to diminish the pain while on the prospect they say it should
disappear after 5 minutes [..] and in most cases the pill is not the reason for the pain
relief”. Two respondents said that since they realized that these drugs don’t have the
promoted effect, they do not buy them anymore. The releasing pain time is perceived
as a qualitative characteristic of a product which enhance the satisfaction of the
customer.
Some of the respondents were very interested in the side effects and one of them
was annoyed by the fact that “from those 30 seconds of advertisement, at most 10
are those in which a voice tells you in a quicker and offending manner that in order
to see the side effects, you have to read the prospect or to ask for advice of a
physician or a pharmacist”. Other characteristics are: a low price, good taste, to avoid
addictive substances, “as natural substances as they can”, not to raise blood tension.
Some of the respondents said that psychically is very convenient to have some pills
bought just in case of a migrene or other type of pain. Also, they would recommend
or even give to friends and known people the pills they use in order to take them if
needed, if they are satisfied by with the quality of the product.
3.3. What is a successful brand?

“A good medicine that is adequately promoted”; “They really know how to promote
their products”; “even when you go to the pharmacist or the physician, they will
recommend you those brands”. Most of the participants said that a powerful drug
brand is intensively promoted and recommended. The respondents noticed that the
red circle representing the pain moving in different parts of the body before taking
the drug is the main way to express in advertising. And even if it is very common,
the impact on the desire to buy that product is positively influenced.
Other element considered is the history: “I think Nurofen was one of the first foreign
drugs entered on the Romanian market”. Another respondent said that “old
analgesics got to be known by most of the people and it doesn’t matter if the
manufacturer in romanian or not. People are now aware of their existence and they

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have made a set of drugs used that can hardly be changed by anything new”. The
same person said “Aspirina and Paracetamol are universal drugs and can’t be
overwhelmed by anything new”.
Also, analyzing why Nurofen is one of the most successful brands of analgesics a
respondent said that it is because they have different products for different types of
pain: “I think it was very important to see that there are multiple products which target
a specific pain such as headache, shoulder pain, back pain, which acts in 5 minutes,
in 10 minutes, made of jelly or syrup and you can choose whatever you want”.
Another characteristic is the brand name. One of the participants said “there are
some catchy brand names that make you think of an analgesic or of a specific
substance: for instance, Nurofen makes you think of Ibuprofen (the active
substance), Algocalmin makes you think that it has a calming effect or that
Antinevralgic fights against nevralgies”. A drug remembered by some participants
was Advil which has the same substance as Nurofen, but the name is not so “catchy”
compared to the market leader.
Moving forward to trustful brands, respondents discussed about the purchase
decision between a cheap unknown drug brand and a powerful brand which have
the same substance: “between a cheap no-name and Nurofen, I trust more Nurofen
because I don’t know…it is about promotional activities”; “some pharmacists
recommend unknown brands because they use the same substance, but people
don’t want to buy them and ask for something better….you can’t make experiments
on your body”; “if the brand is always recommended it is clear in my mind that it is a
good product”. On the other hand, there were two participants who said that they
use to buy new brands in order to test their action.
4. Conclusions
The findings of this paper represent the first step in researching this topic and may
be of interest to consumers, pharmaceutical companies, marketers and also to
institutions which are supervising the regulations. Further research should be
considered on this topic in order to establish adequate ways of promoting
pharmaceutical brands. The reasearch limitations of this study are: the limited
budget available, the reduced period of time and the fact that the researchers were
conducting the focus groups, although it is recommended to involve a different
person than the researchers to be the moderator of the discussions .
This study confirms the hypothese that he consumer is influenced by facors such as:
recommendations, brand notoriety, advertisements. There are also some of the
hypothesis that were not confirmed by this piece of research: the main element that
influence the purchase decision of an analgesic is not the pharmacist, but the
previous positive experience. This means that consumers may take the risk to
become immune to a substance if they use it intensively and during a long period of
time. This also means that they may be skeptical about the pharmacists’
recommendations. Another hypothesis that was not confirmed is that trust in a brand
comes with previous experience. Respondents said that historical background has
a greater influence on their choice because they are used to some brands (traditional

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brands). On the other hand, there were respondents who said that they may test new
brands. In order to get more information about this topic, we believe that further
quantitative research is needed.
Other findings suggest that advertised analagesics have a positive impact over the
consumer’s perception, influencing trust in the brand, but there are too many drugs`
commercials. The key factor in influencing the trust in an analgesic brand may be
the historical background of the manufacturer. Regarding the product, the findings
suggest that the most important characteristics of the analgesics are quick action
and no side effects. The perfect analgesic is the one that targets the pain, but it is
far more important to feel a quick relief of the pain and to have as few side effects
as possible. Also, a successful brand is intensively promoted and recommended.
In the pharmaceutical sector another problem is that many clinical trials were bought
or couterfieted and the side effects were not known until the drug entered on the
market. This strategy is not just unethical, but also illegal and unfortunetely, it is not
eradicated. Therefore, we believe that the manufacturer should be punished
severely if such fraud is proved.
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PAST, PRESENT AND FUTURES OF DISTRICT HEAT SUPPLIERS, WITH

SPECIAL REGARD TO HUNGARIAN DISTRICT HEAT SUPPLIERS -
LITERATURE REVIEW
SÜVEGES Gábor Béla

Institute of Accounting and Finance, Faculty of Economics; University of Miskolc,
Miskolc, Hungary
suveges.gabor@uni-miskolc.hu
Abstract: In recent years, many researchers displayed interest in the different types
of social innovations. In the current research, the author does not aim at creating a
new definition, but at examining the possibilities to generate social innovations in the
case of district heat suppliers by accepting the previously created definitions. In the
case of district heat suppliers, three levels of social innovations can be distinguished
and the current research aims at presenting how they have been realized worldwide
for almost 140 years. Its methodology includes bibliography research based on
seconder research methods and its result is a summary which helps make the heat
supplier systems of different generations from the 19th-21st centuries transparent.
The purpose of the present study is to examine the changes in the district heating
systems of the world by examining international literature with the methods of
literature review. District heating systems are grouped based on the following
aspects: the role of heating systems in the given country, price level / price
regulation, the technical and technological characteristics of heating systems and
the share of renewable energy sources. The study emphasizes several times the
related current conditions and characteristics in Hungary. The results of this literature
review prove to be an important tool for the author’s further research.
Keywords: District heat supply; District heat producers; District heat suppliers;
technological and ecological environment; social innovation.
JEL Classification: K32.
1. Introduction
The roots and the first forms of central heating can be found in the ancient times.
Karner (2003), however, points out that, contrary to the general belief that district
heating could be linked to the Romans, this way of heating was known also in the
capital city of Mesopotamia and similar procedures to central heating were used in
ancient China as well. In ancient times and in the Middle Ages, many inventions
came to be used independently by many different peoples and groups at almost the
same time, so central heating is likely to be similar. In the Roman Empire, the
ancestor of the today underfloor heating was used to ensure the temperature of the
baths, but similar technical implementations were used to supply other buildings as
well. In 13 BC Pallio Vitrovius, Roman architect, presented the heating system of the
imperial palace.

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Like many ancient discoveries, central heating was forgotten or played a minor role
in the Middle Ages. However, some records from the 15th century mention the district
heating of baths. Subsequently, the technical development of the industrial
revolution provided the opportunity for this type of heating to spread.
In the 1790s, waste heat from English factories was transported via underground
pipelines to heat public baths and since the middle of the 19th century "apartments
heated from long distance" has been spread in several European (London, Paris,
Hamburg, Dresden) and American (New York, Boston) cities.
“Social innovation provides new or original solutions to solve the problems of a
community with the aim of improving its well-being” (Kocziszky, Veresné and
Balaton, 2017). Through reaching the goals to improve the quality of life, heat
suppliers implement social innovations by their products (heat and hot water supply),
by the applied technologies and by implementing them in consumer-friendly services
(Süveges, 2019). It was, however, realized in different ways during the centuries.
The current study aims at describing the heating generations of the 19th-21st
centuries by analyzing the international literature. The basis of the comparison as
the possibilities to generate social innovations are the technical and technological
characteristics of district heating.
Based on the examination of the international literature, I classified the heat supply
systems operating in different countries according to the following criteria:
1) Main reasons and historical roots of the development of heat supply
2) Prices of district heating
3) Generations of heating systems and their technical and technological
characteristics
4) Proportion of renewable energy sources in the total heat supply capacity.
2.1. Main reasons and historical roots of the development of heat supply
Kádárné (2010) explained that in different parts of the world, district heating systems
had developed from different motivations and with different technical and
technological conditions. The Association of Hungarian District Heat Suppliers
classifies the systems of European countries into four groups:
1) Northern Europe: Sweden, Finland, Denmark and Iceland, where the role
of this heating method is constantly appreciated for its positive effects on
the protection of the environment and climate. In these countries, it is also
an important instrument of the energy policy and it is continuously
improved. Accordingly, the proportion of district heating in apartment
heating is extremely high. In Denmark, it is over 60% and up to 98% in
some major cities. Denmark is considered to be a model country from
several aspects due to the leading-edge technologies (Vanhoudt, Oevelen
and Johanson, 2019; Nielsen, 2019) and to the high utilization rate of
geothermal energy (Margaryan, Dyrelund and Hansen, 2019).

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2) Austria and Germany, where gas and district heat suppliers are organized
into holding companies owned by local municipalities and the
development of heat suppliers is an integral part of urban environmental
programs (Kádárné, 2010). The proportion of heat supply out of heating
systems is much lower in this group than in the previous one.
3) The proportion of district heat in the group including France, Italy, the
United Kingdom and certain parts of the Netherlands is low (5%) and there
is no great tradition of this heating method. However, the governmental
energy strategies of these countries also include district heating projects
with low carbon dioxide emission, both for the general public and for other
users (Webb and Bush, 2019). In the case of Italy, the use of water with
lower temperatures can be observed in the heat supply (Kádárné, 2010),
which is considered by many to be a significant way of future development
of district heating (Jensen, 2019). The initial low share of district heating,
of course, has the advantage of providing opportunity to increase the role
of renewable energy sources. In France, for example, the share of this
energy source has doubled in five years and is expected to increase to
five times compared to its 2013 value by 2030 (Perrin, 2018). Especially
in the northern and eastern metropolitan areas of the country, an increase
in utilization is expected with the use of further synergies (Boysen, 2018).
Ireland has similar conditions, where there is no historical tradition of
large-scale district heating, the rate is only 1% like in much warmer
countries in Europe like Greece, Cyprus and Malta, however, more and
more countries consider district heating to be an opportunity to meet their
energy policy and environmental goals (Gartland, 2018).
4) Newly acceded Member States of the European Union, all of which have
experienced "a period of rapid and forced industrialization" (Kádárné,
2010, p.23). As these countries have a district heat ratio exceeding the
EU-15 average, they are often of lower quality in technical implementation
(like thermal insulation) and in technology due to the historical aspects of
their construction and have considerable potential for development.
In the European Union, on average, district heating accounts for about 10% of
heating, similarly to the world average, but significant differences can be observed
among countries (Werner, 2016).
2.2. Classification based on the prices of heat supply

There are other options of grouping in addition to the above described one. One such
research material of relevance, also conducted by Werner (2016) and being part of
the research on the future role of district heating, compared the price levels of
European heat suppliers and created the following groups based on prices:
1) Countries with high price: Denmark, Slovakia, Germany, Norway and
Sweden,
2) Countries with low price: Iceland , Bulgaria, Switzerland, Poland and
Hungary,

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3) Countries with high district heating prices compared to the disposable

income: Slovakia, Estonia, Latvia, Lithuania. (Interestingly, Hungarian
district heating is generally associated with high prices in the mind of the
individuals (Németh, 2008), but this statement cannot be justified either in
absolute or relative terms based on the research results.)
In their study, Kácsor, Kerekes and Mezősi (2019) grouped European heat supply
systems according to the type of district heating system in the country. Based on
their summary research, two groups can be distinguished:
1. In most Western European countries, “there is no explicit price regulation system,
any abuse of a dominant position is detected or sanctioned by the competition
authorities through ex-post procedures… .. the pricing model used here leave it to
the competition among heating modes and competition for consumers to determine
district heating prices and district heat suppliers may not use their position
improperly”(Kácsor, Kerekes and Mezősi, 2019 p. 8)
2. “Ex-ante price regulation” by regulators responsible for regulating and supervising
energy markets is common in Eastern European countries (Kácsor, Kerekes and
Mezősi, 2019, p. 9).
District heating used in Hungary can be classified into the price regulation systems
of the Eastern European countries based on the procedures applied by the
regulatory system. This is well illustrated by several events like the 2011 Freezing of
Service fees. The Act XXIX of 2011 on the Amendment of the Energy Related Laws
Frose on Retail Prices and Prices of Institutions Treated Separately as of March 31,
2011. It is the Minister of National Development who is responsible for setting prices
of heat sold to the public and to institutions treated separately as the highest official
price. Also included in 2012 are the Transformation of the energy support system
and in 2013 the Utility price cuts. As a result of the price cuts in district heating, the
total savings of 20% were realized by consumers on the whole in more stages.
At this moment, the Hungarian district heating regulation consists of three parts,
which are as follows:
1) Prices for residential district heat services
2) Prices applied by heat suppliers
3) Subsidies for district heat suppliers
2.3. Generations of heating systems and their technical and technological

characteristics
One of the most frequently mentioned elements in the international literature
analyzing district heating is the generation-by-generation comparison of heating
systems (Lygnerud, 2019). Several researchers have dealt with this topic, among
which the study by Lund, Werner, Wiltshire, Svendsen Thorsen, Hvelplund and
Matthiesen (2014) is outstanding. Its main assumption is that district heating and
cooling systems will play a major role in the sustainable energy systems in the future,
by reaching up to 100% renewable rate. In order to achieve this, however, significant
improvements are needed compared to the current situation. The different
generations have been characterized by a number of aspects which can be grouped
into three groups. The main findings of their study are summarized in the Table 1. In

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both the United States and European countries, first generation heating systems
were based on similar technology, characterized by technically inefficient operation
and high network losses. The heat-conveying of the second generation systems was
water at temperature of 100oC at high pressure and all systems built from the 1930s
used this technology until the 1970s. This was typical of the heating systems of the
countries of the Soviet bloc. Construction was characterized by low quality and there
was no possibility / need to regulate or change the amount of heat used.
Table 1: Generations of heating systems and their technical and technological

characteristics
Generations of heating systems
Evaluation First Third Fourth
Second generation
criteria generation generation generation
Period 1880-1930 1930-1980 1980-2020 2020-2050
Mostly Low
Mostly pressurized
Heat- pressurized hot temperature
Steam hot water (above
conveying water (below water (30-
100oC)
100 o C) 70oC)
Existing
buildings
Blocks of flats with lower
Blocks of
Blocks of flats and and the buildings heat
flats and the
Serviced the buildings of the of the tertiary demand
buildings of
buildings, tertiary sector, sector and (50-150
the tertiary
needs typical size is 200- detached homes, kWh/m 2)
sector in
300 kWh/m 2 typical size is and small
cities
200-300 kWh/m 2 scale (<25
kWh/m 2)
new users
Radiators
Radiators
Radiators using low
using medium
Heating in using high Radiators using high temperature
temperature
the temperature temperature water water (50o
water (70o C)
apartments water (90oC) o
(90 C) C) and
and underfloor
or steam underfloor
heating
heating
Natural gas,
Basis of Renewable
biomass,
thermal Carbon Oil, natural gas energy
renewable
energy sources
energy sources
Source: Own compilation based on Lund, Werner, Wiltshire, Svendsen Thorsen,
Hvelplund and Matthiesen (2014)
Third-generation heating systems including solutions from the late '70s and early'
80s are often referred to as "Scandinavian district heating technology" because
many of the components used in district heating have been manufactured in the
Nordic countries. These systems and technical solutions are used in the former
Soviet Union Member States and in Central and Eastern Europe, but the systems

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currently being built in China, Korea, USA and Canada also belong to this
generation.
Besides technical and technological basis, the authors also reviewed motivation
factors that are summarized below.
Table 2: Generations of heating systems and motivation factors

Generations of heating systems
Evaluation First Second Third Fourth
criteria generation generation generation generation
Period 1880-1930 1930-1980 1980-2020 2020-2050
Recognition
Primary of the role of
motivation of Convenience district heat
Fuel reduction, Security of
the society and risk supply in the
lower costs supply
and the reduction fossil energy
consumers carriers
freedom
Justification
and aim of
Minimizing the
the Advantages of Taking into Choosing
subsistence
investments cost reduction account projects with
costs per
and their derived from reduced longer
consumers
motivation cogeneration payback time payback time
from decision
making side
Source: own compilation based on Lund, Werner, Wiltshire, Svendsen Thorsen,
Hvelplund and Matthiesen (2014)
The development of the first generation heating systems from the consumers’ point
of view was mainly motivated by comfort and safety factors and the aim was to
replace the individual heating systems and boilers in the private homes, which were
then able to produce hot water in a less safer way and they often exploded. The
second-generation systems were motivated by social reasons that differed from
country to country, but in general the main goal was to reduce the level of resources
used and increase comfort. The motivation factors of the currently used third
generation systems are not different from the previous generations on the
substance, with the addition of the increasing presence of renewable energy sources
for environmental reasons (Lund, Werner, Wiltshire, Svendsen Thorsen, Hvelplund
and Matthiesen, 2014).
Currently, the vast majority of district heating companies in the world, including
Hungary, belong to the third generation systems. The authors argue that the same
applies for district cooling systems, that is, the technologies and motivations
appropriate to the third generation are in use and valid here.
Of course, it should be added that district cooling does not have such a history than
heating. It first appeared in the literature in the '90s. In the case of district cooling,
the United States played a pioneering role, where there were 1,000 such systems in

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operation three decades ago. Japan is also outstanding and district cooling has an
increasing appearance also in European countries (Karner, 2003).
Not surprisingly, the Danish have already made specific steps towards the fourth
generation, with the redesign of the existing 90oC system in a suburb of
Copenhagen, where the introduction of a low-temperature system of 50-55oC was
decided in the case of 1,500 households (Hog and Moos, 2018). This will not be the
first such system for newly built homes where district heating systems were
developed based on the fourth generation approach (Horsen, Gudmundsson,
Hansen, 2016). Technically and technologically, the aim is to reach the fourth level
when the systems built on renewable energy base operating with high efficiency and
low losses contribute significantly to the achievement of environmental objectives.
The success of the new generation is based on the change in the motivation and
decision-making system of consumers and service providers and producers and the
shift towards long-term, environmentally sustainable solutions.
In the case of fourth generation district heating, I accept the authors' definition that
the 4th Generation District Heating (4GDH) system is consequently defined as a
coherent technological and institutional concept, which by means of smart thermal
grids assists the appropriate development of sustainable energy systems. 4GDH
systems provide the heat supply of low-energy buildings with low grid losses in a
way in which the use of low-temperature heat sources is integrated with the operation
of smart energy systems. The concept involves the development of an institutional
and organizational framework to facilitate suitable cost and motivation structures.
(Lund, Werner, Wiltshire, Svendsen Thorsen, Hvelplund & Matthiesen, 2014, p. 10).
I think that grouping the heating systems by generations, in addition to describing
the current situation, also sets the future by describing development and motivation
perspectives. The timeliness of the paper has been confirmed, as due to the changes
in the Earth's climate and in order to prevent further problems, heat suppliers play
an important role therefore the situational picture of the companies operating in
Hungary provides the basis for further development opportunities.
2.4. Proportion of renewable energy sources in the total heat supply capacity
Although all countries have third generation heating systems, it does not imply that
the countries are on the same level on the path toward fourth generation systems.
This is illustrated in Figure 1, showing the share of renewable energy sources in
heating and cooling in different countries of the European Union.
From the Figure 1, the following statements can be made about the energy mix:
1) Different countries have different levels of share of renewable energy in
the total energy use in the field of heat supply.
2) In the last few years, the largest change in the proportion could be
experienced in the Baltic States. In this change, the relative
rearrangement of the fuel price and the increase in gas prices played an
important role.
3) Other measures, mainly tax and administrative reduction measures, have
been taken to orient energy use towards biomass and biogas-based heat
production, such as halving the VAT on biomass in Latvia or exempting

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large-scale plants fueled by biomass and biogas from environmental

charges in Lithuania.
4) Large-scale growth over the past years is not expected to remain
unchanged in the coming period due to the high aid component and the
decrease in energy prices (Kácsor, Kerekes and Mezősi, 2019)
Ic
Sw
Fi
La
Es
De
Li
Cr
Po
Sl
Au
Bu
Ro
Gr
Cy
Fr
It
Ma
Cz
Hu
EU28
Sp
Po
Ge
Sl
Lu
Be
UK
Ir
Ne
0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80
2017 2010 2004
Figure 1: Proportion of renewable energy sources in total heat supply capacity in
the 28 Member States of the European Union 2004-2017
Source: Own compilation based on Eurostat, [nrg_ind_ren]

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3. Summary
The purpose of this study was to provide a brief summary of the past, the present
and the potential future development opportunities of district heat suppliers. Based
on the examination of the most important international literature in this field, heat
suppliers were examined based on different grouping possibilities. For the future,
fourth generation heating / cooling systems relying on renewable energy sources
can play a key role in achieving climate protection goals. This study provides a good
basis for the author’s further research works.
4. Acknowledgements
Supported by the ÚNKP-19-3 New National Excellence Program of the Ministry for
Innovation and Technology.”
Bio-note:
Gábor Béla SÜVEGES is master instructor in the Institute of Finance and

Accounting at the University of Miskolc, Hungary. He is the Vice President of the
Hantos Elemér College for Advanced Studies. His field of research is management
accounting. He is currently researching the significant differences the pecuniary,
financial and profitability situation of Hungarian district heat suppliers and the social
innovations in the field of district heating.
References
1. Boysen, J. (2018) Supplying to the french district energy market. HOT|COOL
International Magazine on District Heating and Cooling, 2018(4), pp. 19-21.
2. Eurostat (2019) Share of energy from renewable sources [nrg_ind_ren]
3. Gartland, D. (2018) District heating: A new low-carbon heat solution for the Irish
heat market. HOT|COOL International Magazine on District Heating and Cooling,
2018(4), pp. 19-20.
4. Jensen, S. (2019) Digitalisation a key level for low-temperature district heating.
HOT|COOL International Magazine on District Heating and Cooling, 2019(2), pp. 6-
8.
5. Kácsor, E., Kerekes, L., Mezősi, A. (2019) A hazai távhőárszabályozás értékelése
és módosítási lehetőségei, REKK Kft., Budapest
6. Kádárné Horváth, Á. (2010) A távfűtés áralakító tényezőinek vizsgálata a
magyarországi távhőszolgáltató vállalatok körében. (PhD-értekezés) Miskolc:
Miskolci Egyetem.
7. Kocziszky, Gy., Veresné, S.M. and Balaton, K. (2017) A társadalmi innováció
vizsgálatának tapasztalatai és fejlesztési lehetőségei. Vezetéstudomány, 6-7, pp.15-
19.

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8. Lund, H., Werner, S., Wiltshire, R., Svendsen, S., Thorsen Jan E., Hvelplund, F.
and Mathiesen, B. V. (2014) 4th Generation District Heating (4GDH) Integrating
smart thermal grids into future sustainable energy systems. Energy, 2014(68), pp.
1-11.
9. Lygnerud, K. (2019) Can Smart cities heat themselves? HOT|COOL International
Magazine on District Heating and Cooling, 2019(2), pp. 16-17.
10. Margaryan, H., Dyrelund, A. and Hansen,R. (2019) Smart integration of energy
and waste water. HOT|COOL International Magazine on District Heating and
Cooling, 2019(2), pp. 9-10.
11. Németh. G. (2008) A hazai távhőszolgáltató szektor árképzésének fejlesztése.
(PhD-értekezés) Sopron: Nyugat-Magyarországi Egyetem.
12. Nielsen, L. (2019) Cool and sustainable with absortion heat pumps. HOT|COOL
International Magazine on District Heating and Cooling, 2019(2), pp. 13-15.
13. Perrin, G. (2018). District Heating in France. HOT|COOL International Magazine
on District Heating and Cooling, 2018(4), pp. 11-13.
14. Süveges G. (2019) The relationship beween aims, methods and their financial
aspects in the case of social innovations in the filed of district heating. Oradea
Journal of Business and Economics IV. Special Issue pp. 29-38.
15. Vanhoudt, D., Oevelen, T., Johansson,C. (2019) New manegement system for
DHC networks. HOT|COOL International Magazine on District Heating and Cooling,
2019(2), pp. 18-21.
16. Webb, J. and Bush, R. (2019) Meeting the strategic challenges of UK district
heating. HOT|COOL International Magazine on District Heating and Cooling,
2019(2), pp. 26-28.
17. Werner, S. (2016) European District Heating Price Serien. ENERGIFORSK.

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ASPECTS REGARDING THE WAY IN WHICH GUESTHOUSES IN FELIX SPA

AND 1 MAI SPA USE THE ONLINE TOOLS
ŢARCĂ Naiana, POPA Adela, TARCZA Teodora

Faculty of Economic Sciences, University of Oradea, Oradea, Romania
ntarca@uoradea.ro
apopa@uoradea.ro
ttarcza@uordea.ro
Abstract: The beneficial effects of thermal water on health make the spa resorts an
important attraction for tourists. They can relax or benefit from comprehensive
recovery treatments, and also, they can make hiking in the surrounding areas. The
spa tourism in the Felix Spa - 1 Mai Spa area is supported, besides hotels, by many
guesthouses. Most of the tourists are searching for information online, using online
services for booking or paying. Therefore, it is of great importance the way in which
the guesthouses are signaling their presence online and the tools they use. In this
paper, we present the results of the analysis made for several websites of different
guesthouses in the Felix Spa - 1Mai Spa area. In analyzing web sites, we mainly
considered online tools regarding customer loyalty. We also have tracked the extent
to which each of the categories of instruments considered is used by the
guesthouses.
Keywords: online presence; online tools; customer satisfaction and loyalty tools;
digital marketing.
JEL Classification: C80; M21.
1. Introduction
Spa tourism has an old tradition in our country. It generates positive social and
economic effects, contributes to the economic development of the region in which it
manifests.
The beneficial effect of the thermal waters in the FELIX Spa - 1MAI Spa area has
been discovered since ancient times. The geo-thermal water springs have curative
properties, being known abroad. FELIX Spa - 1 MAI Spa area, located in the north-
west of the country, in the Crisuri plain, enjoys a continental climate with mild winters
and summers having moderate temperatures, being ideal for spa tourism.
The conditions of relaxation, rest, and recovery attract a large number of Romanian
and foreign tourists annually. Here, they can find:
 Modern treatment bases
 Thermal water pools
 A covered Aqua Park
 Lakes covered with water lilies
 Forest in the area, which offers the possibility of nature walks
 Leisure activities such as horse riding, fishing, paintball, running trails

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 The opportunity of visiting the city of Oradea, located nearby. Tourists

can use public transportation, which runs regularly and at short intervals.
 Option for participating in excursions organized in the Apuseni
mountains area.
For accommodation, tourists can opt either for a hotel or one of the many
guesthouses in the area. They can call a travel agency or they can make their own
reservation.
According to Satyavani and Chalam, the Internet plays a significant role in consumer
decision making. There are millions of people online every moment, and they are
potential customers in the online market (Satyavani and Chalam, 2018).
According to Conyette, consumers search the web for information before making a
purchase. The behavior mentioned above is typical to the travel sector, due to the
high level of involvement in the travel product (Conyette, 2010).
Conyette and College say the Internet is widely used for booking or purchasing travel
products. These activities can take place before the trip begins, but also during their
journey (Conyette and College, 2012).
According to Conyette and College, more and more travel products will be booked
online, since online intelligent agents are becoming more powerful and easier to use,
and portable devices are becoming more and more versatile (Conyette and College,
2012).
According to Satyavani and Chalam, the Internet and web technologies have created
a new environment that allows the online transmission of any information, using
multimedia tools. The web is the environment that enables customers to decide
everything with the click of a mouse. Online customer is generally stronger and more
demanding (Satyavani and Chalam, 2018). Online tools help the customer in the
decision-making process and contribute to the quality of the decisions taken (Haubl
and Trifts, 2000). Maziriri and Chuchu state that there is a greater perceived risk
associated to online buying rather than the traditional mode of shopping (Maziriri and
Chuchu, 2017).
According to Bilgihan and Bujisic, customers who buy online make their purchase
decision based on the information found on the websites (for example, customer
reviews, camera images, virtual tours) (Bilgihan and Bujisic, 2015).
Websites must be friendly and attractive while providing competent online
communication that motivates clients (Satyavani and Chalam, 2018).
The number of people who are informed online about tourist destinations, who visit
several websites before choosing their destination, who make online reservations or
payments is increasing. Also, the online marketing tools have a tremendous
contribution on how the marketing specialists approach their activities and on how
they reach their marketing goals (Popa, Tarca, and Tarcza, 2016; Popa, 2015).
Following these trends, guesthouses are concerned about becoming as visible as
possible online. Also, they tend to configure their websites to provide useful and easy
to find information, to offer the possibility of online reservations and payments.

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2. The premises and research methodology
In order to evaluate the way in which the guesthouses in the Felix Spa and 1 Mai
Spa use the online instruments for their activity, we analyzed the websites for 80 of
the guesthouses. In this analysis we were focused on the online tools used to ensure
customer loyalty. The research is exploratory in nature, based on content analysis
as research method.
Bruhn (Bruhn, 2001; pp.111) stated that customers’ devotion can be increased by
enhancing its experience through an offer oriented toward its expectation and an
increased performance of the company.
For a guesthouse to increase customer loyalty it can use multiple instruments, which
can be classified in multiple ways. Different authors tried to group them in various
ways. Thus, Bruhn created the following classification for these tools(Bruhn, 2001;
pp.124-125):
 tools focused on interaction
 tools focused on satisfaction
 tools aiming to prevent customer migration.
We considered this classification suited in establishing the customer loyalty tools
categories identified on the analyzed guesthouses websites.
We started from the following three hypotheses:
 Websites are friendly, information are easily accessible.
 The most of the online tools used to increase customer loyalty are part
of the satisfaction-focused tools.
 The most used online customer loyalty tools are part of those related to
interaction.
The following two issues were considered:
 How much the online customer loyalty tools are used on the analyzed
websites
 How intensive each of the customer loyalty tools categories previously
mentioned are used on the websites.
3. Data analysis and interpretation
We identified a number of 27 customer loyalty tools on 80 analyzed websites. The

number of identified tools varies from a category to another as shown in Table 1.
Table 1. Number of customer loyalty tools identified by tools categories

Category of
tools focused on tools focused on tools aiming to prevent
customer loyalty
interaction satisfaction customer migration
tools
Number of tools
6 16 5
identified

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The widest tool palette belongs to the tools focused on satisfaction. This indicates
that the guesthouses in Felix Spa – 1 Mai Spa are strongly oriented toward their
customers’ satisfaction degree. When refering to hospitality business, guest
satisfaction is strongly related to the decision weather or not to return to the same
hotel and / or reccommanding it to other tourists (Dominici and Guzzo, 2010),
criticising or evaluating it on specific online booking systems such as booking.com,
tripadvisor.com, priceline.com or agoda.com.
The narrowest tool palette belongs to the category of instruments focused on barriers
to customer migration. This indicates that guesthouses in Felix Spa – 1Mai Spa area
do not pay enough importance to this kind of instruments which should increase the
customer loyalty if used.
Analyzing the data acquired according to those three categories mentioned above,
we found that:
 Few interaction-focused instruments are used, but as much as 25% of them
can be found on all analyzed websites. In what concerns them we observed
the following:
 All websites provide with an e-mail address and one or more phone
numbers (both on terestrial line and cellphones) for information or
booking.
 The most of the websites offer an online booking form. In many
cases there is a delay for confirmation which sometimes can be
longer.
 Some of the guesthouses offers the possibility of online checking for
the room availabilities for the desired period. This way the customer
can check quickly room availabilities for the desired period and also
he/she can decide on the way for booking the room (by phone,
email, or online form). This way the waiting time for availability
confirmation is avoided.
 Some of the guesthouses offers the possibility of online booking, but
using third online dedicated booking websites (such as, for example,
booking.com)
 Even if in small number, there are guesthouses which allow booking
only by phone calls. If they would use online booking services, they
might be more attractive for customers preferring the online
interaction way in choosing their leisure location.
 The most of the analyzed websites do not offer their clients the
possibility of posting comments or customer reviews. However,
some of the analyzed guesthouses can be found on dedicated
booking websites (such as booking.com) which offer the possibility
of posting such comments and to read other customer reviews.
Figure 1 shows the interaction-focused instruments degree of use for
the analyzed guesthouses.

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Customer reviews
TOOLS FOCUSED ON INTERACTION
Online reservation
Availability check
Online form
E-mail
Phone number
0 10 20 30 40 50 60 70 80
NUMBER OF GUEST HOUSES
Figure 1. The use of customer interaction-focused instruments for the analyzed

guesthouses
 The guesthouses websites from the Felix-Spa – 1Mai-Spa area are

conceived to offer a high degree of satisfaction to their customers. Thus:
 All websites offer informations regarding the guesthouse location
and images of the surroundings and rooms. To show their exact
location, most of the guesthouses use interactive maps (such as
google maps). Very few of them limit their location information to
terrestrial address and/or GPS coordinates.
 All websites provide information regarding the services they offer to
the customers. Some of them offer a wide palette of services, while
other have a narrow one. Among the most common services one
can find jacuzzies, children playgrounds, gazeboos, courtyard with
barbecue facilities, sitting area, fully equiped kitchen, freeparking at
the property or guarded parking. Among the services offered to a
lesser extent one can find thematic excursions (such as for hunting
and fishing), trips in the neighborhoods and to Stana de Vale resort,
Bears’ Cave, hiking or biking or tours for visiting Oradea.
 Among the serices provided „free wifi” can be seen, which
demonstrates that guesthouses managers are aware of the
increasing role of easy accessing to online communication services
in attracting and maintaining their customers.

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 A large number of websites offer information related to tourism,

culture and leisure activities in the area, and also about curative
tourism.
 Some of the websites, even though a small number, offer
performance warranties, in the form of diploms and certificated
issued to them by different authorities. Also, some of the
guesthouses show a list of collaborating partners.
 The least frequent instruments encountered are those related to
complaints management.
In order to visualize the satisfaction-focused degree of use for the analyzed

guesthouses, we grouped the 16 identified instruments in 11 groups (Figure 2).
Mainly we grouped the services provided, using as the grouping criteria the
frequency of their appearance on the websites.
Complaints management
TOOLS FOCUSED ON SATISFACTION
Information about curative tourism

Information about cultural tourism activities
Information about leisure activities
Excursion offer
Wifi available for free
Accommodation services offered
Room and guest house pictures
Location
List of partners
Performance guarantees
0 10 20 30 40 50 60 70 80
NUMBER OF GUESTS HOUSES
Figure 2: The use of customer satisfaction-focused instruments for the analyzed

guesthouses
 Even though the tools aiming to prevent customer migration are used in
small number, we encountered them on a relative large number of wbsites.
Regarding to these instruments:
 The most seen instruments were those related to fees and
guesthouse reputation.
 The least used instrument was the one referring to bonuses
(free/welcome drinking, fruit basket, etc.)

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 A relative large number of analyzed guesthouses offer

vouchers/discounts for access to water-parks or to Apollo-Felix
geothermal water strand.
Figure 3 shows the degree of use for the tools aiming to prevent customer migration
TOOLS AIMING TO PREVENT CUSTOMER
Discounts water park (swimming pool)
Bonuses
MIGRATION
Free accommodation/ Discounts guest

houses
Reputation
Accommodation rates
0 10 20 30 40 50 60 70 80
NUMBER OF GUEST HOUSES
Figure 3: The use of tools aiming to prevent customer migration
4. Conclusions
The study results show that most of the analyzed websites are friendly, the relevant
information is easily and quickly accessed. Therefore, managers understood that
only online presence is not enough and a potential customer leaves the website if
their expectations are not fulfilled.
All the analyzed websites use online instruments (on a larger or smaller scale) to
attract and make their customers stable. Some of the guesthouses give great
importance to the use of these instruments, thus being able to create themselves
advantages with respect to other guesthouses having similar accommodation
conditions.
The most identified instruments (as number) are those targeting customers
satisfaction. Meanwhile, we found on all websites both instruments targeting
satisfaction and instruments targeting interaction. Instruments which are part of the
category of tools aiming to prevent customer migration are rarely seen on the
websites, even though a small number of them can be found on a large number of
websites. Guesthouses pay the biggest attention to their customers' satisfaction,
followed by the way in which they interact with them. They do not pay enough

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importance to the tools aiming to prevent customer migration, which would allow
them to increase their rate of customer fidelity.
Guesthouses showing on their websites a larger palette of the online tools have
better chances in the process of attracting and keeping their customers.
Some of the guesthouses, not too many, are listed on the online booking systems
(such as booking.com). This means that their managers understand that an active
presence online means an increasing number of their customers.
References:
1. Bilgihan, A. and Bujisic, M. (2015)“The effect of website features in online
relationship marketing: A caseof online hotel booking“, Electronic Commerce
Research and Applications 14 (2015), pp. 222–232, journal homepage:
www.elsevier.com/locate/ecra
2. Bruhn, M. (2001) Orientareaspre client – Temeliaafacerii de success, Ed.
Economica, Bucuresti, 2001
3. Conyette, M. and College, O. (2012), “A framework explaining how
consumersplan and book travel online”, International Journal of Management and
Marketing Research, Vol. 5, Nr. 3, 2012, pp. 57-65
4. Conyette, M. (2010),“Segmenting the Online Leisure Travel Booker”,International
Proceedings of Economics Development and Research, Vol.3, 2010, pp. 262-
266
5. Dominici, G. and Guzzo, R. (2010). „Customer Satisfaction in the Hotel Industry:
A Case Study from Sicily”. International Journal of Marketing Studies, Vol. 2, No.
2, pp. 3-12, 2010. Available at SSRN: https://ssrn.com/abstract=1961959
6. Haubl, G. and Trifts, V. (2000). “Consumer decision making in online shopping
environments: The effects of interactive decision aids.”, Marketing Science,
19(1), Winter, pp. 4 – 21
7. Maziriri, E.T. and Chuchu, T. (2017). “The Conception of Consumer Perceived
Risk towards Online Purchases of Apparel and an Idiosyncratic Scrutiny of
Perceived Social Risk: A Review of Literature”, International Review of
Management and Marketing, 2017, 7(3), pp. 257-265.
8. Popa, A. L. (2015). “A classic framework of online marketing tools”, The Annals
of the University of Oradea. Economic Sciences, Tom XXIV, 1st issue / July 2015
, pp. 1269-1277.
9. Popa, A. L., Tarca, N. N. and Tarcza, T. M. (2016) “The Online Strategy of
Romanian Higher Education Institutions: Present and Future” in Bilgin, M. H. and
Danis, H. (eds.) Entrepreneurship, Business and Economics - Vol. 1,
Proceedings of the 15th Eurasia Business and Economics Society Conference,
Springer International Publishing Switzerland, pp. 413-425.
10. Satyavani, B and Chalam, G.V. (2018), “Online Impulse Buying Behaviour – A
Suggested Approach”, IOSR Journal of Business and Management (IOSR-JBM)
e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 20, Issue 8. Ver. IV (August.
2018), pp. 77-83, journal homepage:www.iosrjournals.org

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SECTION: SUSTAINABLE DEVELOPMENT,
INTERNATIONAL BUSINESS, EUROPEAN
INTEGRATION, FOREIGN LANGUAGES AND
BUSINESS ENVIRONMENT
TRADE OPENNESS, FOREIGN DIRECT INVESTMENT AND LIFE

EXPECTANCY IN NIGERIA
AIGHEYISI Oziengbe Scott1, OLIGBI O. Blessing2

1
Department of Economics, University of Benin, Benin City, Nigeria
2
Department of Economics & Development Studies, Igbinedion University, Okada,
Edo State, Nigeria.
oziengbeaigheyisi@gmail.com (Corresponding Author)
Abstract: The paper examines the effects of trade openness, particularly, import
openness and FDI inflows on life expectancy in Nigeria using annual time series data
spanning the period from 1981 to 2017. The methodology involves the ARDL
approach to cointegration and error correction modeling. The empirical evidence
indicates that while import openness adversely affects life expectancy in the country,
the effect of FDI inflows is positive, but not significant. Further evidence are that
increase in the level of per capita income and government recurrent expenditure in
health enhance life expectancy, while inflation adversely affects it. In view of the
empirical evidence, the paper recommends, as measures to enhance life expectancy
in Nigeria, imposition of restrictions on some categories of imports especially
consumer goods (while encouraging domestic production of same through
investment-friendly policies, programmes and initiatives, to meet domestic demand
for consumer goods), deliberate and conscious effort to enhance the level of per
capita real income through encouragement of investment to boost employment,
increases in general government expenditure and, expenditure in health in particular,
and control of inflation by the monetary and fiscal authorities using appropriate policy
instruments.
Keywords: Trade Liberalisation; Globalisation; Import Openness; Foreign Direct
Investment; Quality of Life; Life Expectancy.
JEL Classification: F21; I31; O24; P33; P45.
1. Introduction
One of the benefits of international trade (precisely, its import component) is that it
enhances access to goods, services and technologies that are not produced locally.
It thus has consumption- and welfare-enhancing effects. Improved welfare translates
into enhanced life expectancy, all things being equal. However, there is a caveat as
some imported products could have adverse health consequences if consumed,
owing to their chemical composition. For example, in Nigeria, health experts have
warned that some imported foreign items such as foreign toothpaste if mistakenly
swallowed while being used could have damaging effect on body organs owing to
their high chemical contents. In 2007, Nigeria’s National Agency for Food and Drug
Administration of Nigeria (NAFDAC) placed a ban on importation of all brands of
foreign-made toothpaste and declared that only made-in-Nigeria toothpaste
registered by the Agency was safe for public use (Alao, 2007).

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Closely associated with international trade in the new wave of globalization is FDI
flows. Where FDI inflow is complementary to domestic investment, the stock of
capital in the economy increases, employment prospects receive a boost
(unemployment is reduced), welfare is enhanced, and these may translate into
improvements in quality of life and life expectancy, ceteris paribus. However, it has
been argued that activities of some multinational corporations (MNCs) through which
FDI flows into less developed countries (LDCs) also pose some threats to human
life as a result the adverse health effect of their products such as those involved in
production of alcohol and tobacco (Deaton, 2004) and the effect of emissions of toxic
substances into the environment where there is less stringent environmental
regulation. This is a tenet of the pollution haven hypothesis (Seker, Ertugrul & Cetin,
2015).
Mobility of labour (or migration) associated with liberalized cross-border trade and
FDI inflow have been linked to spread of pathogens which cause life-threatening
diseases that adversely affect life expectancy in less developed countries (Popoola,
2018). Life-threatening diseases “imported” into an economy and environmental
pollution as a result of activities of MNCs tends to affect quality of life, which in turn
adversely affects life expectancy, all things being equal.
Nigeria formally embraced trade liberalisation policies in 1986 as part of the overall
Structural Adjustment Programme (SAP) package. Ever since, cross-border trade
flows, particularly importation activities and inflow of FDI especially to the oil and gas
sector have increased tremendously (Central Bank of Nigeria, 2017; World Bank,
2018). As at 2018, life expectancy in the country stood at 54.7 years for male, 55.7
years for female while the national average which stood at 55.2 years (for both
sexes) was considerably below the global average of 72 years, and the African
average of 61.2 years. Thus the country was placed in the 178th position in the World
Life Expectancy ranking (World Life Expectancy, 2019). The implication is that the
country has one of the lowest life expectancies in the world. Low life expectancy is
an indicator of low quality of life. This paper seeks to investigate the implications of
import openness and FDI inflows for life expectancy in Nigeria. In doing this, answers
shall be sought for the following research questions: Does import openness affect
life expectancy in Nigeria? Do FDI inflows affect life expectancy in Nigeria? The
following null hypotheses shall be tested: Trade liberalization does not affect life
expectancy in Nigeria; FDI inflows do not affect life expectancy in Nigeria.
In this section we review the literature on life expectancy effects of trade and FDI
inflow.
2.1. Trade and Life Expectancy

Owen and Wu (2007) examined the relationship between trade openness and health
outcomes (infant mortality rates and life expectancy) using panel data on 219
countries. The analysis involved specification and least squares estimation of fixed
effect models. The study found that increased openness to trade was associated

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with lower infant mortality rates and higher life expectancy especially in developing
countries. These were attributed to knowledge spill overs of international trade.
The effect of trade openness on women’s welfare and work life is examined in
Bussmann (2009) using unbalanced panel data covering the period from on a
sample 134 countries. In the study, health and education variables such as life
expectancy for female, and female school enrolment ratio, are used as proxies for
women’s welfare, while female labour force participation rates are used as indicators
or proxies for female employment. Methodologies of the study include fixed effects
and system GMM estimations. The study found that women’s life expectancy was
not directly affected by trade openness. However, women’s access to primary and
secondary education was slightly improved by trade openness slightly improves. It
further found that trade openness enhanced women’s professional lives. The
evidence from developing countries indicated that trade openness was associated
with improvement in women’s employment in services sector. Developing countries
evidence indicated that trade openness was associated with increase in the number
of women employed in industry and agriculture. Thus it could be concluded from the
study that trade openness is not a determinant of female life expectancy.
Bergh and Nilsson (2010) assessed the impacts of economic, social and political
globalization on life expectancy using panel data covering the period from 1970 to
2005 on 92 countries. The OLS fixed effect estimator was employed for the analysis.
The study found that economic globalization (which encompasses trade and capital
flows) positively and significantly affect life expectancy in the countries. The effect
was found to be consistent even after controlling for income, nutritional intake and
other relevant variables, and also when the sample was limited to low-income
countries. However, contrary to these findings for life expectancy effect of economic
globalisation, the effects of political and socio-cultural globalization on life
expectancy were found to be statistically not significant.
Umaña-Peña et al. (2014) assessed the effect of liberalization of trade in services
sector on three health indicators namely life expectancy, under-5 mortality and
maternal mortality in 153 member countries of the World Trade organization using
multivariate linear regression analysis. The effects of other variables including per
capita income, public health expenditure and income inequality on the health
indicators were also assessed. The study period is 1995-2010. The result of the
analysis indicated that liberalization of trade in services had no significant effect on
health during the period. It however found that per capital income and public health
expenditure were more significant explanatory factors of the health indicators. GDP
per capita and public expenditure in health were found to enhance life expectancy,
and reduce infant and under-five mortalities.
Herzer (2014) examined the long run effect of trade on life expectancy in the United
States during the period from 1960 to 2011 using annual time series data. The ARDL
approach to cointegration and error correction modeling was employed for the
analysis. Alternative estimation techniques including dynamic OLS (DOLS), fully
modified OLS (FMOLS) and maximum likelihood (ML) estimation were also
employed for robustness checks. The study found that long run relationship exists
between trade and life expectancy in the country. It also found that the long run effect

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of trade on life expectancy in the country is positive and significant at the 1% level.
Thus international trade plays enhances life expectancy in the country.
Alam, Raza, Shahbaz and Abbas (2015) examined the long-run and the short-run
effects of trade openness and FDI on life expectancy in Pakistan using annual time
series data spanning the period from 1972 to 2013. The ARDL (bounds) test
approach to cointegration and error correction modeling was employed for the
analysis. The causal linkages between the variables were tested using the vector
error correction modeling approach to Granger causality test. The study found
positive and significant effects of trade openness and FDI on life expectation in the
long-run. The effects were also found to be positive in the short run, however, only
the effect of FDI was significant. The result of the causality analysis showed that
trade and FDI Granger cause life expectancy in the short run. Thus international
trade and FDI serve to enhance public health (measured by life expectancy) in
Pakistan.
Novignon and Atakorah (2016) employed alternative panel estimation techniques
including fixed and random effects modeling and system GMM to examine the effect
of trade openness on life expectancy, infant mortality and under-five mortality rate in
42 sub-Sahara African (SSA) countries. The study period is 1995 to 2013. The study
found that trade openness positively and significantly affects life expectancy in SSA.
The effects of trade openness on infant mortality and under-five mortality were also
found to be negative. Thus trade openness is associated with enhancement of life
expectancy as well as reduction in cases of death of infants and under-five children.
These imply that international trade contributes significantly to public health and life
quality in SSA, and suggests the need for countries in the SSA to embrace (though
cautiously) global trade by way of trade liberalization.
The long-run relationship between international trade and life expectancy was
investigated in the study by Palamuleni (2017) using panel dataset for the period
1965 to 2013 on 25 less developed countries (LDCs). Alternative panel data
methodologies which correct for endogeneity and cross section dependence were
employed for the analysis. The study concluded that long run, bidirectional
relationships exist between international trade and life expectancy in LDCs. Thus,
while trade positively affects life expectancy, enhanced life expectancy contributes
to expansion of international trade in the LDCs.
The health outcome effects of infant mortality and life expectancy in 12 MENA
countries during the period from 1970 to 2015 were examined in Jawadi, Gouddi,
Ftiti and Kacem (2018). Three proxies were used for trade openness, namely global
trade, trade with G7 and trade with non-G7 countries. In the study, the moderating
effect of governmental corruption on the health sector was also examined. A fixed
effect model was estimated in the analysis. It was found that trade openness
positively affects life expectancy and negatively affects infant mortality in the region.
Further evidence from the study are that improved international trade and greater
control of corruption engenders information and technology spillover which have
positive effects on the health sector. Thus trade openness enhances life expectancy
and reduces infant mortality rate in the region.
Popoola (2018) examined the impact of economic globalization on life expectancy in
Nigeria using annual time series data for the period 1986 to 2016. In doing this, life

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expectancy was expressed as a function of trade openness, FDI and carbon IV oxide
(CO2) emission (which was used as proxy for environmental degradation). The
method of Johansen cointegration technique was employed for the analysis. The
cointegration test indicates two cointegrating relationships. However, the analysis
was inconclusive as the study did not proceed to estimate the long run effects of
trade openness and FDI on life expectancy in the country.
Qadir and Majeed (2018) examined the effect of trade openness on life expectancy
and infant mortality in Pakistan using annual time series data spanning the period
from 1975 to 2016. The analysis involved OLS estimation of a multivariate regression
model. The study found that trade liberalization adversely affects health outcomes
as it was found to be positively related to infant mortality rate and negatively related
to life expectancy in the country. The effect of health expenditure on life expectancy
was found to be positive and significant at the 10% level, implying that health
expenditure serves to enhance life expectancy, while its effect on infant mortality
was negative, but statistically not significant at the conventional levels. The effect of
general government expenditure on life expectancy was positive and significant,
while its effect on infant mortality was negative and significant.
2.2. Foreign Direct Investment and Life Expectancy

Herzer and Nunnenkamp (2012) examined the long run effect of FDI on health (life
expectancy at birth) in 14 developed countries during the period from 1970 to 2009.
The panel dynamic OLS estimation procedure which corrects for endogeneity was
employed to obtain optimal estimates of the long run coefficients of the specified
model. The study found that a point increase in FDI-GDP ratio was associated with
0.028years decrease in life expectancy. Based on this finding, the researchers
concluded that FDI generally has a negative effect on health in developed countries.
In contract with the study by Herzer and Nunnenkamp (2012), Burns, Jones,
Goryakin and Suhrcke (2017) examined the health effect of FDI in low and middle
income countries (LMICs) during the period 1974 to 2012. In the study which involves
85 LMICs, life expectancy at birth is used as proxy for overall health. The
methodology applied involved the IV-FE (instrumental variable-fixed effect)
estimation which corrects for potential endogeneity. The study found that FDI inflows
to LMICs generally enhance life expectancies therein.
Maku and Ajike (2015) examined the welfare effect of financial flows using panel
dataset for the period 1980 to 2012 on 16 SSA countries. Various health indicators
including life expectancy, infant mortality rate, human development index, etc. were
used as proxies for human welfare. The results of estimation of fixed effect models
indicated that FDI positively and significantly affect life expectancy in SSA. Contrary
to this, the effect of foreign portfolio investment on life expectancy was negative and
significant. This suggests that emphasis should be on attracting more FDI rather than
portfolio investment in the region’s quest to attract foreign finance.
Nagel, Herzer and Nunnenkamp (2015) investigated the effect of FDI on overall
population health (using life expectancy as proxy) using panel data covering the
period from 1980 to 2011 on 179 countries. The system GMM estimator was
employed for the analysis. A nonlinear relationship between FDI and life expectancy
was found. FDI positively affects life expectancy at low level of income. However,

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the effect reduces as income rises and turns negative at very high income levels.
These findings tend to corroborate findings from previous studies such as those of
Herzer and Nunnenkamp (2012) and Burns, Jones, Goryakin and Suhrcke (2017).
Spinova and Ougate (2017) investigated the effect of FDI on socio-economic
development in developing countries of Europe, by estimating fixed effect models to
inter alia, evaluate the effect of FDI on life expectancy. The study found no significant
effect of FDI on life expectancy in the countries. Furthermore, it found that the effects
of interaction of FDI with other variables such as trade openness, corruption
perception index, health expenditure and government expenditure in education, on
life expectancy remained statistically not significant. Thus for developing countries
of Europe, FDI is not a determinant of life expectancy.
The causal relationship between FDI and poverty reduction in South Africa was
investigated in the study by Magombeyi, Odhiambo and Watson (2017). In the study,
three variables were used as proxies for poverty reduction. The variables are life
expectancy, infant mortality rate and household consumption. Annual time series
data covering the period from 1980 to 2014 on the variables were employed for the
study. The methodologies of the study include ARDL bounds test approach to
cointegration and the ECM-based causality test. Among other findings, the study
found unidirectional causality running from life expectancy to FDI. This suggests that
FDI is not a significant predictor of life expectancy in the country.
Magombeyi and Odhiambo (2017) also investigated whether or not FDI inflows
reduce poverty in Tanzania. The study covered the period 1980 to 2014, and as in
their other studies, three proxies were used for poverty reduction namely life
expectancy, infant mortality rate and household consumption. ARDL approach to
cointegration and error correction analysis was employed as in their previous
studies. Among other findings, empirical evidence indicates that FDI has no
significant short run and long run impacts on life expectancy in Tanzania.
The impact of FDI inflows on poverty reduction in Botswana during the period from
1980 to 2014 was also examined by Magombeyi and Odhiambo (2018). As in the
previous study by Magombeyi et al. (2017), life expectancy, infant mortality rate and
household consumption were used as proxies for poverty reduction. The ARDL
(Bounds) test approach to cointegration and error correction modeling was employed
for the analysis. The study found, amongst others, that for the economy of Botswana,
using life expectancy as proxy for poverty reduction, FDI negatively and significantly
impacts life expectancy in the long run, but positively affects it in the short run.
Tsaurai (2018) examined the effect of FDI on poverty reduction efforts in Africa using
panel dataset covering the period from 2002 to 2012 on 16 countries in Southern
and Western African regions. As in the studies by Magombeyi and Odhiambo, three
variables namely life expectancy, infant mortality rate and household consumption
expenditure (as percentage of gross national product) were used in separate models
as proxies for poverty reduction. The study employed alternative techniques of panel
data analysis including pooled OLS, fixed effect, random effect and system GMM.
The study found, inter alia, that FDI into the countries was associated with
improvement in life expectancy.
Martin and Anguelov (2018) did a comparative analysis of the effects of foreign aid
(official development assistance, ODA) and FDI on quality of life (under-five mortality

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and life expectancy). In doing this, countries were grouped into two: 30 with the
highest FDI-GDP ratio, and 30 with the highest ODA-GNI ratio. The analyses
involved dynamic panel data estimations. The study found, amongst others that FDI
has no significant effect on life expectancy. ODA was however found to positively
and significantly affect life expectancy.
From the review of the literature, it was observed that most of the previous studies
were panel data studies which examined separately the life expectancy effects of
trade openness and FDI inflows. Quite a few studies jointly examined the effects of
trade openness and FDI on life expectancy. The current study is a country-specific
study focusing on Nigeria, as country-specific effects may differ from regional or sub-
regional effects as a result of country-specific conditions. The study also focuses on
the effect of import openness on life expectancy, instead of the broader measure of
trade openness comprising export openness and import openness as done in
previous studies except Owen and Wu (2007) who employed import openness as a
proxy for trde openness for robustness check in their panel data study. To the best
of our knowledge (from our search of the literature), apart from the study by Popoola
(2018) which attempted to examine the effect of trade openness and FDI on life
expectancy, which was found to be inconclusive as the study only stopped at the
cointegration test, no study has yet comprehensively examined the effects of import
openness and FDI on life expectancy in Nigeria. A gap therefore exists in the
literature, and this study intends to fill it. This study is significant as its outcome will
guide policymakers in contriving policies aimed at enhancing life expectancy in the
country.
3. Methodology
Following the theoretical frameworks developed in Herzer (2014) and Alam et al.
(2015) and Jawadi et al. (2018) the model to be estimated to achieve the objectives
of the study was specified functionally as:
LEBT = f(FDI, IMOPN, RGDPPC, GINI, HEAEX, INF) [1]
Where LEBT = Life expectancy at birth (male and female); IMOPN = Import
openness measured total imports as a percentage of GDP; FDI = foreign direct
investment net inflows, Dollar; RGDPPC = Real GDP per capita; GINI = Gini
coefficient (measure of income inequality); HEAEX = Government recurrent
expenditure in health sector, INF = inflation, measured as annual percentage change
in consumer price index.
The ARDL modeling approach to cointegration and error correction analysis

developed by Pesaran, Shin and Smith (2001) was adopted in this study to analyse
the relationship between life expectancy and the hypothesized determinants. The
choice of this approach was informed by its flexibility in application in that it can be
applied in cases of mixed order of integration of data, and the fact that it yields
consistent and efficient long run coefficient estimates with valid t-statistics even in

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the presence of regressor endogeneity peculiar with cointegrated regressors. The

ARDL model was specified as:
I I I
∆LEBTª = β_ + ¬%δ ® ∆LEBTª$® ( + ¬%δ ® ∆ln FDIª$® ( + ¬%δ+® ∆IMOPNª$® (

®¯ ®¯_ ®¯_
¼ ¼
+ ¬%δ?® ∆ln RGDPPCª$® ( + ¬%δS® ∆GINIª$® (

®¯_ ®¯_
¼
+ ¬%δM® ∆ln HEAEXª$® (

®¯_
I
+ ¬%δ>® ∆INFª$® ( + Ψ ln FDIª$ + Ψ IMOPNª$

®¯_
+ Ψ+ ln RGDPPCª$ + Ψ? GINIª$ + ΨSln HEAEXª$ + ΨM INFª$
+ μŽ 2
The parameters Ψ 1 to Ψ 6 are the corresponding long run parameters, while the
parameters δ2 … δ7 are the respective short run coefficients of the underlying ARDL
model. Δ is the first difference operator, µ is the residual term, j is the optimal lag
order of the ARDL to be empirically determined. Implementation of the ARDL bounds
test begins with the OLS estimation of equation 4, and testing the joint significance
of the lagged levels of the explanatory variables using the F-test.
The null hypothesis of no cointegration (Ψ1 = Ψ2 = Ψ3 = … = Ψ6 = 0) is tested against
the alternative hypothesis of cointegration ((Ψ1 ≠ Ψ2 ≠ Ψ3 ≠ …≠ Ψ 6 ≠ 0).
Two sets of asymptotic critical values at different levels of significance for the
computed F-statistics are provided by Pesaran et al. (2001) The first set are critical
values for the lower bound which assumes all variables of the model are I(0), while
the second set are critical values for the upper bound which assumes the variables
are I(1). Computed F-statistic greater than the upper bound critical value at a given
level of significance, signifies existence of cointegration relatioships as the null
hypothesis of “no cointegration” is rejected; computed F-statistic less than the lower
bound critical value at a given level of significance implies absence of cointegration
relationships as the null hypothesis of “no cointegration” cannot be rejected. No
conclusion is drawn if it is between the lower bound and the upper bound critical
values. If the null hypothesis of no cointegration is rejected, the short run (error
correction) model is derived from the ARDL as:

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I I I
∆LEBTª = β_ + ¬%θ ® ∆ln LEBTª$® ( + ¬%θ ® ∆ln FDIª$® ( + ¬%θ+® ∆IMOPNª$® (

®¯ ®¯_ ®¯_
¼ ¼
+ ¬%θ?® ∆ln RGDPPCª$® ( + ¬%θS® ∆GINIª$® (

®¯_ ®¯_
¼ I
+ ¬%θM® ∆ln HEAEXª$® ( + ¬%θ>® ∆INFª$® ( + φECTŽ$

®¯_ ®¯_
+ ɛŽ 3
φ is the error correction coefficient which measures the speed of adjustment to

equilibrium in the event of short run deviation therefrom. ECT is the error correction
term derived as the residual of the long run model (equation 3). The error correction
coefficient is expected to be negatively signed and statistically significant to play the
role of error correction (restoration of equilibrium) in the model. ɛ is the error term.
The negative sign is a further indication that the variables are cointegrated.
The corresponding long run model is specified as:
LEBTt = η0 + η1ln(FDIt) + η2IMOPNt + η3ln(RGDPPCt) + η4GINIt + η5ln(HEAEXt) +

η6INFt + ξt (4).
The a priori expectations are η1 > 0, η2 > 0, η3 > 0, η4 < 0, η5 > 0, η6 < 0.
In light of economic theory, imports and FDI are expected to enhance life expectancy
as both enhance knowledge spillover effects (Owen & Lu, 2001) and access to
foreign goods and technology which are not locally available. Per capita income is
expected to be positively related to life expectancy. Increase in per capita income
(which is also an indication of decrease in poverty on the assumption that income is
evenly distributed) is expected to enhance life expectancy. The gini index which
measures income inequality is expected to be negatively related to life expectancy,
as concentration of a country’s income in a small fraction of the population especially
where there is huge income gap may adversely affect life expectancy in the country.
Increased government expenditure in health is expected to raise life expectancy all
things being equal. Inflation hinders access to be necessities of life as it raises the
cost of living which is associated with decreases in standard of living and life
expectancy.
Prior to estimation of the models, the variables were tested for unit root to determine
their time series properties. The Augmented Dickey Fuller (ADF) and the Dickey-
Fuller Generalised Least Squares (DF-GLS) unit root testing techniques were
adopted for this.
Annual time series data spanning the period from 1981 to 2017 were used for the
study. The data were obtained from the WDI 2018 database, CBN Statistical Bulletin,
2017, and the Global Consumption and Income Project (GCIP) 2018. Specifically,
data on life expectancy at birth (male and female), net FDI inflows, real GDP per
capita, import openness and inflation were obtained from the WDI, data on

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government recurrent expenditure on health were obtained from the CBN and data
on income inequality were obtained from the GCIP.
4. Results and Discussion
The results of the unit root and cointegration tests are presented in Table 1 and Table
2 respectively, while the results of estimation of the ECM and long run model are
presented in Table 3.
4.1. Unit Root Tests and Cointegration Test

The unit root test results involving ADF and DF-GLS processes are presented in
Table 1.
Table 1. Unit Root Test

ADF Unit Root Test
Variables Levels First Difference
ADF Critical Inference ADF Critical Inference
test stat Value test Value
(5%) stat (5%)
LEBT -3.67 -3.56 Stationary - - -
ln(FDI) -5.47 -4.34 Stationary - - -
IMOPN -2.76 -3.54 Nonstationary -5.51 -3.55 Stationary
Log(RGDPPC) -1.49 -3.55 Nonstationary -3.68 -3.54 Stationary
GINI -2.15 -3.55 Nonstationary -6.09 -3.55 Stationary
HEAEX -0.01 -3.56 Nonstationary -5.17 -3.56 Stationary
INF -3.89 -3.54 Stationary - - -
DF-GLS Unit Root Test
Levels First Difference
Variables DF- Critical Inference PP Critical Inference
GLS Value test Value
test stat (5%) stat (5%)
LEBT -3.84 -3.19 Stationary - - -
ln(FDI) -3.60 -3.19 Stationary - - -
IMOPN -2.85 -3.19 Nonstationary -7.59 -3.19 Stationary
ln(RGDPPC) -1.48 -3.19 Nonstationary -3.46 -3.19 Stationary
GINI -1.65 -3.19 Nonstationary -6.20 -3.19 Stationary
HEAEX -1.07 -1.95 Nonstationary -1.28 -1.95 Stationary
INF -3.07 -3.19 Nonstationary -5.43 -3.19 Stationary
Source: Author’s computations using EVIEWS 9.
The unit root test results indicate that the variables are of mixed order integration.
The ADF unit root test shows that while life expectancy natural logarithm of net FDI
inflows and inflation series are stationary at levels, other series are stationary at first
difference. The DF-GLS test indicates that life expectancy and natural logarithm of
net FDI inflows are stationary at levels, and the other series are stationary at first
difference. These notwithstanding, there exists the possibility of a linear combination
of the variables to be stationary; that is the possibility longrun convergence; the

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possibility for the variables to be cointegrated. This was determined by the

cointegration test. Given that the variables are of mixed order of integration, the
ARDL (bounds) test approach was adopted to test for cointegration relationships.
The result of the test is presented in Table 2.
Table 2. ARDL (Bounds) Test for Cointegration

Sample: 1982 2015
Included observation: 34
Null Hypothesis: No long-run relationships exist
Test Statistic Value K
F-statistic 26.53 6
Critical Value Bounds
Significance I0 I1
10% 2.12 3.23
5% 2.45 3.61
2.5% 2.75 3.99
1% 3.15 4.43
K = Number of explanatory variables
Source: Author’s Estimation using Eviews 9
The bounds test for cointegration shows that the null hypothesis that no long run
relationships exists among the variables is rejected even at the 1% level. This is
indicated by the F-stat which is greater than the critical value of the upper bound. In
view of this we infer that the variables are cointegrated. Given that the variables are
cointegrated, the short run relationship between them can be represented with an
error correction model.
4.2. Model Estimation Results

The estimated error correction representation and the corresponding long run
estimates are presented in Table 3.
The results presented in Table 3 shows that the effect of FDI on life expectancy is
positive in the short-and long-run, but not statistically significant. This suggests that
the amount of FDI that flows into Nigeria’s economy has not been sufficient enough
to improve the quality of life of the people measured in terms of life expectancy. The
effect of import openness on life expectancy in Nigeria is negative, and statistically
significant in the short- and long-run, though the long run effect is more sizeable and
significant. The implication is that importation generally adversely affects life
expectancy in the country. Several reasons could be adduced for this. The
(chemical) composition of the products being imported especially the consumer
goods (processed foods) may pose serious threat to health. This was recently
buttressed by the current Director General of Nigeria’s NAFDAC who noted that
processed food contained monosodium glutamate, excess sugar and excess salt all
of which were harmful to health and posed serious threat to life (Akinselure, 2019).
The adverse effect of high rate of importation on local producers could also have
adversely affected domestic producers’ competitiveness, profits, employment and

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income thereby reducing affected individuals’ capacity to access basic necessities

of life which enhance life expectancy.
Table 3. ARDL Cointegrating and Long Run Form

Dependent Variable: LEBT
Selected Model: ARDL(1, 0, 1, 1, 0, 1, 1)
Sample: 1981-2017
Included observations: 34
Cointegrating Form
Variable Coefficient t-Stat Prob.
DLOG(FDI) 0.03 0.64 0.53
D(IMOPN) -0.01 -1.74 0.10
DLOG(RGDPPC) 0.63 1.46 0.16
D(GINI) -0.03 -0.04 0.97
DLOG(HEAEX) 0.04 2.11 0.05
D(INF) -0.00 -1.44 0.16
CointEq(-1) -0.14 -3.97 0.00
Long Run Coefficients
Variable Coefficient t-Stat Prob
LOG(FDI) 0.20 0.64 0.53
IMOPN -0.11 -3.14 0.00
LOG(RGDPPC) 9.64 4.85 0.00
GINI -0.24 -0.04 0.97
LOG(HEAEX) 0.55 3.71 0.00
INF -0.03 -2.69 0.01
C -25.4 -1.66 0.11
Source: Author’s Estimations using Eviews 9.
The short run and the long run relationships between real GDP per capita and life
expectancy are positive as expected, but the relationship is only significant in the
long run. Thus increase in real GDP per capita will enhance life expectancy in the
long run in Nigeria. Income inequality is negatively signed, though not statistically
significant. This variable is therefore not a key factor affecting life expectancy in the
country. The effect of recurrent expenditure in health is positive and significant in
both short- and long-run, though it is more significant and sizeable in the long-run.
This implies that increase in government recurrent expenditure in healthcare will
enhance life expectancy in the country. Whereas the effect of inflation on life
expectancy is negative in the short-and long-run, it is only significant in the long-run.
Consistent or permanent rise in inflation will therefore adversely affect (or reduce)
life expectancy in the country.
The estimated coefficient of the error correction term is negatively signed, as
expected, and highly significant even at the 1% level. This further confirms existence
of cointegration relationship between the explanatory variables and the dependent
variable. Its size which is quite low implies that the speed of adjustment is quite low
as only about 13% of the short-run deviation from equilibrium of the system is
adjusted annually to restore equilibrium therein.

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In view of the outcome of estimations (specifically, the t-ratios of the estimated long
run coefficients), the null hypothesis that import openness does not affect life
expectancy in Nigeria is rejected at the 5% significance level, while the null
hypothesis that FDI inflows do not affect life expectancy in Nigeria cannot be rejected
at the 5% significance level.
5. Conclusion and Recommendations
The paper examined the effects of import openness and FDI inflows on life
expectancy (a measure of quality of life) in Nigeria during the period from 1981 to
2017. Based on the results of the empirical analysis involving the ARDL approach to
cointegration and error correction it can be concluded that import openness
adversely affects life expectancy in the country, while the effect of FDI inflows on life
expectancy is positive, but not statistically significant. Thus FDI does not contribute
significantly to life expectancy in Nigeria. Apart from these variables, life expectancy
in Nigeria is also affected by the level of real per capita income, government
recurrent expenditure in the health sector and inflation. While life expectancy is
enhanced by increase in per capital income and health expenditure, it is adversely
affected by inflation. The effect of income inequality on life expectancy is negative,
but not significant. Income inequality is therefore not a key determinant of life
expectancy in the country.
In view of the empirical evidence, the recommendations of the paper include
imposition of restrictions on some categories of imports especially consumer goods
(while encouraging domestic production of same through investment-friendly
policies, programmes and initiatives, to meet domestic demand for consumer
goods), deliberate and conscious effort to boost the level of real per capita income
through encouragement of investment to boost employment, increases in general
government expenditure and, expenditure in health in particular, and control of
inflation by the monetary and fiscal authorities using appropriate policy instruments.
Bio-notes:
Oziengbe Scott AIGHEYISI is an economist. His main research interests and areas
of specialisation are International Trade and Finance, Monetary Economics,
Development Economics, Financial Analysis and Applied Econometrics.
Blessing O. OLIGBI is the current head of Department of Economics &
Development Studies, Igbinedion University, Okada, Edo State, Nigeria. Her main
research interest and areas of specialization include Development Economics,
Public Sector Economics and Macroeconomic Theory.
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LANGUAGE POLICY AND ECONOMICS: DOES ENGLISH LANGUAGE

ACCELERATE THE WHEEL OF DEVELOPMENT IN THE ECONOMIES OR
NOT? A REVIEW
ALHENDI Osama
The University of Debrecen, Faculty of Economics And Business, Debrecen,
Hungary
osamaelhindi78@gmail.com
Abstract: Having one common language could facilitate and reduce the cost of
trading between different parties form different nations. In addition, it helps the
economies to participate and benefit from the global economy. On the other hand,
language policy, planning, and education are very important tools for economic
development. In this paper, consequently, the focus is particularly on English
language and its economic value as lingua franca for the development and how does
English language proficiency increase each of Quality Education and Intercultural
Competence and hence the economic advancement? Therefore, in this regard, it is
important to emphasize the importance of the ‘Economics of language’, which
appeared in mid-1960, and its role in deciding language policy as well as the
government’s intervention. Besides that, the return from investing in English
language education and its impact on foreign direct investment in different countries.
This study is a literature review analysis aiming to investigate the role of English in
enhancing the development of the nations. Therefore, the study includes a wide
range of scholarly past and recent scientific related-works. According to this review,
despite the fact that the evidence relating to the mutual impact between language
and economics is limited, there is no way to deny the importance of English in the
development.
Keywords: Development; Economics Of Language; English Language; Intercultural
Competence; Quality Education.
JEL Classification: O1; Z1; Z13.
1. Introduction
In fact, the usage of economics which is related to language issues is increasing. In

addition, many different worldwide trends, related to language, culture and ethnicity,
usually give explanation of particular issues which can be also explained by the
economics of language. These trends are the following. Firstly, the geographical and
political restructuring of Eastern European countries as well as the Common wealth
of Independent nations (after the fall of Berlin wall, 1989) has resulted in the
reaffirmation of many different identities (locally and regionally) which had been
restrained for long time. These identities are related to particular languages which
become more obvious than before (1960- the first existence of the Economics of
language). Secondly, after the 20th century, migration as well as diversity started to
be intensive. it is also interesting that these trends are unlikely to be linked to

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economic and political status but ,to an increasing extent, related to qualified
professionals. As a result, these trends lead to increase the linguistic, ethnical and
cultural diversity, especially in the urban areas. Thirdly, the establishment of
international political and economic organizations such as European Union (EU) in
which there are diversity of languages as well as the possibility of language conflict
by different groups. Fourthly, the importance of globalization and its role in increasing
the volume of international trade worldwide and decreasing the cost of
telecommunication and traveling. These two indicators decrease the usual cost of
communication between broad variety of people who use a broad variety of
languages (Grin, 2003). Therefore, it is necessary to have particular language policy
by which the resources can be allocated properly and this can be achieved through
the Economics of language.
In practice, from the macro-economic point of view, many questions are still
unanswered. For example, to which level the common language in the fifty states in
the USA eased or helped the economic exchange such as the exchange of goods,
services and production factors (like labor) and hence increased total income in
comparison to Europe where there are many different languages. In the case of
Europe, many procedures have been taken in order to facilitate the mobility of goods
and people. These procedures include the reduction of tariff and non-tariff obstacles,
setting up the European Union (EU), the freedom of mobility of EU citizens in the
area and the adoption of one common currency in order to reduce the cost of trading.
In addition, and on informal basis, Europe considers English language as a common
language (lingua franca) for communication. Therefore, to what level English
language will increase the GDP of Europe? (Chiswick, 2008). Therefore, knowing
the quantitative answer could not be direct but possible. However, this does not
deny the part English could play in enhancing the international development. Beside
its importance in increasing each of economic competitiveness and educational
improvement, English is usually part of the debate regarding its role to access the
technology which can be considered as facilitative tool by which educational change
and advancement could happen. As a result, it helps in the fulfilment of the United
Nations’ Millennium Development Goals (MDGs) (UN 2000), especially MDG. 2
‘universal primary education’ and MDG. 8 ‘to Develop a Global Partnership for
Development’ (Seargeant and Erling, 2011).
According to Kogut and Harbir (1988) and Benito and Gripsrud (1992), Foreign Direct
Investment facilitates the availability of financial resources and know-how-to
technological information to the host country and thus it increases the economic
growth of the country. Therefore, this kind of activities entails learning particular
foreign language by which the communication with foreign parties, authorities as well
as customers can be easy.
In comparison to other languages, English is still the wide-spreading language
worldwide (Coleman, 2011). Accordingly, it has been confirmed that development
efforts become integral part of governmental and academic entities and associated
with English language education (Bruthiaux, 2002). Hereby, many studies proved it,
according to the following related facts. Firstly, considering mother-tongue as the
language of teaching can enhance Quality education (Benson 2004, Trudell 2009).
Secondly, there is positive correlation between Quality Education and Economic

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growth (Hanushek and Woessmann 2008). Thirdly, there is a correlation between

English proficiency and the growth of the economy (Grin 2001, Chakraborty and
Kapur 2008).
In this paper, the aim is to conduct investigation about English language and its
impact on the economic development in the literature. Therefore, the paper includes
two inter-related sections. The first section focuses on the language of economics
as a discipline of economics and its importance for language policy choice. The
second section of this paper discusses the role of English on enhancing the
economic development through two factors: Quality Education and Intercultural
Competence. Therefore, the paper tries to investigate, using literature review, how
to effectively decide the most appropriate language policy for the economy and what
does the economic value of English language stand for?
The study used literature review analysis with the objective to investigate the
influence of English language as lingua franca on the economy. The investigation
followed logical structure of discussion starting from what the literature does include
in general (the mutual impact of language and economic variables) to narrow
particular point of debate (regarding the impact of English language on the
development) (from the macroeconomic perspective). This analysis included related
literature from various sources starting from the past until the last scholarly studies
as well as critiques in this regard.
3.1. Related Literature: The Economics of Language

Economics of language’s first emergence was in the mid-1960s. In that time,
precisely in 1965, Jacob Marschak published his article ,titled Economics of
Language, in Behavioral Science. Marschak’s initial ideas was about considering
language as value, utility, costs and benefits. (Zhang- Grenier, 2012). However,
there are three generations of studies which are considered as the beginning of this
filed. The first generation’s work was empirical in the 1960s. However, its origins can
be dated back to the economic analysis of racial discrimination which was written by
Becker (1957) and its analytic application to language which was suggested by
Raynauld and Marion (1972). Accordingly, it attributes the ethnic feature to the
language. On the other meaning, mother language is used as identity to assign every
person to his/her group. Hence, this can influence the social and economic status of
the assigned person. This feature or function can be used to explain the reason
behind inequality of earnings between white and black people in USA and also
between English speakers and people speaking French in Canada. With regard to
economic analysis, it can be connected to discrimination more than language issues.
The second generation of this filed, which was in the period between 1970s and
1980s, focuses on the human capital aspects of language. This, in turn, opens the
door to various standpoints on language and particularly ties with education
economics. In this regard, it shows the language skills as a capital by which people

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and society can invest and make profits. For example, the social and economic
situation of immigrants (such as Spanish native speakers in USA) was evaluated as
empirical work to assess the resulted value behind learning English. The third
generation of this field, which was proposed by Vaillancourt (1980), indicated the fact
that labour income can be determined by language functions. Therefore, according
to this generation, languages aren’t considered as kind of identity or as skills
necessary to communicate. Rather, it is a group of linguistic characteristics which
can affect the social and economic situation of the individuals (Grin, 2003).
According to the literature, Economics of languages was reviewed by several
researchers such as Vaillancourt (1983), Grin (1996, 2003), and Grin, Sfreddo &
Vaillancourt (2011). Their reviews played important role to clarify the relation
between economic factors and language issues. Recently, some economists
included game theory approach to the literature (which may be close to the ideas of
Marschak) such as Rubinstein (2000), Glazer & Rubinstein (2004, 2006). (Zhang-
Grenier, 2012).
In fact, the literature is full of examples regarding the impact of English on the
development. However, other widely spoken languages could be important in the
economic performance (on regional or even international level). For example, the
study of Chiswick et al. (2000) investigated the impact of Spanish language on the
earnings in Bolivia. It finds out that people speaking Spanish are more lucky than
bilingual as well as indigenous languages speakers. In addition, Spanish language
is projected to spread worldwide in different regions such as USA where Spanish
language comes after English and hence considering the strongest country in the
world as one of the most powerful Hispanic nations in the mid of the 21th century
(Lago, 2011). Besides that, Spanish language occupies the status of second
language in each of Brazil (in the education system), Europe (After English) and Asia
(including China and Philippines). Regarding its economic value, it has been proved
that Spanish language plays important role in the commercial trade throughout the
world. Depending on the gravity model, 51 nations (including 11 countries speaking
Spanish) have been investigated as sample for the study in the period between
1996-2007. The results of this study show that having common language produces
a multiplication factor in global trading which equals to 190% for the trade among
nations having common language. Moreover, having common language, within
Hispanic countries, could increase the bilateral trading between them by about 300%
(which is more than English in in the Anglo-Saxon countries) (Delgado et al., 2014).
In the case of Mandarin, there is increasing attention in learning Mandarin Chinese.
The reason behind that is due to the assumption of expecting Mandarin to be used
as a way of communication in the companies which are planning to communicate
with the country (Delgado et al., 2014). By looking at the economic and political
status of China, Mandarin Chinese has the possibility to be considered as global
language. In addition, there is possibility to substitute English language with
Mandarin Chinese in the future and to challenge United Status for its economic
position in the world (Sunny, 2015). Furthermore, The economy of China is projected
to grow and to be on the top of the world by 2030 (even in terms of nominal GDP
indicator). On the other hand, Mandarin Chinese is expected to attract more attention
and appeal. For example, there is tendency to learn Mandarin in South Korea. This

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can happen because Korean businesses always require Mandarin speakers.

Statistically, the volume of trading between China and South Korea increases over
the last years. For instance, in 1988, 1997 and 2014, the trade volume was about
1.7%, 8.4% and 21.3% respectively. This indicates the growing trade between these
two nations which in turn requires learning Mandarin Chinese to foster the trading
(Kang, 2017).
In fact, the failure to consider the effect of common language (according to the gravity
model) could lead to biased estimation of trading impact of economic integration in
economic area such as EU. For example, in EU, there are languages with official
status such as English (in each of UK, Ireland and Malta), German (Austria, Germany
and Luxembourg), French (France, Belgium and Luxembourg), Dutch (Belgium and
Netherlands), Swedish (Sweden and Finland) and Greek (Greece and Cyprus).
Therefore, having common language can enhance bilateral trading (Fidrmuc &
Fidrmuc , 2016).
Language policy and state’s intervention

Economics plays important role in language policy as well as in language planning.
In fact, there are two reasons behind that. Firstly, economics facilitates the process
of decision making in the issues which are pertinent to language. It assists decision
makers to properly understand how does the choice of particular language influence
the economic consequences such as the rise of income which is resulted from
second language education or learning. Also, it helps to understand how do
economic factors affect the choice of language such as international trade’s impact
on the existence of particular languages and the fall of others (Grin, Sfreddo &
Vaillancourt, 2011), (Melitz, 2008). Secondly, economics helps to select, design,
implement and evaluate language policy. Moreover, economics differentiates
between different language policies using the approach of cost and benefit analysis.
However, it is not easy to allocate the financial values to the costs and benefits using
this analysis (Zhang- Grenier, 2012). Besides that, the economic approach can guide
language planners about the missions they are required to accomplish and how to
achieve them. For instance, language policy can determine the manners of allocation
of resources. However, economic approach ,such as choice theory, can effectively
assist in providing the rational way to achieve that. To prove that, each of Grin &
Vaillancourt (1999) proposed that, like any policy such as education, health, urban
planning or environmental policy, language policy’s fiscal expenses can be financed
through government’s taxation. In addition, Pool (1991) suggested that language
planners prefer to choose the language with possible lowest total cost and its
allocation should be in concordance with language group’s population. Despite the
difficulties, it is still worthy effort to explore the distribution of cost in language policy.
Furthermore, language policy and planning face many challenges and problems
which was examined and explained by many studies in the field of Economic of
language. These studies include different related issues such as return rate on the
language (Grin, 1995; Gao & Smyth, 2011), the assessment of language policy’s
impact (Grin & Vaillancourt, 1999) and also language policy’s costs and benefits
(Vaillancourt, 1996; Vaillancourt & Coche, 2009).

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By looking at the literature, researchers usually focused on the allocative rather than
distributive matters which are related to language policy choice. Regarding the
allocative function, the allocation of resources is emphasized without knowing who
is the winner or loser behind choosing the policy. It only ensures that the chosen
policy results in gain in total welfare. Therefore, the winners have the possibility to
recompense the losers and hence nobody is worse off. On the contrary, the
distributive function is considered as a fair function due to its ability to identify the
winners and losers and estimate the gains and losses. Furthermore, having
incentive-based policy requires ,as a condition, to suggest methods of
compensations as well as to ensure the compliance from the related parties. After
the leading work by Pool (1991), the researchers recently started to concentrate their
efforts on the distributive matters such as Van Parijs (2001) and Grin & Vaillancourt
(2000). Analysing this function is challenging but very important, especially, due to
its connection to interesting issues such as the decision of selecting formal
authoritative language in multi-linguistic region like the European Union (Grin, 2003).
The goal behind choosing language policy is to adjust the linguistic environment and
hence raise the welfare. Accordingly, let’s suppose that the linguistic environment
can adjust itself without government’s intervention. As a result, according to the
economic theory, this could lead to what is called market failure which could happen
due to the following reasons. Firstly, existence of insufficient information, which
mislead the economic agents from taking the right decision. For example, some
analysts argue that social parties in non-English speaking countries are
unsuccessful to understand that their linguistic environment will be negatively
influenced by infringements of English and hence they could fail to maintain the
quality of their linguistic environment. Secondly, the existence of high cost of
transaction. In fact, adopting one common language could decrease the cost of
transaction. For example, linguistic environment such as European Union ,with 24
languages, could perform well through using one common language, such as
Esperanto, without the need to translate and interpret (Pool, 1996). Thirdly, the
presence of non-existent markets. For example, the market of threatened language
will no longer exist for next generations to be demanded. This could happen because
next generations will extremely care about linguistic diversity. Fourthly, by
considering the linguistic environments as a good and arguing that they are resulted
from huge number of actors in the market and in different positions of power, that
could breach the condition of freedom of entry. Therefore, this results in the
existence of imperfect market. Depending on the previous justifications, state’s
intervention should take place not on the political or human basis but according to
the economic theory of welfare (Grin, 2003).
3.2. English, language policy and its impact on the development through
Quality Education as well as intercultural competence
In fact, Economics gives increasing attention to the education more than languages
regarding the process of economic development (Arcand and Grin 2012). In addition,
there are few nations who do not embrace the belief that English is necessary for
social and economic development. As a result, they usually adopt language policies
in which English can be considered as a subject in the curriculum or as a language

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of teaching in the schools or as a tool for development which is used in the private
sectors such as businesses (Kennedy, 2011).
With respect to Education aspect, it is necessary to mention here that the language
education for economic development purpose should be involved in two things.
Firstly, to be engaged in crucial pedagogy in which five important characteristics take
place: change-aimed, empirical, pro-autonomy, cooperative, and communicational.
Secondly, to include an open, critical, and dynamic approach to broader educational
experiment as well as to the daily life (Savage, 1997). Despite that, this approach,
for language educators as well as language policy makers, may be exposed to the
risk of being restricted to the English language education (Bruthiaux, 2002).
Rationally, the economic strategy of the nation should rely on the attraction of foreign
capital and also on exports. Therefore, it could be crucial and essential to have
compatibility between language education policy and economic strategy’s
requirements. For example, each of Singapore, Ireland and Puerto Rico have
adopted language instruction reform which was resulted from export-oriented
industrialization change. Their economic likeness ,as islands having long colonial
history, includes the following. Firstly, their industrialization is following export
strategy which relies on the attraction of foreign direct investment through tax
decline. Secondly, the transition from import substitution to export strategy. Thirdly,
English proficiency in these countries is linked with wages increase, the attraction of
foreign capital as well as economic growth. Despite that, meeting the requirements
of export-oriented industrialization varies from country to another. For instance, in
the case of Singapore, the level of compatibility between economic policy and
language education policy was high due to the adoption of English as a language of
teaching beside studying one of three languages in the country such as Mandarin,
Tamil or Malay. In Ireland, the compatibility has been from medium to high (English
has been gradually prioritised over Gaelic). In Puerto Rico, the level of policy
compatibility was low due to the refusal of teachers union to choose English as a
language of instruction (Suárez, 2005). From these examples, there is clear link
between language education policies and economic development.
On the other hand, In order to increase the intercultural communication skills of
foreign language learners, intercultural communication should be included as a part
of language education. In fact, English is considered as medium tool for international
communication in places such as multinational companies (Marschan et al., 1997).
In addition, according to Honna (2000), English can be defined as multinational as
well as multicultural language. With respect to globalization, multicultural societies
,and even societies keeping homogeneous ethnic and national identities, are
exposed to the challenge of recognition of diversity inside (Tsuneyoshi, 2004). For
example, the belief of Japan to be homogeneous had been necessary tool in
safeguarding its current social systems. Despite that, ethnic diversity in Japan is
considered as a country’s power that could boost the social and economic movement
of individuals. This could happen by English language education which can help to
benefit from globalization phenomenon in a way which can allow foreigners to move
in Japan and therefore the contact with other cultures can be enhanced (The Prime
Minister's Commission on Japan's Goals in the 21st Century, 2000).

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Furthermore, the acquisition of the language of destination country eases the

process of migration, minimizes the cost of migration and also increase the possibility
of success for the immigrant in the labour market (Bleakley and Chin, 2004). To be
more precise, the implicit rise of emigration rate to nations having similar language
varies from 18.8% to 20%. Therefore, linguistic proximity influences the rate of
migration. Besides that, widely spoken languages (such as English language) play
important factor in the international migration (Adsera and Pytlikova, 2015). On the
other hand, migration from one country to another could increase the diversity and
variety of languages and cultures and hence innovation on the regional level (Fassio
et al., 2018). Therefore, these factors (language education, migration and diversity)
are connected and related. Therefore, language education influences migration and
hence cultural and linguistic diversity. In relation to economic development, an
immigrant is considered as intermediary by which new ideas and capabilities can
help in achieving technological progress in the host nation. On the micro level, many
studies support the fact that diversity has positive influence on the production
capability in the existence of skills which complement each other’s (Lazear, 1999).
In addition, Hong and Page (2001) investigate the role of heterogeneity in improving
the process of problem-solving and find out that heterogeneity with few capabilities
can perform better than homogeneous group of people with high capabilities in
solving the problems. Furthermore, Ager and Bruckner (2013) investigates the
impact of massive immigration to United States in the time between 1870 to 1920.
They discovered that the rise of US district’s cultural fractionalization increases the
output per capita. Whereas cultural polarization has negative impact. Depending on
that, by looking at English speaking countries and countries with high English
proficiency index, the level of migration and cultural diversity is high and these
countries are considered also as strong economies such as North America, Canada,
UK, Australia, Singapore, Finland. In addition, this kind of nations has developed
policy framework by which cultural diversity is supported and tolerated. For example,
in the 1970s, this policy was used and applied by nations such as Australia, Canada,
US, UK, Sweden and Netherlands. This policy includes particular steps in fields such
as public recognition, Education, law and public material (UNESCO, 2009).
Therefore, as previously-explained above, each of language pluralism as well as
multilingualism seemed to be as language policy’s goals at very late phase
(Neustupný ,2006).
3.3. Critiques:
English language is widely spoken worldwide. However, this spread has increased
the discussion regarding its social, cultural, political and economic influence on non-
English speaking nations (Saraceni, 2010). For example, linguistic imperialism which
was developed by Phillipson (1992) in which he claims to investigate the reason
behind the wide expansion of English language in the world. To be more clear,
linguistic imperialism is equivalent to other meanings such as cultural imperialism,
educational and scientific imperialism. Other scholars such as Auerbach (1995) and
Pennycook (1995) argue that the wide expansion of English language is due to the
wide political, social and economic process which leads to economic inequality.
Besides that, scholars such as Skutnab-Kangas (2000) claims that English language

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represents a main threat to the development and existence of other languages. In

addition, education and media are direct, clear tools for causing language death.
This could happen by preferring to learn the dominant language over the local
language. Therefore, this could negatively influence the development of other
cultures and cultural diversity as well (Johnson, 2009). Furthermore, each of Gerring,
Thacker, Lu, and Huang (2015) find out that there is positive linkage between cultural
diversity and fertility as well as mortality ratios. However, they discover that it has
negative impact on literacy as well as growth. In addition, Alesina and LaFerrara
(2005) investigate the impact of ethnic and linguistic diversity (using Greenberg
indicator) on the economic development (GDP). They find out that there is a negative
association between the two variables. They justify that diversity results in social
conflict as well as trust decline which is essential for economic and political stability.
With regard to education, Glewwe et al. (2009) discovers that it was useless to use
English language books in Kenya’s schools. For most students, it is not easy to read
them with the ability of understanding. Moreover, only rich students as well as
achievers can get some benefit from using these books. In addition, Bruthiaux (2002)
argues that the concentration on English language education could result in
increasing income gap in the developing economies. Therefore, wealthy individuals
can only benefit from learning the language more than poor people.
In fact, the debate regarding the role languages may play in the process of
development triggers the curiosity of many researchers for long time. However,
researchers’ investigations are still open to question and unable to end the debate
(Nettle, 2000). Besides that, the rise of uncertainty which is resulted from the
literature in which many terms with different meanings have been used such as the
usage of the concept fragmentation (which indicate to negative implication) and
multilingualism (which has positive implication) (Arcand and Grin, 2013). However,
according to the investigation made by Arcand and Grin, 2013, they find out that high
ethnolinguistic diversity results in high income per capita and hence it is wise to
change the term, fragmentation, into multilingualism as a positive indicator.
With regard to the economic growth, it was discovered that the linkage between
English proficiency and economic growth is positive in the case of Asian as well as
European nations. However, in the case of Latin and African nations, the evidence
is hard and unavailable (Lee, 2012).
4. Conclusion
Depending on the literature, the debate is still open for discussion regarding English
and its role in achieving the development. While some scholars scientifically prove
the economic value of English language, others criticize it. This, in turn, increases
the ambiguity regarding that. In addition, it is not direct and clear how English can
influence economic variables such as GDP per capita. Therefore, the evidence is
still little. However, English language can be useful in many different channels of
development. As reported by Euromonitor, many developing economies recently
starts to realize the value of English as a necessary tool for the economic growth of
individuals as well as fighting poverty (Pinon-Haydon, 2010).

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According to the notion of investment by Peirce (1995), individuals invest in the

second language financially and intellectually with the belief that they will expand the
range of their resources which in turn can increase their cultural capital value. The
return of this investment will provide them with access to the resources which are
not able to be reached or achieved. That’s why many nations invest in English
language Education with the objective to increase their involvement in the world
economy and globalization.
With regard to intercultural competence, English helps to enhance intercultural
communication between different cultures. As mentioned in the literature, cultural
diversity is also a reason behind achieving the economic growth. However, on the
contrary, other studies criticize English language and describe it as languages killer
and harmful to cultural diversity.
According to the study of Lee (2012), English proficiency positively impact the
economic growth of nations. However, he does not reach to clear evidence in the
case of Latin and African nations. The justification behind that is owing to a lack of
understanding English language’s impact on the development. Therefore, decision
makers and economists should formulate the most optimal policies and institutions,
besides stability and certainty, by which knowledge can be accessible. As a result,
Economics of language ,which appear in 1960, play important role as discipline of
economics in formulating the policy which is necessary for protecting the linguistic
environment and to invest in English language in a way that does not harm the
cultural identity as well as linguistic minorities in every particular economy.
5. Acknowledgments
This work was supported by EFOP3.6.3-VEKOP-16-2017-00007—“Young

researchers for talent” — Supporting careers in research activities in higher
education program.
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THE UNDERGROUND ECONOMY: COMPONENTS
GUIAȘ Emil, HĂINEALĂ Codruța Mihaela

Doctoral School of Economic Sciences, Faculty of Economic Sciences, University
of Oradea, Oradea, Romania
guiasemil@gmail.com
codruta.haineala@gmail.com
Abstract: The aim of the studies is to understand the notion of underground
economy and to make recommendations for improving the fraud management and
control systems. We study the underground economy in terms of its components.
The basic component without which we cannot talk about fraud is the economical
agents with heterogeneous skills, seeking opportunities from the point of view of the
disparities between the laws of the Member States of the European Union and the
uncertainties of the national law regarding the risky commercial activities of
enterprises. Asymmetrical provision between the laws of the Member States of the
European Union imply an environment that offers the economical agents the
possibility to take advantage of these disparities in order to operate an underground
economy. Confronted with these underground economies the States choose
financial policies that would determine the economical operators from the black
market to respect their financial obligations. Member States are responsible for
preventing and resolving irregularities and fraud in the areas managed in a
distributed manner. In order to protect the Community's financial interests, Member
States are primarily responsible for establishing management and control systems
that comply with the requirements of Community law as well as for verifying the
efficient operation of systems through audits by designated bodies for the
prevention, correcting irregularities or fraud. The analysis has shown that the gradual
approach is easier to understand, if the statistical data being analyzed, after the
theoretical elements are presented. It is recommended that any classification of
types of fraud be made according to the specific circumstances and the environment
in which the organizations operate. The responsibilities of the Member States for
setting up management and control systems that comply with Community
requirements to verify the operational efficiency of these systems through audits by
the bodies designated for the prevention, detection and correction of irregularities
and fraud will be analyzed. Correlation with statistical data will clarify OLAF's
financial recommendations to EU institutions or national authorities that also manage
EU customs revenue collection. It will be highlighted that the customs activities of
the Member States' are the first line of defense against any attempt to defraud the
EU budget. Since its inception, OLAF has been monitoring the actions taken by
national judicial authorities following its judicial recommendations to see the outcome
of these cases on the ground and to find out whether they have led to allegations or
other judicial measures. The key inference of the analysis is the study of the
components of the underground economy according to legal provision, politic
environment from the different states of the European Union with the purpose of
improving the policies for controlling this phenomenon.
Keywords: gray economy; informal economy; illicit activities; fraud; tax evasion.

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JEL Classification: A14.
1. Introduction:
The Underground economy has a great number of components which requires the
definition and the identification of its characteristics. The shadow economy is known
by different names, such as the hidden economy, gray economy, black economy or
lack economy, cash economy or informal economy. It manifests itself as a
companion of the official economy which under certain circumstances it can replace
or to which it is complementary by influencing its evolution.
The Underground economy contains activities which are the results of illicit
transactions with goods or services, or of fraud, tax evasion, work without legal forms
and money laundry.
2. Fraud
The main element of the underground economy is fraud even if it takes different
forms from one state to another. Tax fraud is to fraudulently evade the taxes or to
consciously omit to fulfill the tax obligations at the due terms, whether a part of the
sum was hidden consciously, or the insolvency was organized or by any illegal
means the paying of the taxes was obstructed.
Fraud involves two mandatory components: a material element – the breaking of the
tax law and desideratum to elude the taxes.
The intra-community VAT system was often abusively used by the so-called Intra-
Community Fraud (MTIC) scheme.
Ghost companies represent a company that doesn’t exist from the point of view of
the commercial activity, registered in a fictive headquarters, created especially for
eluding the paying of taxes (it’s generally used for only one deal).
We exemplify a fraudulent scheme in which a supplier from member state no.1, the
so-called intermediary company, delivers goods (exempted from the VAT) to the
second dealer from state no. 2, the so-called ghost company. This dealer takes
advantage from the intra-community delivery which is exempted from paying VAT
and resells the same products on the internal market of the state no.2, at very
competitive prices. He can offer such prices as although he collects the VAT from
his customer, he doesn’t pay it to the fiscal authority, and thus increasing his margins
for profit. Later the ghost company disappears without a trace and so the collect of
VAT becomes impossible in the state where the goods or services were consumed.
In another alternative of the scheme, a client of the ghost company (the broker) sells
or pretends to sell the goods abroad, sometime to the intermediary company and
claims from the fiscal authorities to which the return of the VAT belongs the refund
of the VAT paid to the ghost company. The same transaction can be repeated in a
circular fashion, this type of fraud being called a “carousel”
Sometimes the goods don’t even exist. The fraud scheme can be complicated even
more when the ghost company sells the goods to a „buffer” dealers, from which some
might be honest, in order to make traking them even more difficult. The revenue is

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tranfered to companies registered in tax-heavens (https://www.eca.europa.eu/Lists

/ECADocuments/SR15_24/SR_VAT_FRAUD_RO.pdf, p.12-13).
3. Tax Evasion
Along the fraud, tax evasion represents the action of evading the paying to the state
the taxable matter. There are two kinds of tax evasion:
- the “licit” or tolerated (intra-legem), this kind of evasion implies the bending of the
law by the tax payer, by using an unforeseen combination of laws and thus
unregulated by the state. This term mustn’t lead to the impression that this kind of
phenomenon is permitted by the law. This kind of evasion is only possible due to
some deficiencies of the laws.
4. Work Without Legal Forms
Another component of the underground economy is work without legal forms, and
represents the work outside or at the edge of the law. The phenomenon consists of
the understanding between the employer and the employee to have work
relationships without paying (completely or partial) the taxes and social contributions.
By working without legal forms, one infringes:
- the social legislation with negative effects for the employer concerning the
retirement benefits, work accidents, unemployment benefits, etc.
- the fiscal legislation with negative effects for the state budget;
- work legislation with negative effects for the worker without legal forms (the
exploitation of women and children, the duration of the work time);
5. Money Laundering
It is the process by which offenders attempt to hide the real origin of income from
criminal activities. Money laundering is the most dangerous component of the
underground economy. Through the money laundering process is give an
appearance of legality some profits obtained illegally by criminals who, without being
compromised, benefit subsequently from the amounts obtained.
(http://www.onpcsb.ro/pdf/MANUAL%20INSTRUIRE%20-%20ROMANA.pdf)
This dynamic process of money laundering from crimes takes place in three stages
consisting of:
1. the movement of funds
2. hiding traces of money to avoid any kind of investigation
3. making money available to criminals, hiding the occupational and geographical
origin of the funds again.
A) The definition of money laundering in Romanian legislation is found in the Law
656/2002 art.1 let. a)
The individuals persons and legal entities targeted by Law 656/2002 are:
a) banks, branches of foreign banks and credit institutions;
b) financial institutions;
c) insurance and reinsurance companies;

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d) economic agents that perform gambling activities, pawnshops, sales and

purchases of art objects, metals and precious stones, dealers, tourism, services
and any other similar activities involving the putting into circulation of values;
e) individual persons and legal entities witch grant legal, notary, accounting,
financial-banking assistance, in compliance with the legal provisions on
professional secrecy
f) persons with attributions in the privatization process;
g) post offices and legal entities that provide money transmission services, in lei or
in foreign currency;
h) real estate agents;
i) currency exchange offices
j) any other individual person or legal entities for acts and deeds committed outside
the financial-banking”
B) The definition of money laundering in European Union legislation can be found in
Council Directives 91/308 / EEC of 10 June 1991 and 2001/97 / EC of 4 December
2001.
6. Conclusion
At the proposal of the European Commission, since 2011, several initiatives have
been taken to step up the fight against fraud and corruption affecting EU public
money.
The Commission's proposal for amending the legal framework of OLAF aims to
increasing the efficiency and speed of OLAF investigations, at strengthening
procedural guarantees at reinforcing OLAF's cooperation with Member States and
improving its governance.
The Communication on the protection of EU financial interests by criminal law and
administrative investigations sets out how the Commission intends to protect
European taxpayers' money against illegal activities, including threats posed by
corruption inside and outside the EU institutions.
The Communication draws attention to possibilities for improving the criminal law
framework and procedural tools for investigators and prosecutors, as well as on
possible institutional developments (https://ec.europa.eu/anti-
fraud/sites/antifraud/files/ docs/ec_antifraud_strategy_en.pdf, p.4-5).
As a result of the efforts to fight against fraud, in October 2017, the European
Parliament approved the establishment of the "European Prosecutor". Within this
institution, which will focus on frauds with European money, prosecutors appointed
by Romania will also work.
The establishment of the institution also means minimum penalty limits that EU
Member States will have to take over in their own legislation. In cases of conviction,
following the investigations of the European Prosecutor, the stolen money will be
confiscated.
References:
1. Cioponea, M.-C. (2007), Public Finance and Tax Theory, Editura Fundației
România de Mâine, Bucureşti, p. 214

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2. Communications from the Commision to the Europen Parlament, The Council,

The European Economic And Social Committee, And The Commite of The Regions
and The Court of Auditors – SEC (2011) 791 final.
http://ec.europa.eu/atwork/programmes/index_en.htm.
3. Communications from the Commision to the Europen Parlament, The Council,
The European Economic And Social Committee, And The Commite of The Regions
and The Court of Auditors – Antifraud Strategy
https://ec.europa.eu/anti-
fraud/sites/antifraud/files/docs/ec_antifraud_strategy_en.pdf
4. Council Directives 91/308 / EEC of 10 June 1991 and 2001/97 / EC of 4 December
2001
5. DLAF report 2016 [Online], Available:
http://www.antifrauda.gov.ro/docs/ro/raport_dlaf/RaportActivitateDLAF_PeAnul201
6_VarRO.pdf [15 Nov 2017].
6. European Commission 2009 Informative note on fraud indicators for FEDR, FSE
and FC [Online], Available:
http://ec.europa.eu/regional_policy/sources/docoffic/cocof/2009/cocof_09_0003_00
_ro.pdf [15 Nov 2017].
7. European Commission - Press release State of EU 2018: A strengthened
European Parliament to fight cross-border terrorism http://europa.eu/rapid/press-
release_IP-18-5682_ro.htm [12 Sept 2018]
8. European Court of Auditors, Special Report, Combating Intra-Community VAT
Fraud,
https://www.eca.europa.eu/Lists/ECADocuments/SR15_24/SR_VAT_FRAUD_RO.
pdf8 9. Hoanţă, N. (1997). Tax evasion, Editura Tribuna Economică, București.
10. OLAF 2016 Report [Online], [24 Iunie 2011]
https://ec.europa.eu/anti-fraud/sites/antifraud/files/olaf_report_2016_en.pdf, [15
Nov 2017]
11. Training Manual on Combating Money Laundering and Terrorist Financing
http://www.onpcsb.ro/pdf/MANUAL%20INSTRUIRE%20-%20ROMANA.pdf [2004]
12. Law 241/2005, to prevent and combat tax evasion
13. Law 656/2002, for the prevention and sanctioning of money laundering.

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INNOVATION AND COMPETITIVENESS
MARINCEAN Dan Andrei

dmarincean@yahoo.com
Abstract: This study, addresses the topic of industrial innovation in today's
competitive markets and reaches the importance of competitiveness indicators. Any
entrepreneurial attempt to produce and promote new and up-to-date products should
be carried out, following appropriate mathematical calculations, based on the study
of competition, through competitiveness indicators. The concept of innovation will be
further investigated in terms of its influence, on industrialized environments.
Industrial innovation is conditioned by several specific factors, among which we can
list: clear business strategies; setting clearly formulated objectives; correct financing
within management programs that benefit the entire innovation activity; the existence
of a competent team, that can solve the problems that arise during the innovation
projects; the existence of a clear and correct procedure for evaluating the results and
the work of the people employed; the existence of a competitive climate inside the
company and outside of it, etc. Innovation deals primarily with the introduction of new
concepts and values. The present study, serves the tranzition from conceptualizing
competition and competitiveness, through competition indicators, to an easier
understanding of innovation, as a necessity for future industrial and commercial
development. Of course, the stages of a successful innovative-creative plan includes
calculations of competitiveness and market studies, all of which form the object of
the activity of some institutions dealing with the part of industrial research and
development. The part of economic calculations is summarized in this plan, to a set
of formulas and calculations of competitive indicators, which need to be drawn up
more for the study of innovation, than for the part of entrepreneurial competitiveness.
This is why a breakdown between the innovation part and the study part of the
competitiveness indicators, can be produced here. It is important to research in this
context also the fact that innovation management, as well as technological
management, approaches innovation from an organizational point of view.
Innovation in the organizational context, is aimed primarily at the renewal of products
and technologies, but also the application of organizational management norms.
Innovation management is defined as part of performance management. The
innovation rules must be formulated in accordance with the competition rules, hence
the need to study the competitiveness indicators in relation to the market and the
degree of industrialization. Also, in the future, it becomes imperative to regulate
innovation management, stressing that innovation and competition must be
controlled with the help of the state or some control and evaluation institutions.
Keywords: competition; innovation; invention; performance; creative value.
Classification JEL: O31; O32; O33; D41; D42.

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1.Introduction
The innovation has a character of permanent change, which aims to adapt variables,
determinants in order to achieve the success of competitive strategies. In order to
maintain control of these strategies, we must focus on three more important stages
during industrial evolution, namely: the period of flexibility, the intermediate period,
during which more and more products are used efficiently and the period of maturity
or prosperity, governed by the principles of leadership. Most innovation studies
consider that innovation should be viewed as a model for designing new products
and services. The problem is, however, that innovation in most industrial countries
is limited to incremental adjustments, both at the level of products and at the level of
production processes. In fact, the competitive analysis shows that companies are, of
no help to us, in understanding the concept of innovation. This phenomenon is
explained by the fact, that the study on the evolution of companies does not facilitate
innovation. Innovation is orienting us towards the future and through an inverse
temporal perception process we can discover the new saving idea. In other words,
any future is created through innovation, but the innovation process does not attach
too much importance to the present, but rather to a metamorphosis of the present
into a new present and a renewed future. Innovation must be viewed as a transition
from small scales to larger production scales, where different competition rules are
respected. Product performance is generated by new ideas that define the future
steps for innovation. Economic growth stimulated through innovation and
competition, can be measured both qualitatively and quantitatively. Stimulating
innovation depends on the degree of maturity of the units and the degree of
technological development. George Stigler teaches us about the stages of
development of the production process and how to make it responsible. Innovation
must meet the needs of technological and material processes. Organizational
strategies for products and control change with the standardization of products and
production. The common indicators measure the situations in which the economic
agents receive aid or financing, in order to obtain new and new products on the
market. This approach also includes researching innovation as a process, in cases
where this process contributes to the development of new products on the markets.
For this reason, it is necessary to identify the criteria for analyzing the performance
and competitiveness indicators and to present them at international and national
level. In order to investigate the competitiveness on branches in the urban and rural
areas of a country, it is necessary to use a series of indicators that are meant to
highlight the level of social and economic development. The analysis of the
competition indicators is made according to the typology of the competition or the
competitive strategies applied according to a norm for collecting the correct data and
information from the market. Competitiveness indicators try to measure strengths,
weaknesses, opportunities and threats, faced by entrepreneurs. In order to carry out
economic analyzes on the future economy, it is necessary to identify indicators for
measuring the degree of use of information and communication technologies (ICT),
on the market.The present text tries to define and explain, at great length, the

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concepts of innovation and creativity, referring to the calculation of competitiveness

indicators as well.
2. The concept of innovation.
Innovation is an activity that develops in order to obtain new (or significantly

improved) products (goods), launched on the market, this activity means the
introduction into the industry of new, improved processes. Industrial innovation is
defined as the transfer of new ideas or the adaptation of new concepts, until the final
stage of a product, process or service activity. We know four main types of
innovations: product innovation; process innovation; organizational innovation and
marketing innovation. The concept of innovation develops in parallel with the
development of the concept of innovative company.
J. Schumpeter treats innovation as a function of entrepreneurial action, which is
obtained through several "new combinations" of existing resources. Schumpeter
gives us this acceptance of innovation in his work ”The Theory of Economic
Development” (1934).
In the specialty literature, a distinction is made between the concept of innovation
and that of invention.
F. Malerba (1977) defines the invention as a new idea or scientific breakthrough, a
technological novelty, while the innovation is aimed at a marketable application of
an invention, this being due to the integration of the invention in the socio-economic
practice.
The Oslo Handbook (2005) defines innovation as an activity that results in new or
qualitatively improved products, goods and services, through processes that use
new methods of business management and marketing.
According to the Frascati Manual (OECD, 2002), technological innovations include
new or technologically significant products and processes and notably technological
innovation.
K. Pavitt (1987, p.9) notes about technological innovation: “most technologies are
complex and are formed by cumulative developments.
Law no. 324/2003 (Romanian Parliament), defines innovation as being oriented
towards the generation, assimilation and capitalization of results, research and
development from the economic and social sphere.
R. Vernon (1966) finds that industrial development is implemented through product
innovation, in the context of competitive markets.The innovative process together
with the technical progress constitute springs for overcoming the impediments
intervened at the product level, caused by the moral wear and tear.
For the success of the innovative approach, the entrepreneurs must have an
absorptive capacity, of recognition, assimilation and exploitation of the new
information, essential to the technological transfer and to be folded on the R&D
expenses. (Cohen, Levinthal 1990).
Innovation and competition can be investigated theoretically and empirically through
three levels of competitiveness: macroeconomic level, i.e. national competition;
microeconomic level, that is, the competitive process at the enterprise level and the
commercial level from the point of view of international trade statistics, etc.

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Competition has many forms and can be: relative, sustainable, prospective,
integrable and comparable, aggregate, dynamic, corrective and irreplaceable to no
other notion and so on.
3. Innovation and creativity
The concept of innovation is related to the concept of creativity

Creativity stimulates innovation and gives it new meanings.
The creative process must take place in a quiet educational environment based on
a good circulation of information. Creativity can be defined as a constitutive,
structural element of human activity, represented by inventive actions, not learned,
able to generate new experiences and knowledge. It can also be defined as a global
process of technological and commercial creativity, or as a transfer of new ideas or
new concepts, to the final stage of a product, process or service activity, accepted
on the market. It represents the ability to identify new and new links between
elements (goals, events, laws) and different laws. Innovation and creativity are thus
seen as a function of management.
The creative process has several stages: good circulation of information, knowledge
of the market and marketing, maintaining intelligent links with the scientific
community, accepting new ideas, performing efficient teamwork, motivating
employees and improving the training process. In the industry, innovation and
creativity are conditioned by a number of factors, including: the efficiency of
competitive strategies, the formulation of clear objectives, obtaining profitable
sources of financing, teamwork with performing teams, improving organizational
management and organizational procedures and stimulating the competitive climate.
4. The typology of innovation
Innovation is present everywhere, but new products and technologies are not fully
revealed. In everyday life, innovation is associated with technical progress. The
innovation processes have been extended to the society level, these being oriented
towards the introduction of new strategies, concepts, ideas and organizations that
address the social needs. Social innovation is the associated expression of a
change, which aims to increase the quality of life and solving social problems.
Innovation can take many forms: product innovation, process innovation, marketing
innovation, organizational innovation, incremental innovation, radical innovation,
closed innovation and opened innovation.
In order to be successful, innovation must integrate general entrepreneurial
strategies and successfully implement change management.
There are several types of innovative strategies: proactive strategies, characterized
by the character of radical innovation, which gives companies priority in the market
and competitive advantage; active strategies, which aim to efficiently capitalize on
existing technologies; reactive strategies, used as imitative strategies of strategies
formulated by the leading companies, which are, for example, pursuing the
implementation of new ways of communication with consumers, or of delivery and

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distribution of new products and passive strategies, wich are used by companies
expecting market changes.
Table1. Models of evaluation of innovation systems

Model Criteria Evaluation grid
Diamond Strategy, Processes, 1-7 levels
organization, links,
learning
Innovation Management Vision and strategy of 10 levels
Health Check innovation, resources,
organizational structure
Open Innovation, Climate for innovation 5 levels
Maturity Framework capacity of partnerships,
internal processes
Bain Innovation Strategy, organization, 4 levels
Assessment generation and
development of ideas
Source: Innovation management, Popescu (2016), webbut.unitbv.ro › Management
› Popescu_Management
The indicators of competition on global markets are divided into: macroeconomic

indicators (levels and trends); indicators from the sphere of international trade, they
express the degree of country integration in the circuits of the world economy and
evaluate the level of protectionism or openness of an economy,
the components of the current account (exports, imports, transfers), the components
of the capital account (foreign direct investment, portfolio and long-term loans);
demographic system and labor market indicators, which are oriented towards the
supply of human resources, qualifying the force of work and qualitative value
indicators(Pelinescu 2006, Anghelache 2017). The competitiveness indicators are
over 200 in number, of which, 95 are considered basic indicators (Annual
Competitiveness Report, 2001).
Many economic reports focus on twelve pillars of competitiveness.
5. Competitiveness at national level
Competition is a concept that encompasses notions from different environments, but

it has no clear, reliable representation and no unanimously accepted definition.
Competitiveness can be interpreted with great freedom, depending on factors
outside the entrepreneurial activities, but it also depends on factors related to the
intrinsic nature of the economic activity. Michael Porter supports the idea that
globalization, production and transactions need to be regulated so that every small
business can create its competitive advantage.
It defines three major stages of competitive development at national level: the stage
of development determined by the factors of production; the stage of development
determined by investments and the stage of development determined by the level of

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wealth. Among, the most important national economic factors of competitiveness

are: local resources; natural resources; labor force; infrastructure; technological and
financial resources; the size and structure of the internal demand; the technological
level; the efficiency of the subassembly and sub-suppliers industry; industrial
structure and competition. Local resources are also divided into: human resources;
physical resources; scientific resources; technology; financial and national
infrastructure etc. In Romania, most of the competitive structures are oligopolistic,
with the objective of conquering new markets for the following reasons: there are
conflicts and rivalries that require innovation to obtain the competitive advantage;
there are oligopolistic structures that create advantages for most industrial activities
through quality, prices and long-term services; the competitive environment is
created and recreated through competition with competitors from abroad. The action
of the government authorities is another external factor that determines the creation
of the competitive advantage of the company. The state can intervene to stimulate
competition and innovation through: subsidies; industrial policies; modeling of
internal demand through standards and regulations; purchase of advanced products
and technologies, such as: IT equipment, telecommunications, computer networks
and army tools, etc.
6. Measuring the international competitiveness of economies
The international competitiveness of the economies is measured by a series of

indicators that are grouped according to the following criteria: according to the time
horizon in: short-term indicators and long-term indicators and depending on the level
at which the competitiveness measurement is intended in: indicators
microeconomics and macroeconomic indicators. The most used indicators of
international competitiveness are
:- macroeconomic / short-term: total productivity of the production factors (TFP); real
GDP growth rate, real GDP / capital, real personal income; effective real exchange
rate; termsexchange and purchasing power parity; international trade, global export
quotas, market share analysis; capital market; real capital return, Tobin's Q ratio;
external balances, current account balance; foreign direct investment balance;
domestic balances; employment rate and inflation rate etc.
- macroeconomic / long-term: real long-term exchange rate; long-term interest rate;
long-term inflation rate; long-term standard of living; human development index (HDI)
- microeconomic short-term and long termn: productivity, prices and costs; unit costs
with intensive branch work, cost indices and relative prices; exports and related
market shares; comparative advantage revealed; foreign direct investment (FDI);
technology and innovation; sustainable growth profits, social capital and so on.
(Mitschke 2008). International competition is determined by a number of important
factors: the size of the international competitiveness of the countries; the
attractiveness of the business environment; the international competitiveness of the
resident companies; the behavior of the companies and the governmental action,
etc.

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7. Calculation of competitiveness indicators
This may be an important indicator of the reality of the competition, which is defined
in detail by the report prepared by the internal auditors. (Jula 2000, Krugman 1994,
Porter 1990).
RER=E*P/P,
E – represents the nominal exchange rate for the country's currency
P and P 'are the expression of the external and internal prices
When the market is competitive, trade is free, unrestricted by quotas and customs
duties, transport costs are low (they tend to 0), and domestic and foreign prices are
equal (Single Price Law).
Ecuation can become:
P=E*P
O r Rer= e+p-p
The nominal effective exchange rate NEER=∏i€Trade(Rxi/RX_Ro), at wi
Rx_Ro – nominal exchange of rate of Ron to $
Rxi – the nominal exchange rate of the country that refers to the 16 trading partners
of Romania against $
PPIRow_NC-∏(i=1 la n )(PPI) at wi
PPi-industrial production price index
PPiRow= PPIRow_NC/NEER,
REER= PPI/PPIRow,
PIB/P = PIB/E*E/PWa*PWa/P (1) where: P = total population, E = employed
population, PWa = working age population, PIB/P =income/capita, PIB/E =work
productivity, E/PWa =unemployed rate
PWa/P =age distribution of the population
PIB/P = PIBa/Ea*Ea/P/PIBa/PIB = PIBi/Ei*Ei/P/PIBi/PIB = PIBs/Es*Es/P/PIBs/PIB
PIB/P = PIBa/Ea*Ea/P + PIBi/Ei*Ei/P + PIBs/Es*Es/P (2) a = agriculture, i = industry,
s = services
The indicators of competition on global markets are divided into: macroeconomic

indicators (levels and trends); indicators from the sphere of international exchanges;
indicators of the demographic system and of the labor market, these being oriented
towards the supply of human resources, qualifying the force of work, qualitative value
indicators, quality level, degree of education, complexity of the system of individual
social values, preferences, motivations; indicators of the efficiency of government
policies (macroeconomic management). The competitiveness indicators are over
200 in number, of which 95 are considered as basic indicators (Annual
Competitiveness Report, 2001).
Michael Porter divides the modalities of evaluation of the economic competitiveness
and productivity in two important areas: sophisticated strategies and actions of the
companies and the quality of the business environment. Porter's competition model
is determined by five key elements: new potentials entering the sector, suppliers,
customers, substitute products and competitors in the sector. In Romania,

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competitiveness indicators need to be addressed at the national level through

specific indicators that can reveal different aspects under investigation (Pelinescu
2006, Mereuță, Chilian 2005, Vincze 2003);
Table 2. The twelve pillars of competitiveness

Competitiveness The efficiency of goods market
Higher education
Primary health and education
Macroeconomic situation
Infrastructure
Institutions
The size of market
Technical endowment
Innovation
Development of the financial market
Labor market efficiency
The sophistication of the business environment
Source: Methodology and computation of the global competitiveness, 2017-2018
www3.weforum.org › docs › GCR, 2017-2018
8. Conclusion
Innovation is an essential process for economic growth and for the survival of the
new companies. At organizational level, innovation is addressed to new products,
technologies, structures, management methods or business models.
The innovation process must be conceived in relation to the research-development
activities, being part of the trinome Research-Development-Innovation and
mathematical calculations of competitiveness.
The future of technology and information is generated by innovation and creativity
and it’s construction, will be possible, through in-depth studies and research on the
indicators of competitiveness.
Innovation management will become important for economic development, and the
managerial approach will have to contain several processes: management
processes, basic processes and support processes. In order to establish a
revolutionary innovation management, we must have a strong leadership base and
focus the management of the organization on: the computerization process; the data
collection process; the development of entrepreneurial processes and the
development of individual creativity. Entrepreneurs who will use innovative strategies
to carry out their own successful activities, will integrate new competitive and
innovative models, which take part of the innovation management system.
References:
1. Abernathy, W. J. & Utterback, J. M. (1978) Patterns of Industrial Innovation,
Cambridge, Massachussets

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2. Anghelache, C., Diaconu A., Nicola Z., Samson T., Stoica R., Stanciu E., (2017)
”Analysis of GDP evolution in real terms”, Romanian Statistic Review
3. Chilian, M. N., Iordan, M. (2011-2012) ”Impact of Key Macroeconomic Factors on
the Competitiveness of the Romanian Companies”, pp. 19., in volume Economics
of Sustainable Development. Economic Forecast: The Return of Growth, ISBN
978-606-652-029-4
4. Cohen, W.M., Levinthal, D.A., (1990) ”Absorptive Capacity: A new Perspective on
Learning and Innovation”, Administrative Science Quarterly, Pennsylvania
5. Govil, R. (2014) Exchange rate, concepts, measurements and assessment of
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THE EU COMPETITION POLICY – A BRIEF HISTORY IN BETWEEN NEO-

FUNCTIONALISM, INTERGOVERNAMENTALISM AND MULTI-LEVEL
GOVERNANCE
PETRARIU Ioan-Radu
Faculty of International Business and Economics, The Bucharest University of
radu.petrariu@afer.ase.ro
Abstract: The competition policy represents one of the most important pillars of
cooperation between EU Member States, it influenced the design of the European
Single Market and it facilitates integration. Even though it shapes the distribution of
capital and the investments all over the EU space, the policy is not well-known and
even less understood, as it has been built through a complex process, the aim of this
paper being to analyse its sinusoidal evolution. In order to better follow its goals, the
present article is trying to frame each step of the evolution in one of the following
theories of economic integration: neo-functionalism, intergovernmentalism or multi-
level governance.
Keywords: European Union; Competition Policy; Integration Theories; Neo-
functionalism; Intergovernmentalism; Multi-Level Governance; Single Market.
JEL Classification: B27; B55; F13; J58; L44.
1. About competition policy
Competition policy has become a prominent issue in the last decades. The concept
of a competition policy is the starting point of the entire European Union. It lies of
efforts to create a common market and it is the result of strong cooperation between
stakeholders (McGowan L., Wilks S., 1995). Competition policy is also one of the
least understood of all the European policies. It requires a multidisciplinary
perspective to understand how this complicated European-level policy works. (Cini
M., McGowan L., 1998).
In 1957, in the building process of the European Economic Community, the
competition policy turned out to be one of the most important pillars of ”a system
ensuring that competition in the common market is not distorted” (The Treaty of
Rome, 1957).
Nowadays, the policy is designed to assure monitoring businesses’ agreements by
the authorities, misuse of market dominant position, mergers, procurements and
state aids. Besides this, the Commission is entitled to monitor cooperation between
Member States in order to ensure unified implementation of European law regarding
competition.
We can have a better understanding of competition policy by correlating its every
stage with the European integration theories. The integrationist phenomenon has a
dynamic nature and it gets economic forms (free trade area, custom union, common
market, economic and monetary union) as well as social and political forms

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(governmental structures, authorities, transfer of competences, sovereignty). In

order to have a better representation, we will approach theories as
intergovernmentalism, neo-functionalism and multi-level governance.
2. European integration theories
2.1. Neo-functionalism
Ernst B. Haas (American political scientist, professor at Columbia University) has
created in 1958 the concept named neo-functionalism, which explains how
integration from a small sector can turn into an impulse to a deeper integration,
inevitable in other sectors through the spillover effect. Once started, the integration
process becomes a single-way road, despite all the barriers that occur.
The author analyses and resumes the principles used by Jean Monnet regarding
European integration, proving the strategic feature of the theory, as a modus
operandi for EU.
Haas uses the European experience a case study for extracting working
assumptions. Building on the Treaty of Paris (1951) to the Treaty of Rome (1957)
he demonstrates how the establishment of European Coal and Steel Community
(ECSC) and its institutions generated a close cooperation in those economic sectors
and changed the trust, loyalty and expectations from national level to a
supranational one. There is a positive feedback regarding the solutions generated
by the supranational entity, meant to allocate more resources and change policies.
This lead to two new Communities, following the idea that the initial integrative goals
can be fully achieved only if the supranational decision-making capacity extends to
new areas: The European Economic Community which initiates the custom union
and European Atomic Energy Community (Euratom).
As Alec Stone Sweet (2012) highlights, even the dream of the founding parents
(Jean Monnet, Robert Schumab, Altiero Spinelli) was to create a structure like the
United States of Europe, in 1957 the member states decided to establish an
international organization with a well-defined purpose and authority and six
members.
2.2. Intergovernmentalism
The main feature of intergovernmentalism is that it assigns to the states, more
specific to national governments and policy-makers the main role in the integration
process. The theoretician of this model, Stanley Hoffman (1966), pointed out that
even though the European states were interested in cooperating more in the”low
politics” fields (such as agriculture and commerce), they still act like independent
entities (sovereign national states) with individual interests. The intergovernmentalist
model, then the liberal intergovernmentalist, as Andrew Moravcsik (1993, 2005)
developed it, states that at the beginning, the main goal of the European Community
was to avoid, by all means, another war. It combines three elements: liberal theory
of forming national preferences, interstates negotiations and states rational
behaviour hypothesis.
The General Charles de Gaulle claimed as a priority the realization of a political
European union, which can offer the context of a bigger economic integration (not

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expansion). Convinced by the fact that structural institutional approach in the

economic field should not influence the political cooperation, in September 1960 he
proposed, as the president of France, a intergovernmentalist plan of reorganizing
Europe and its internal and external economic policies. Based on this, the Fouchet
plan has been later built.
In 1966, the European Community was about to come at its third phase of
development, when the qualified majority vote was about to become the decision-
making method in the Council of Ministers. Charles de Gaulle decides in July 1965
to boycott these meetings and to create the “empty chair” crisis, which peaked with
the “Luxemburg compromise”.
According to Teasdale (2015), the Gaullist intergovernmental concerns came back
on the European agenda in the mid ‘80s, when the neo-functional communitarian
method proves to be inefficient in sensitive fields such as External Politics and
Common Security (Common Foreign and Security Policy/CFSP) or Justice and
Internal Affairs. Back then, the intergovernmental solutions through the Maastricht
Treaty (1992) have been established.
Once the Single European Act and the Maastricht Treaty have been released,
Andrew Moravcsik refines the theoretic frame, adapting to the context of the ‘90s
Thus, the liberal intergovernmentalism concept appeared and it emphasizes
domestic interest (rather than national). The most powerful interest groups determine
the decisions on national policies established by the government; the government
participates on the European intergovernmental meetings where they are further
representing the interests and negotiates for convenient European policies. In order
to assure the enforcement of the new policies, the governments transfer part of the
prerogatives to supranational institutions.
2.3. Multi-level Governance

Gary Marks, Liesbet Hooghe and Kermit Blank (1996, 2001a, 2001b) notice that the
Maastricht Treaty is the expression of a new phenomenon. National states disperse
their authority at other higher decision-making levels (European Commission,
European Parliament, European Court of Justice), inferior (regional/local
authorities) or laterally (public or private networks).
This new framework acknowledges the important role played by national
governments, but suggests the evolution to a decision-making process which is not
necessary attributed to a specific level (national or European). The real integration
is achieved at intergovernamental level in the European Council or Council of
Ministers by unanimity or by qualified majority voting.
In addition, the national governments have a reduced influence on European
institutions. As Trinski (2004) notices, the loss of the governments control is
generated by the increasing number of member states, widening supranational
competence and creating new working groups.

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3. The reform process
Since its launch, the competition policy has seen various stages of reform that have
succeeded or, on the contrary, resulted in failures, with the key evolutionary
moments being presented in the following.
As Warlouzet (2010) proves, the status-quo from the inter-war era meant economic
barriers in trade with coal, concentration of coal/steel-producing undertakings,
cartels and price differences between Germany and France.
The willing to change this context, to make the economy more efficient and also to
avoid another war generated a common competition policy and the European Coal
and Steel Community (ECSC).
With the Treaty of Rome (1957), the competition policy took a neo-functionalist turn.
Until this point it had limits and it was not one of the priorities for the EU agenda (as
common market, agriculture, etc.) mostly because its poor implementation.
In 1962, the Council adopted, on a proposal from the Commission, Regulation No.
17/1962, a paper with 24 articles which elaborates, on the German legislative
model, the first sectoral policy which is authentically supranational (Drăgan, 2005).
This step has reduced the role of the national states as the Commission manages
the application of the policy. Warlouzet (2010) believes that the Directorate General
for Competition (DG IV) made a mistake by centralizing information through
notifications (even though they were a few). However, the regulation regarding the
notifications was ambiguous.
Under pressure from the French Government, it has been adopted another neo-
functionalist document. The Regulation No. 153/1962 simplified the procedure but
it did not solve the problem: the system has been crowded with notifications and the
DG IV stopped working.
The first stage of evolution ended in 1968, with custom union and the common
custom tariff in the relation with third countries. As Gabriela Drăgan (2005)
mentions, the period was defined by actions meant to inhibit agreements between
businesses and cartels. The policy did not give adequate priority to monopoly and
the regulation of state aid. The aid has been seen as a way of economic adjustment,
combating unemployment and supporting declining sectors, while it could be also
misused into unfair competition.
Two key moments are in 1971, when the German company of copyright
management (GEMA) is blamed of power dominant abuse for refusing the admission
of nationals from other member states and also when in the Deutsche Grammophon
case the Court of Justice confirms the importance of parallel imports and sets up the
principle of rights exhaustion.
This context created a favourable perspective over DG IV priorities, as it started the
fight against dominant position abuse for eradicating the competition. In ‘70s it has
been approached another subject: the control system for the fusions using as a base
the Article 86 of the Treaty of Rome, regarding the establishment of the European
Economic Community (EEC). Also, it has been clarified the fact that the dominant
position is not illegal by its simple presence, but when it is overly used. It is an abuse
of dominant position when the competitor consolidates this position as other are able

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to still exist on the market only in reliance with the first. The specific regulation has
been approved in 1989.
Between 1974-1989, the neo-functionalists’ results are being preserved but because
of the preferences for intergovernmentalism, the policies are not developed and the
there is no use of instruments at the disposal of the Commission, according to its
intentions. Even though the oil crisis in 1973 seemed to sustain the evolution of the
policies regarding competition, the member states could not find a common
perspective and the European Council was preoccupied with the compatibility of the
fusions’ regulation with the other EU policies (especially with the industrial policy -
regarding the protection of the European companies and assuring the external
competitiveness).
The Single European Act from 1986 did not change or add nothing new to the
existing rules regarding competition, but it clearly states the institutional reforming
and the temporal dimension for the realization of the Single Market, with strong
associate objectives connected to competition, which enhanced the policy as a
priority instrument in increasing the integration. The Commission shifted its interest
to economic fusions, and as an element of novelty, over state aides and
liberalisation of the economic sectors of state supported activities (Drăgan, 2005).
After long debates, the Community made a new neo-functionalist step, through
adopting the Council Regulation no. 4064 / 21 December 1989, regarding the
control of economic concentrations between companies (fusions and acquisitions),
meaning fusions of companies or takeover the control exclusively over a company
(including a brand new formed one).
Through Commission Regulation no. 477 / 1 March 1998, more rigid norms come
out in regard to the notification transmission, their form, deadlines, the possibility to
interfere or make observations to states members and third parties, and also the
confidentiality of the information.
After three Commission’s decisions forbidding concentrations have been cancelled
by the Court, the evolution of the policies was interrupted in 2002. Thus, in order to
improve the quality and objectivity of the decisions taken by the Commission, there
has been established a team of in-depth economic analyze (put together by
economists) coordinated by a chief economist (new formed function).
The 1989 Regulation will know a significant modification through the European
Council no. 139/ 20 January 2004 regarding the control over economic
concentrations between associations and Commission Regulation no. 802/ 21 April
2004 of applying the European Council no. 139/ 20 January 2004 regarding the
control over economic concentrations between enterprises, documents which open
the road to multi-level governance. National authorities in the competition field are
allowed to apply the European interdictions and exceptions, right reserved up until
then to the Commission, which relieved from a great volume of cases, will
concentrate only over the communitarian ones who are the closest ones to the legal
frame. Community legislation in the field of competitiveness prevails the national
one. Before taking a decision, the national authorities must consult the Commission.
In the case of vertical accords which can restrain the competition, after the Council
Regulation no. 19 / 1965, presented before through the Commission Regulation no.
330 / 20 April 2010 (known as the category exception Regulation) shows the term of

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“vertical restrictions” (competition restrictions over the buyer or seller) and offers the
possibility of exception from applying the article 101 (1) from the Treaty regarding
the functioning of the European Union for vertical accord, which satisfies certain
requirements. In the case of unapplied Regulation 330 / 2010, the Commission
applies general norms of evaluation the vertical restrictions, analysing through
comparison the real situation or a possible one in the future, in case of an existing
restriction with the situation in which the restriction would not have been existed.
After the Council Regulation no. 2821 / 1971, the situation of horizontal cooperation
accords comes back into Commission’s attention in 2004. Commission’s Regulation
no. 772 / 7 April 2004 states the exception from applying article 81 (1) for those
technology transfer accords settled between two organisations, which authorise
forging the contractual products, until the intellectual property right over the
technology license does not expire, does not become lapsed and/or declared null,
and in the case of know-how, while this remains a secret( excepting when the know-
how is made public after an action over the licensed, exception is made during the
accord).
The European Parliament and Council through their directive no. 104 / 26 November
2014 adopted norms that allow companies who are victims of the antitrust cartel
behaviour to ask for integral compensation as a result of some damage or earnings
unrealised, which can generate an increase in efficiency over the clemency program
and rising the requests from the cartels, based on this.
After the tariffs setbacks in the way of realizing a single market have been removed
(1 July 1968), the compatibility of state aids with common market attract in somehow
the attention of the Commission. The goals of the policy were mainly focused on
removing any distortions of the competition, but they also approached European
competitiveness and social cohesion. National views and misunderstandings
between states regarding this topic have powered the intergovernamentalism, the
Council not being receptive to Commission proposals.
Chronological speaking, before establishing more clear rules regarding the state
aids, the Council proved first to be interested of the exceptions from applying the
art. 92 (2) from the Treaty of Rome, the clarification of the content of article 92
regarding the situation when some state aids are considered compatible with the
common market. Article 92 (2) established clearly the compatibility of state aides
with social features designed to individual consumer (just the ones who do not
discriminate by the origin of the products) and the ones necessary after of natural
calamity or remarkable events
The Commission has been practically invited through their own regulations to except
from the obligation of notifying (in certain limits regarding the purpose, the recipient)
and declare compatible with the market the giving state aids:
 aids destined to train employees;
 aids towards SME’s;
 aids for environmental protection;
 aids designed to promote the workforce;
 aids for research development;
 regional aids.

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Additional to aids given in the framework of a scheme and ad-hoc can also exist the
minimis aids disposed to SME’s. Those are viewed as an aid for functioning and
developing the market, being exception from notification those aids received by an
organisation cumulatively, over a determined period, which do not exceed the
minimum quantum.
The Council Regulation no. 169 from 1999 is exclusively neo-functionalist and it
states the important role of the Commission, any project of granting a state aid must
be notified by the member states to the Commission (including the existing aid
schemes), and it would have to declare their response in maximum two months
regarding the application, through a decision.
In the case in which a state offered an illegal aid or the state aid is overly accessed,
the initial competition context must be re-established and the state can become the
subject of a decision in offering information, suspension or recovery.
As there have been allocated important resources to financial aids in order to
streamline these expenses, but also to create a better connexion between the
Cohesion policy and the Competition one, the Commission launched an initiative of
modernising the state aids system (State Aid Modernisation – SAM). The new
general principles in regard to the state aids became: obtaining the growing under
the conditions of some constraints over the public budget, concentration on the
cases with the largest potential of altering the competition and simplifying the
procedures and rules for accomplishing a more efficient control.
4. Conclusions
The Competition Policy has undergone a sinusoidal evolution, the present article
trying to frame the stage progress in one of the following theories of economic
integration: neo-functionalism, intergovernmentalism or multi-level governance.
European Union can respond to the global environment challenges, variance of the
states and reference parameters of different markets, with a policy in the field of
competition designed to made possible an environment in which the competition
between economic agents is loyal, resources are allocated as efficient as possible,
investments are stimulated and thus the economic growth is sustained and the
interventions of the legislator are planned given this purpose.
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Series, London
2. Drăgan, G. (2005). Uniunea Europeană între federalism şi
interguvernamentalism. Politici comune ale UE, Editura ASE.
3. Hoffmann, S. (1966). ”Obstinate or obsolete? The fate of the nation-state and the
case of Western Europe”, Daedalus, Vol. 95, No. 3, pp. 862-915.
4. Hooghe, L. and Marks, G. (2001a). Multi-level governance and European
integration, Rowman & Littlefield Publishers, Lanham, Maryland (SUA).
5. Hooghe, L. and Marks, G. (2001b). ”Types of Multi-Level Governance”,[online],
European Integration online Papers (EIoP), http://eiop.or.at/eiop/pdf/2001-011.pdf

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6. Marks, G., Hooghe, L. and Blank, K. (1996). ”European Integration from the
1980s: State-Centric v. Multi-level Governance”. Journal of Common Market
Studies, Vol. 34, No. 3, pp. 341 - 378.
7. McGowan L. and Wilks S. (1995) ”The first supranational policy in the European
Union: Competition policy”, European Journal of Political Research, Vol. 28, Issue
2, pp. 141-169
8. Moravcsik, A. (1993). ”Preferences and Power in the European Community: A
Liberal Intergovernmentalist Approach”, Journal of Common Market Studies,Vol.
31, No. 4, pp. 473 - 524.
9. Moravcsik, A. (2005) ”The European Constitutional Compromise and the
neofunctionalism legacy”, Journal of European Public Policy, Vol.12, No. 2, pp. 349-
386.
10. Sweet, A. (2012). ”Neofunctionalism and Supranational Governance”
(unabridged version),. Faculty Scholarship Series, Paper 4628
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for Europe”, London School of Economics & Political Science (LSE) - European
Institute, No.117.
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Cross-Disciplinary Survey of a Contested Policy”, Institute Working Paper Robert
Schuman Centre for Advanced Studies , European University Press.

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THE NEXUS BETWEEN MIGRATION, INNOVATION AND ECONOMIC

DEVELOPMENT IN EU-28
SINOI Elena-Alexandra
Doctoral School of Economics and Business Administration, West University of
Timisoara, Timisoara, Romania
elena_sinoi@yahoo.com
Abstract: In an increasingly interconnected world, international migration became a
topic of great interest from economic, social, cultural and political point of view, with
complex effects on both origin and destination country. The international labour force
mobility generates both opportunities and challenges that any nation should take into
consideration, in order to obtain maximum of benefits, as well as mitigating the
negative effects that can arise from the migration movements. Therefore, migration
is a process that needs to be managed and not a problem that needs to be solved.
Highly qualified immigrants boost innovation output, their cultural diversity may
produce positive spill-overs, especially in host countries and represent an important
channel for transferring technology from destination countries back to origin
countries. This research investigates the extent to which immigration along with
financial support in R&D and investments in higher education influence innovation
and eventually, economic development, for 104 NUTS 1 macro-regions in the EU,
over the period 2003 to 2012. The study is based on the development of econometric
models on panel data, using a set of indicators specific to the process of immigration,
innovation and economic development. The research uses classical models with
fixed effects (non-spatial models), measures the global and local spatial
autocorrelation of the data set and at last spatial autocorrelation models are
generated. The econometric estimations of the international migration impact on
intellectual assets (measured by the number of patents) highlight a positive nexus,
strengthened when taking into account different factorial combinations related to the
economic dimension, such as: financial support in research and development
(especially in the business sector and in the whole sector), investment in tertiary
education, personnel employed in knowledge intensive sectors, as well as the share
of scientists and engineers in population. In order to boost knowledge creation and
per capita GDP, EU should not only attract scientists and engineers migrants, but
also provide further financial support in research and development.
Keywords: international migration; innovation; economic development; EU-28.
JEL Classification: F22; O31; O11.
1. Introduction
In the current framework of globalization era, migration represents a topic of great

interest from economic, social, cultural and political point of view, requiring in-depth
and continuously research at regional, national and global level. Migration is not a
new phenomenon it has existed since ancient times, undergoing various changes

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and taking different forms. International labour mobility influences the innovation and
the development of an economy, generating both opportunities and challenges that
any nation should take into consideration, in order to obtain maximum of benefits, as
well as mitigating the negative effects that can arise from the migration movements.
In the new age dominated by mass migration, with plenty of highly qualified
individuals, the migration-innovation nexus has become a topical issue in several
related disciplines and fields (Lissoni, 2016). Over the years, lots of researchers
studied and gauged the impact of migration movements on innovation output, both
in origin and destination country. In today's increasingly interconnected world,
modern transport offers the opportunity for people to move faster, quicker and
cheaper to different parts of the world, in search for work places, opportunities,
higher education and a better quality of life. Also, wars, poverty and hard conditions
of living force people to abandon their homes, their countries, seeking abroad a
better future. When international migration is sustained by appropriate policies, it can
lead to inclusive and sustainable economic growth and development, both in origin
and host countries (United Nations, 2017).
2.1. Effects on destination countries

In an empirical research, Niebuhr (2010) highlights that the diversity of knowledge
and capabilities of labour force from different cultural backgrounds boost regional
innovation (generate new ideas, processes and products). The downsides of
diversity, such as costs caused, for instance, by communication barriers are
outweighed by the benefits induced in regional R&D sectors.
In a similar way, Bove and Elia (2017) emphasise that cultural heterogeneity have a
more consistent impact on GDP per capita in developing countries, in comparison
with the developed ones.
Ozgen, Nijkamp & Poot (2011) found that the diversity of migrants intensify
knowledge formation, spill-overs, improves entrepreneurship and leads to economic
growth. Although an increasing share of foreigners in the population of a region does
not guarantee a higher level of innovativeness, immigrants from different cultural
backgrounds and with higher education record a larger number of patent
applications.
Ferrucci and Lissoni (2019) reveal that more diverse teams spur creativity and
produce patents of higher quality. Their research also suggests that mixed local-
foreign inventors teams with different nationalities always outperform both local ones
and same-nation foreign teams.
Hunt and Gauthier-Loiselle (2009) gauge the impact of highly qualified immigrants
on patenting per capita. A college graduate immigrant contributes at least twice as
much to patenting, in comparison with a native counterpart. Also, some immigrants
may indirectly enhance innovation by providing complementary skills and knowledge
to native workers (e.g. positive spill-overs on fellow researchers).
In U.S. skilled immigration may support rising aggregate real incomes in the long run
and have a significant and positive influence on patenting, but smaller in comparison

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to foreign graduate students. Also, the skills of foreign workers could be

complementary to natives (Chellaraj, Maskus, and Mattoo, 2008).
In European recipient countries, highly-skilled foreigners contribute to knowledge
creation, measured by the number of patents and by the number of citations to
published articles (Bosetti, Cattaneo and Verdolini, 2015).
Fassio, Montobbio and Venturini (2019) emphasises the positive impact of skilled
migration on innovation, in 16 European industries. The intensity is stronger in
industries with low levels of over-education, high levels of FDIs and openness to
trade and also, in industries with ethnic diversity. The diversity of skilled immigrants
(at firm level) provides complementary skills to natives and boosts the knowledge
spill-overs, and thus enhances innovation.
When it comes to regional competitiveness, especially on innovation,
entrepreneurship and productivity, Poot (2007) agrees that immigration and
population ageing have a substantial impact. Empirical evidence emphasises that
population ageing reduces regional competitiveness, in contrast to highly skilled
immigration, which foster innovation. Immigrants may be more creative, generate
new ideas, set up new businesses and may be less risk averse in comparison to
indigenous peers. Due to the fact that migrants are younger, on average, they adjust
easily to economic changes. On the other hand, diversity can create a less cohesive
society, which may mitigate trustworthiness and competitiveness.
2.2. Effects on origin countries

If for host countries the immigration of highly-skilled labour force represent ”brain
gain”, for the origin countries the emigration of high-skilled individuals represents a
loss of the most talented workers. However, it cannot be denied that migrants are an
important channel for transferring technology from destination countries back to
origin countries. This can be through knowledge they impart directly, the significant
remittances they send home (financial support) and investments they make in origin
countries, like setting up new enterprises (Gelb and Krishnan, 2018).
Also, the knowledge acquired abroad by immigrants can be transferred back to the
origin country and be exploited under sound Intellectual Property Rights institutions
and thus domestic innovation can be enhanced (Naghavi and Strozzi, 2015).
3.1. Objectives and research stages

The general purpose of the research is to evaluate the relationship between
migration, innovation and regional economic development for 104 macro regions
(NUTS 1 level) in the EU-28, between 2003 and 2012. The study focuses on how
immigration along with financial support in R&D and investments in education
influence the innovation output in different regions of a country. The study is based
on the development of econometric models on panel data, using a set of indicators
specific to the process of immigration, innovation and economic development.
In the first place, the research uses classical models with fixed effects (non-spatial
models), with the dependent variable = the number of patents. The next step is to
measures the global and local spatial autocorrelation of the data set, by applying

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Moran’s I Index and Geary’s C Index. If the spatial dependence is validated, the last
step is to generate models that include spatial elements, with the dependent variable
(innovation) and different combinations of the independent variables.
The set of indicators emphasize the economic dimension, investment in human and
fix capital, demographic dimension, investment in R&D, labour market dimension,
innovation output and migration stocks for the 104 EU macro-regions.
The data source is represented by Eurostat - European Commission and OECD
Statistics - Organization for Economic Co-operation and Development and data
processing is computed using STATA 14 econometric package.
3.2. Regression model, endogenous and exogenous variables

For a more accurate estimation of the parameters, the general form of the regression
model specification uses the natural logarithm of the variables. It takes the form of a
double-logarithmic model and has the following general form:
ln(Nr_patents) = β0 + β1*ln(GDP_cap) + β2*ln(Edu_tert) + β3*ln(Edu_sec) +
β4*ln(Pop_dens) + β5*ln(GERD) + β6*ln(Empl_tech) + β7*ln(Immigr) + ε
The endogenous variable is the number of patents and the exogenous variables are
GDP per capita (pps), tertiary and secondary education (%), population density
(inhabitant/km2), intramural R&D expenditure in total sectors (%GDP), employment
in technology and knowledge intensive sectors (%) and immigration (stock).
3.3. Descriptive statistics and the correlation matrix

Descriptive statistics in table 1 is a summary statistics of some of the indicators used
to evaluate the immigration-innovation nexus. It presents the average value, the
standard deviation, the minimum and maximum value of variables analysed.
Table 1: Descriptive statistics, 2003-2012

Variable | Mean Std. Dev. Min Max
-------------+----------------------------------------------------
patents_epo | 529.0979 971.9792 0.1 6334.67
inov_intens | 92.84096 108.0418 0.18 589.89
immigr | 35985.25 36533.92 190.45 346422.3
gdp_eur_inhab| 23727.05 12281.66 1900 63100
gdp_pps_inhab| 23697.19 10224.38 3385.4 69300
gfkf | 21.72029 5.686458 2.39 50.94
edu_tert | 24.57353 7.982733 6.1 52.7
edu_sec | 47.01163 15.03995 6.9 76.9
pop_dens | 378.7491 903.8705 5.9 7194.2
gerd_gdp | 1.441606 0.9464839 0.11 4.96
berd_gdp | 0.9170288 0.8362437 0.01 4.36
empl | 64.10067 7.129177 43.2 82.5
unempl | 9.185769 4.785592 2.9 33.3
rd_pers_tot | 33800.75 30304.64 32 175429
Source: personal processing in STATA 14
Among the 104 macro-regions are major developmental differences. Therefore, the
maximum value of the number of patents is registered in a region from Germany
(6334.67) and the minimum value in Malta (0.1). The average value of the number

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of patents is 529.0979 and the standard deviation is 971.9792. In terms of

immigration stocks, the maximum value of the number of immigrants is registered in
a region from UK (346422.3) and the minimum value in Malta (190.45). GDP per
capita measured in euros has a maximum value of 63100 in Luxemburg and a
minimum value of 1900 in a region from Bulgaria, with an average value of 23727.05
and a standard deviation of 12281.66.
Table 2 presents the correlation matrix, respectively the correlation coefficients
between the set of variables took into account. Each variable is correlated with all
other variables in the table. This type of matrix uses Pearson’s Correlation (r) and
examines the strength and the direction of the linear relationship between two
continuous variables.
Table 2: The correlation matrix

| gdp_eur gdp_pps gfkf edu_tert edu_sec pop_dens gerd berd empl unempl rd_pers innov_int patents immigr
-------------+-------------------------------------------------------------------------------------------------------------------------------
gdp_eur_loc | 1.0000
|
gdp_pps_loc | 0.7823* 1.0000
| 0.0000
gfkf | -0.0838* -0.0199 1.0000
| 0.0068 0.5218
edu_tert | 0.5486* 0.5206* -0.0910* 1.0000
| 0.0000 0.0000 0.0033
edu_sec | -0.2401* -0.2736* -0.1993* -0.1914* 1.0000
| 0.0000 0.0000 0.0000 0.0000
pop_dens | 0.4614* 0.4792* -0.2070* 0.3446* -0.1680* 1.0000
| 0.0000 0.0000 0.0000 0.0000 0.0000
gerd_gdp | 0.4604* 0.4999* -0.0561 0.4657* 0.0786* 0.0955* 1.0000
| 0.0000 0.0000 0.0706 0.0000 0.0112 0.0020
berd_gdp | 0.3952* 0.4229* -0.0394 0.3428* 0.0295 -0.0095 0.8834* 1.0000
| 0.0000 0.0000 0.2041 0.0000 0.3424 0.7595 0.0000
empl | 0.4350* 0.4831* 0.0924* 0.4303* 0.0664* -0.0385 0.5303* 0.4673* 1.0000
| 0.0000 0.0000 0.0028 0.0000 0.0323 0.2151 0.0000 0.0000
unempl | -0.2144* -0.2837* -0.1507* 0.0254 -0.0396 0.1080* -0.2434* -0.2977* -0.6631* 1.0000
| 0.0000 0.0000 0.0000 0.4141 0.2015 0.0005 0.0000 0.0000 0.0000
rd_pers_tot | 0.4188* 0.3794* -0.0981* 0.2812* -0.0839* 0.0711* 0.5704* 0.5278* 0.3454* -0.1973* 1.0000
| 0.0000 0.0000 0.0015 0.0000 0.0068 0.0219 0.0000 0.0000 0.0000 0.0000
innov_int | 0.4997* 0.5539* -0.0731* 0.2967* 0.1120* 0.1015* 0.7677* 0.7140* 0.5434* -0.3311* 0.5518* 1.0000
| 0.0000 0.0000 0.0184 0.0000 0.0003 0.0011 0.0000 0.0000 0.0000 0.0000 0.0000
patents_epo | 0.3738* 0.3608* -0.0701* 0.1658* 0.0652* 0.0213 0.5755* 0.5491* 0.3587* -0.2542* 0.7913* 0.7960* 1.0000
| 0.0000 0.0000 0.0238 0.0000 0.0355 0.4929 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
immigr | 0.2430* 0.2560* 0.0939* 0.1529* -0.2390* 0.0154 0.2386* 0.2318* 0.1861* -0.1592* 0.6613* 0.2301* 0.4517* 1.0000
| 0.0000 0.0000 0.0024 0.0000 0.0000 0.6201 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
The value of the correlation coefficient can range between -1 and +1. A value of 1
indicates a perfect linear relationship between the variables, while a value of 0 shows
no (linear) correlation. A value of the correlation coefficient between 0.6 and 0.8
indicates a strong linear relationship, a value between 0.4 and 0.6 shows a moderate
correlation, while values between 0.2 and 0.4 highlight a weak relationship between
the variables. The sign of the correlation coefficient (- or +) points out the direction
of the relationship. If the sign of the coefficient is positive, then both variables
increase or decrease together. If the sign of the coefficient is negative, then one
variable increases and the other one decreases.
Therefore, the innovation intensity = (nr. of patents/population of the region)* 1
million, records a strong proportional linear correlation with expenditure on R&D
(GERD and BERD), a moderate positive correlation with GDP per capita,
employment and total R&D personnel and researchers, and a weak positive
correlation with tertiary education and the number of immigrants. Between innovation
intensity and unemployment exist a weak inverse proportional relationship. The
variable number of patents has a strong proportional relationship with total R&D
personnel and researchers, a moderate positive correlation with GDP per capita,

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expenditure on R&D and the number of immigrants, and a weak proportional

relationship with tertiary education and employment. It can be observed a moderate
positive linear relationship between GDP per capita (Euro and PPS) and the
expenditure on R&D, tertiary education, employment, population density, innovation
intensity and total R&D personnel and researchers. An expected inverse proportional
relationship between unemployment rate and GDP per capita is highlighted.
4.1. Non spatial models with fixed effects

In order to identify which model is better, with fixed effects or with random effects, it
is used Hausman Test. After computing, it generated a Prob>chi2 = 0.0000 which
results that the optimal model is the one with fixed effects. Therefore, 8 non spatial
models with the endogenous variable = innovation output were generated (4 models
with the number of patents and 4 models with innovation intensity).
Table 3: Non spatial fixed effects models (dependent variable = innovation output)
------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6) (7) (8)
Patents Patents Patents Patents Innov_int Innov_int Innov_int Innov_int
------------------------------------------------------------------------------------------------------------------
gdp_eur_cap 0.331*** 0.330*** 0.314*** 0.345*** 0.318*** 0.343*** 0.341*** 0.315***
(6.05) (6.14) (5.87) (6.39) (5.65) (6.26) (6.40) (5.83)
edu_tert 0.394*** 0.430*** 0.512*** 0.505*** 0.501*** 0.862*** 0.341** 0.415**
(3.63) (3.34) (3.91) (4.28) (4.29) (3.51) (2.70) (3.16)
educ_sec 0.00802* 0.00763* 0.00751* 0.00695*
(2.35) (2.43) (2.06) (2.10)
pop_dens 1.022 2.171* 2.051*
(1.01) (2.14) (2.06)
gerd_%gdp 0.643*** 0.778*** 0.895*** 0.618***
(6.57) (7.60) (8.60) (6.78)
berd_%gdp 0.237*** 0.241*** 0.182*** 0.192***
(5.51) (5.62) (4.42) (4.60)
herd_%gdp 0.0698 0.00876
(1.81) (0.24)
empl_tech 0.355*** 0.312***
(4.72) (5.27)
hrst 0.742**
(3.12)
rd_pers_buss 0.115**
(2.93)
rd_pers_edu 0.365*** 0.333*** 0.314***
(4.60) (3.92) (3.95)
rd_pers_tot 0.677*** 0.736***
(5.42) (5.93)
immigr 0.127*** 0.0974*** 0.0736** 0.104*** 0.132*** 0.137*** 0.0665* 0.0804**
(4.81) (3.73) (2.76) (3.97) (4.95) (5.21) (2.47) (3.04)
_cons 3.400 3.520*** 11.19*** 2.899** 11.27*** -1.347* 6.489*** 12.26***
(1.88) (3.94) (4.25) (3.29) (4.12) (-2.17) (5.18) (4.77)
------------------------------------------------------------------------------------------------------------------
N 1040 1040 1040 1040 1040 1040 1040 1040
------------------------------------------------------------------------------------------------------------------
t statistics in parentheses
* p<0.05, ** p<0.01, *** p<0.001
Interpretation for model no. 4: The results show that a 1% increase in GDP per capita
would generate a 0.345% increase in the number of patents. Also, when R&D
expenditures in the business sector increase by 1%, the number of patents increases
by 0.241%. A 1% increase in people with tertiary education may result in an increase
of the number of patents by 0.505%. When the number of educated immigrants
increases by 1%, the number of patents increases by 0.104%. N represents the
number of observations (1040).

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To conclude, in all models innovation from a region is positively influenced by the

economic conditions, by the financial support on R&D, by the people employed in
technology and knowledge intensive sectors and by the R&D personnel. Investment
in human capital is a determining factor in the development of a region, as well as
highly qualified immigrants, which contribute positively to innovation performances.
4.2. Identification of spatial autocorrelation (Moran's I and Geary’s C Index)

In order to test the presence of spatial dependence, Moran's I and Geary's C Index
will be applied. Moran index takes into consideration both the value of the variables
and the geographical coordinates of the macro-regions in which they are recorded.
The value of I range between -1 (showing a negative spatial autocorrelation among
variables) and 1 (positive spatial autocorrelation). Geary index is inversely
proportional to Moran index, but is not identical. While Moran’s I is a measure of
global spatial autocorrelation, Geary's C is a measure of local spatial autocorrelation
(table 4 and 5). The value of C range between 0 and 1.
Table 4: Moran's I, a measure of global spatial autocorrelation, EU 28, year 2012

--------------------------------------------------------
Variables | I E(I) sd(I) z p-value*
-------------+------------------------------------------
gdp_eur_cap | 0.541 -0.010 0.056 9.746 0.000
gdp_pps_cap | 0.569 -0.010 0.056 10.304 0.000
edu_tert | 0.463 -0.010 0.056 8.374 0.000
edu_sec | 0.784 -0.010 0.056 14.155 0.000
patents_epo | 0.456 -0.010 0.057 8.238 0.000
innov_int| 0.648 -0.010 0.057 11.613 0.000
gerd_gdp | 0.472 -0.010 0.056 8.560 0.000
berd_gdp | 0.469 -0.010 0.056 8.494 0.000
immigr | 0.147 -0.010 0.055 2.857 0.004
--------------------------------------------------------
Table 5: Geary's C, a measure of local spatial autocorrelation, EU 28, year 2012

--------------------------------------------------------
Variables | c E(c) sd(c) z p-value*
--------------+-----------------------------------------
gdp_eur_cap | 0.431 1.000 0.061 -9.366 0.000
gdp_pps_cap | 0.442 1.000 0.063 -8.839 0.000
edu_tert | 0.469 1.000 0.061 -8.718 0.000
edu_sec | 0.194 1.000 0.064 -12.594 0.000
patents_epo | 0.465 1.000 0.060 -8.859 0.000
innovation_int| 0.304 1.000 0.059 -11.712 0.000
gerd_gdp | 0.508 1.000 0.062 -7.947 0.000
berd_gdp | 0.453 1.000 0.061 -8.938 0.000
immigr | 0.805 1.000 0.072 -2.707 0.007
--------------------------------------------------------
After computing the proximity matrix with five neighbours, both Moran’s I value and
Geary’s C value prove the existence of a positive spatial autocorrelation with respect
to the dependent variables took into consideration: GDP per capita, tertiary and
secondary education, the number of patents, innovation intensity, intramural R&D
expenditures and immigration stock.

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As it can be observed at Moran’s I test, the value of I is greater than the value of E(I)
in all cases, which evidences a positive spatial autocorrelation and that close macro-
regions have similar values for the variables of interest. The greater Moran’s I is, the
more intense the spatial dependence is. The highest positive spatial autocorrelation
is recorded at secondary education (I=0.784). Z value is above 1.96 (table value)
and p-value is under 0.05, which justifies the spatial correlation test.
At Geary’s C test the value of z coefficient is lower than -1.96 (table value) and p-
value is below 0.05, which is a good result.
Figure 1 presents the Moran scatter plot for the variables: innovation intensity and
the number of immigrants. They are emphasized on the horizontal axis, while their
spatially lagged counterparts are on the vertical axis. Moran Scatterplot shows the
relationship between the values of a variable from a location and the average value
of the same variable at neighbouring locations.
Innovation intensity Number of immigrants

(Moran's I=0.6478 and P-value=0.0010) (Moran's I=0.1473 and P-value=0.0060)
1
1
Spatiallylaggedintensit_inov
.5
Spatially lagged imigr
0
-.5 0
-1
-1
-1.5
-2
-2 -1 0 1 2 -4 -2 0 2
intensit_inov imigr
Wintensit_inov Fitted values Wimigr Fitted values
Figure 1: Moran scatter plot

As it can be observed, in case of innovation intensity scatterplot, there are lots of

dots in the first and third quadrant (hotspots). This highlights a positive spatial
autocorrelation and a cluster of similar values. This means that the values that are
above the mean in a location are surrounded by neighbouring locations with average
values that are above the mean (first quadrant) and values that are below the mean
in a location are surrounded by neighbouring locations with average values that are
below the mean (third quadrant). In case of the number of immigrants, it can be
observed an agglomeration of dots especially in the first quadrant, but also in all
other quadrants. This means that some locations are similar to the neighbours, while
others are different, in terms of the number of immigrants.
4.3. Spatial models with endogenous variable = innovation intensity

Due to the fact that the spatial dependence is validated, it is justified to compute
spatial models. Therefore, in table 6 four spatial models were generated (Spatial
Autoregressive Model, Spatial Error Model, Spatial Durbin Model and Spatial
Autocorrelation Model), after which the best model was chosen.
The optimal model is considered to be the one which has the lowest value of the AIC
and BIC tests, and the highest value of the LL function and R-square. Therefore, the
best model for this set of data panel is Spatial Durbin Model (SDM). In table 7 are

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generated eleven Spatial Durbin Models, with the dependent variable= innovation
intensity.
Table 6: Diagnostic tests for the selection of the optimal spatial model
Table 7: Spatial Durbin Model with endogenous variable = innovation intensity
Source: personal processing in STATA 14.
As a general conclusion, a very important factor in the increase of innovation output

is economic dimension along with highly skilled migrants and investments in R&D.
Furthermore, human capital plays a major role, especially people with tertiary
education and/or employed in science and technology sectors, that can enhance
innovation, which is a measure of technological progress, which is a driver of
productivity growth and at last a driver of economic growth.
The ρ (rho) parameters have all positive signs and are statistically significant,
indicating a pure spatial effect on the dependent variable. This emphasises that the

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innovation intensity from a region influences the innovation intensity from

neighboring regions. Therefore, in terms of innovation it can be observed the
existence of a spillover effect from a region to another close region.
5. Conclusion
This research has examined the extent to which skilled immigrants along with
investments in R&D sectors and in higher education enhance innovation output and
contribute to economic growth, on a date panel of 104 macro-regions from EU,
between 2003 and 2012. The study is based on the development of econometric
models on panel data, using a set of indicators specific to the process of immigration,
innovation and economic development. Therefore, the research uses both classical
models with fixed effects (non-spatial models) and spatial autocorrelation models.
The results indicate a positive nexus between skilled migrants and innovativeness
of the regions, strengthened when taking into account different factorial
combinations related to the economic dimension, such as: financial support in
research and development, investment in tertiary education, personnel employed in
technology and knowledge intensive sectors, as well as the share of scientists and
engineers in population. Another finding of this study is that the innovation intensity
from a region influences the innovation intensity from neighboring regions
(highlighting the existence of a pure spatial effect).
It is also very important that in order to boost knowledge creation and per capita
GDP, EU should not only attract scientists and engineers migrants, but also provide
further financial support in research and development. To sum up, migration is a
process that needs to be managed and not a problem that needs to be solved (GD
No. 780, 2015).
The main limit of this research is the lack of data available regarding the number of
patents for all the 104 macro-regions (NUTS 1 level) in the UE more recent than year
2012. Therefore the period of the study was chosen 2003-2012 because after year
2012 data for the number of patents at NUTS 1 level is not available.
References
1. Bosetti, V., Cattaneo, C. and Verdolini, E. (2015) “Migration of skilled workers and
innovation: A European Perspective”, Journal of I.E., Vol.96, No.2, pp311-322.
2. Bove, V. and Elia, L. (2017) “Migration, Diversity, and Economic Growth”, World
Development, Elsevier, Vol. 89, No. C, pp. 227-239.
3. Chellaraj, G., Maskus, K. E., and Mattoo, A. (2008) “The contribution of skilled
immigration and international graduate students to U.S. innovation”, Review of
International Economics, Vol. 16, No. 3, pp. 444-462.
4. European Commission (2018) “Database”, Eurostat,
http://ec.europa.eu/eurostat/data/.
5 Fassio, C., Montobbio, F., and Venturini, A. (2019) “Skilled migration and
innovation in European industries”, Research Policy, 48(3), pp. 706-718.
6. Ferrucci, E. and Lissoni, F. (2019) “Foreign inventors in Europe and the United
States: Diversity and Patent Quality”, Research Policy, Elsevier,Vol.48,No.9, pp1-1.

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7. GD No. 780 of September 23 (2015) National Strategy on immigration between

2015-2018, M.O., No. 789 of October 23, 2015.
8. Gelb, S. and Krishnan, A. (2018) Technology, migration and the 2030 Agenda for
Sustainable Development, ODI Briefing Note. London.
9. Hunt, J. and Gauthier-Loiselle, M. (2009) “How Much Does Immigration Boost
Innovation?”, IZA Discussion Paper, No. 3921.
10. Lissoni, F. (2016) “Migration and Innovation Diffusion: An Eclectic Survey”,
Cahiers du GREThA, Université de Bordeaux, No. 11.
11. Naghavi, A. and Strozzi, C. (2015) “Intellectual property rights, diasporas, and
domestic innovation”, Journal of I.E., Elsevier, Vol. 96, No. 1, pp. 150-161.
12. Niebuhr, A., (2010) “Migration and innovation: Does cultural diversity matter for
regional R&D activity?”, Papers in Regional Science, Vol. 89, No. 3, pp. 563–585.
13. OECD (2018) Statistic, Organisation for Economic Co-operation and
Development, https://stats.oecd.org/ .
14. Ozgen, C., Nijkamp, P., and Poot, J. (2011), “Immigration and Innovation in
European Regions”, Norface migration Discussion Paper, No. 8.
15. Poot, J. (2007), “Demographic Change and Regional Competitiveness: The
Effects of Immigration and Ageing”, Population Studies Centre, No. 64.
16. United Nations (2017) International Migration Report 2017, Department of
Economic and Social Affairs, New York.
17. World Bank (2018) Data Bank, https://data.worldbank.org/indicator.

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MAIN CHARACTERISTICS OF THE PROFITABILITY OF HUNGARIOAN

DISTRICT HEAT SUPPLIERS BASED ON THE 2009-2017 FINANCIAL
STATEMENTS
SÜVEGES Gábor Béla, MUSINSZKI Zoltán

Institute of Accounting and Finance, Faculty of Economics; University of Miskolc,
Miskolc, Hungary
suveges.gabor@uni-miskolc.hu;
stmusiz@ uni-miskolc.hu
Abstract: In Hungary, district heating supplies 15% of the population which accounts
for 1.5 million people. This activity is carried out by 89 companies. There are
differences in the ownership background, in the technical structure, in the activities
carried out and in the number of supplied consumers of district heat suppliers. The
current study describes some specificities of the income statement of the Hungarian
district heating companies. In the first part of the study, the methodology exploring
profitability is described. Then in the second part, the study describes the main
features of the income statement of the heating suppliers. Using data derived from
the accounts of the Hungarian district heat suppliers and from technical and
economic pieces of information, nine years (2009-2017) were analyzed. The
empirical analysis using the gathered data aims at revealing how the operational and
regulation characteristics of the district heat sector are reflected in the income
statement and how legislative changes have affected profitability indicators.
Keywords: District heat supply; District heat producers; District heat suppliers;
income statement; profitability.
JEL Classification: K32.
In accordance with International Accounting Standard (IAS) 1 Presentation of

Financial Statements, the elements of the financial statements are as follows:
 a balance sheet,
 an income statement,
 a statement of changes in equity,
 a cash flow statement,
 notes.
Income statement includes a deduction of the company's profit. It introduces the main
factors influencing the generation and modification of the income, the components
and the formation of the income. The standard does not prescribe a predefined
structure. It defines only possible forms and minimum content. (IAS 1, Horngren -
Datar - Foster, 2006)
According to Hungarian accounting regulations, profit before tax is the sum of the
profit from normal operations and the profit from financial activities. In accordance with
international practice, company can define this profitin two ways. The first method

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focuses on the value of the goods and services produced in the examined period. The
profit is the difference between the produced (and wholly or partlysold) goods and
services and the operating costs (like material costs, labor costs or depreciation
expense) of the given period. The second method focuses on sales. In this case, the
result can be derived as follows:
 turnover
 costs related to the production of the sold product or service (product cost)
 costs related to the operation of the given period, in addition to the above
(period cost) (Fenyves et al, 2018).
The income statement primarily helps analyze the profitability and efficiency situation.
When analyzing profitability, we can examine among others:
 the composition of revenues, returns, costs, expenses and income,
 changes in revenues, returns, costs, expenses and income elements,
 profitability calculated for different bases and
 the relationship between the main items of the income statement (and the
balance sheet).
When analyzing profitability, we can also compare certain income categories to some
bases. Profitability indicators constructed in such a way:
 provide information on changes in efficiency,
 can be used as a base for analyzing trends in profitability,
 make the comparison of the given company with other companies or with the
industrial average possible.
Income categories that may be taken into consideration when calculating profitability
indicators include contribution margin, EBIT or EBITDA. Some bases:
 revenues,
 capital,
 total balance sheet,
 a specific group of assets,
 labor costs,
 personnel costs,
 average number of employees,
 revenue per major markets and per customer (Tóth - Zéman, 2018, Brealey
et al, 2011).
One of the most important profit level indicators on turnover is gross profitability, also
known as the coverage rate. The contribution margin is the difference between
revenue and variable costs. The coverage rate is the ratio of the contribution margin
to the revenue. Financial accounting, however, does not group costs based on their
relationship with the volume of production. The master schedule and therefore the
financial statements does not include variable and constant costs. (Cf. Musinszki,
2013)
There are, of course, methods and recommendations for decomposing accounting
costs into fixed and variable elements. (See, for example, Elijah, 1997 or Horngren –
Datar - Foster, 2006). The simplest and the roughest method is to consider direct
costs as variable, and indirect costs as constant. This is, however, an option only if
the company prepares its income statement using expense method. The coverage
rate measures the profitability of the supply of the goods or services. A broader picture

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of the company could be obtained if this indicator was determined by product or major
market, but there is no requirement to provide the necessary information in the report.
When determining the Return on Equity ratio (ROE), we compare return to capital,
typically to equity or to share capital. When calculating ROE, it is not clear what is
to be considered a return out of the profit categories defined in the Hungarian
Accounting Act. We can define the indicator in the form of operating profit / equity
or in the form of aftertax profit / equity.
In the case of the Return on Assets indicators, we compare a certain category of
profit to a specific group of assets or the total balance sheet. One possible definition
of the Return on Assets (ROA) indicator used in international practice is: aftertax
profit / total balance sheet. It is acceptable when the calculation of the indicator
includes only fixed assets or working capital (total assets - liabilities) in the
denominator. It is also acceptable to include a different profit category in the
numerator. This indicator shows how effectively the company uses the available
assets. It shows the average return on total assets of the company. In addition to
owners and creditors, the indicator can be important also for the management. For
all parties, the ROA is satisfactory if higher than the average interest rate on loans
taken. (Bozsik, 2010)
One of the most widely used profitability indicators, still an innovation of the DuPont
Company, was the development of Return on Investment (ROI) and the related
indicator system. Pierre du Pont believed that former profitability indicators on sales
and costs were not suitable to measure the company's profitability. The indicator
developed to support investment decisions can be defined as the ratio of net return to
net asset value. There are recommendations(Anthony - Govindarajan, 2009) on what
to consider as return (like operating profit or after tax profit) and what to consider as
investment (fixed assets or some prescribed elements of fixed assets + current
assets), but giving purport to the two categories is basically the sovereign decision of
the company. (Bozsik, 2010, Brealey et al, 2011, Fenyves et al. 2018, Molnár, 2016)
2. The aim of the empirical research and the applied methodology, results
The aim of the empirical research is to outline two important factors of the
performance features of district heating companies in Hungary and to establish
future research questions.
It deals with answering two research questions:
H1: Sectoral features like the high rate of other revenues (that has a lower value for
companies that carry out non-district heating activities to an extent higher than the
average) are well reflected in the income statements of district heat suppliers.
H2: The efficiency of district heat suppliers is considerably influenced by the
changing regulatory environment.
The database of the research includes the companies 2009-2017 reports. The tools
of the analysis were the Excel program of the Microsoft Office 365 ProPlus package
and the SPSS 24 software.
The first striking features of the profitability specificities of the heating sector are
illustrated in Figure 1describing net sales and various costs types at the sector level.

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Net revenues on sale and different cost types, 2010-2017
250.000.000 250.000.000
200.000.000 200.000.000
150.000.000 150.000.000
100.000.000 100.000.000
50.000.000 50.000.000
0 0
2010 2011 2012 2013 2014 2015 2016 2017
Anyagjellegű ráfordítások
Material costs Szeméyli jellegű
Personnel costsráfordítások
Depreciation
Értékcsökkenés Értékesítés
Net revenuenettó
on sale
árbevétele
Figure 1: Net revenues on sales and different cost types in the whole sector between
2010 and 2017
Source: Own compilation based on annual report data
The figure shows that net revenues on sales have not cover material and personnel
costs since 2011. The reason for this is that Act XXIX of 2011 on the Amendment of
the Laws on Energy froze the retail prices and the prices of specially treated
institutions as at 31 March 2011. It is the Minister of National Development who is
responsible for setting the prices of heat sold to the public and to specially treated
institutions as the highest official price, by taking into account the proposal of the
Hungarian Energy and Public Utility Regulatory Authority. The loss of revenue
derived from applying official prices is covered by the district heating subsidy. Its
amount is fixed at a level that cannot exceed the net cost of providing the public
service, i.e. the difference between the costs incurred and the revenue generated by
the public service, by taking into account a reasonable return on equity. As for
reasonable return, a profit margin was defined, which is 2% of the gross book asset
value related to these activities based on the audited accounting unbundling and as
at 31 December of the year preceding the year under review of the before tax profit
derived from district heat production and district heat supply activities.
The Figure 2 highlights that other revenues represent a significant part of the
revenue of the district heating provider. This high proportion is due to district heating
subsidy from 2012.

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Revenues 2010-2017
250.000.000 120,00%
200.000.000 100,00%
80,00%
150.000.000
60,00%
100.000.000
40,00%
50.000.000 20,00%
0 0,00%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Net revenue
Értékesítés nettóon sale
árbevétele Other
Egyéb revenues
bevételek
Rate of net revenue on
Értékesítés nettó árbevétele aránya Ratebevételek
Egyéb of otheraránya
revenues
sale
Figure 2: Cumulative values of net revenues on sale and of other revenues and
changes of their rate between 2010 and 2017
Examining the structure of the rate of net revenues on sale and of the expenditures
of district heating suppliers and the structure of revenues, it can be concluded that
profitability of district heating suppliers is strongly influenced by the authority’s
regulations.
The indicators examined above describe only a slice of the factors influencing the
profitability of district heating suppliers. They can, however, provide a pronounced
picture of the operation of a highly regulated sector.
The second part of the hypothesis one requires the knowledge of an additional part
of the law. The Act XVIII of 2005 on District Heating Services defines district heating.
The Act and the related decrees do not prohibit that companies providing these
activities are engaged in other activities as well. Accordingly, besides district heating,
the bulk of the 89 Hungarian district heat suppliers does other activities, including
district heat production, electricity production, waste management, water utility
supply and other activities (like the ones related to urban management). In the case
of the examined population in 2017, the average rate of turnover from other (not
district heating service) activities was 28%, while this rate was 33% for the assets.
On this basis, I divided the district heat suppliers into two categories. Companies
with an asset or turnover rate exceeding the average are labelled by “other activities”,
while other companies are labelled by “district heat”. Even if decomposition based
on activity would have justified the creation of only two groups, the result would not

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reflect a homogenous picture if these two groups are analysed. Figure 3 visualises
the reason for it.
Scale of Sales
Total Assets (Cases weighted by asset weight)
Figure 3: Distribution of the asset value of district heat suppliers

Figure 3 illustrates the grouping of district heat suppliers based on the scale of sales
in accordance with the classification of the Association of Hungarian District Heating
and the Hungarian Energy and Public Utility Regulatory Authority.
While companies falling into the first four class intervals form a homogenous group
based on the distributions, the last group including companies with the highest output
clearly highlights the difference in magnitude of FŐTÁV Private Co. Ltd., Hungary's
largest Heat Provider (almost 40% of the amount of heat sold and 26% of the district
heat assets belong to this company).
Therefore, it was justifiable to examine this company separately and to create a
further category for it in both cases resulting in more homogenous groups.
Then, the rate of other revenues (other revenue / other revenue + turnover) was
examined, which is visualized on Figure 4.
It is confirmed that the rate of other revenues is surprisingly high in the sector due to
the typical aids in the district heat sector. Our expectations about the differences
among the rate of revenues based on activities are also met. The effect of the system
of aids is clear as the rate of other revenues was lower by 6-8 percentage points on
average in the examined years in the case of companies that provide “other services”

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to a higher extent. Simple ANOVA revealed that in most part of the examined period,
there were significant differences among the examined groups. It was important for
us to examine the causes of differences and whether grouping by activity is an
appropriate grouping criteria in this category. The results of the PostHoc tests
confirm that grouping based on activity significantly affect the results.
Rate of other revenues (2010-2017)

35%
30%
25%
20%
15%
10%
5%
0%
2010 2011 2012 2013 2014 2015 2016 2017
Távhő
District h. Egyéb szolgáltatások
Other Services Távhőh.(FŐTÁV)
District (FŐTÁV) Átlag
Mean
Figure 4: Rate of o ther revenues in the categories based on activity

The aim of the second research question is to reveal the effect of the changing
regulatory environment on profitability and on liabilities, with special regard to equity.
To do so, three indicators (ROA, ROI and ROE) were examined. Our calculations
revealed that all the three indicators changed in the same way in the examined
period therefore we visualize the value of one of these indicators, the Return On
Equity, over time, describing legislative changes picturesquely on Figure 5.
The average value of ROE did not change considerably in the examined period,
while it changed considerably among the groups, it reached an average value of 2%
after 2011.
It was important for us to examine which legislative changes were relevant to the
sector during the period under review (more than 25 acts or government decrees
were examined). Based on them, the four most significant changes that have a
demonstrable impact on the sector's profitability were identified.

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ROE of district heat suppliers ROE of district heat suppliers

(2010-2017)
13,00%
11,00%
9,00%
7,00%
5,00%
3,00%
1,00%
-1,00% 2010 2011 2012 2013 2014 2015 2016 2017

-3,00%
-5,00%
District
Távhőh. Other szolgáltatások
Egyéb Services District
Távhőh.(FŐTÁV)
(FŐTÁV) Átlag
Mean
Figure 5: ROE of district heat suppliers depending on activity groups

Source: Own compilation
The regulatory factors determining the efficiency of district heat suppliers, which can
be observed in the values of ROE, ROA and ROI were as follows,.
1. Freezing of Service fees. The Act XXIX of 2011 on the amendment of the
energy related laws froze the retail prices and the prices of specially treated
institutions as at 31 March 2011. It is the Minister of National
Development who is responsible for setting the prices of heat sold to
the public and to specially treated institutions as the highest official
price, by taking into account the proposal of the Hungarian Energy
and Public Utility Regulatory Authority. Its impact was noticeable one
year later, in 2012, especially for companies with a predominantly
district heating profile.
2. Transformation of the energy support system. Since 2012, the loss of
revenue derived from applying official prices has been covered by the
district heating subsidy. Its amount is fixed at a level that cannot exceed the
net cost of providing the public service, i.e. the difference between the costs
incurred and the revenue generated by the public service, by taking into
account a reasonable return on equity, expected based on the equity share
related to providing public service. As for reasonable return, a profit margin
was defined, which is 2% of the gross book asset value related to these
activities based on the audited accounting unbundling and as at 31
December of the year preceding the year under review of the before tax
profit derived from district heat production and district heat supply activities.

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Its impact could also be observed one year later (in 2013), especially for
companies with a mainly district heating profile.
3. Utility price cuts. The biggest change in the operating conditions of the heat
suppliers was implemented based on the Act LIV of 2013 on the execution
of utility price cuts. As a result of the price cuts in district heating, total
savings of 20% was realized by the consumers on the whole in more stages.
As of January 2013, there was another change in the price system for
heating supply as the basic and heat price decreased by 10% and then
decreased by another 11.1% from 1 November.
As a result of the implementation of the Act LIV of 2013 on the execution of
utility price cuts, retail consumers’ gas, electricity and district heating costs
decreased by a total of 20% from December 2012 to November 2013,
followed by a further 3.3% decrease from October 1, 2014.
4. Repeated change of the support system, resulting in the operational support
of district heat suppliers having two elements from October 1, 2015. This
change led to an improvement in the profitability situation of the examined
companies.
3. Conlusions
The purpose of the current research was to present some features of the profitability
of heat suppliers. As a first step, literature describing profitability was introduced
briefly, followed by the presentation of the empirical research. Hypothesis H1 was
totally failed to be rejected. Sectoral characteristics of district heating service and
the impact of the legal framework are reflected in the composition of revenues and
heat suppliers are characterized by high revenue ratio, especially those whose rate
of revenue and asset related to non-district heating activity is below the average in
their activity structure. Hypothesis H2 aimed at examining the impact of the
changing regulatory environment on profitability and on liabilities, especially on
equity. As a result, it can be concluded that changes in the regulatory environment
are reflected in the ROE, ROA and ROI values and the regulations about the
operation of district heat companies have a more direct effect on companies whose
portfolio includes district heating activity with higher proportion.
4. Acknowledgments
„Supported by the ÚNKP-19-3 New National Excellence Program of the Ministry
for Innovation and Technology.”
Bio-notes:
Gábor Béla SÜVEGES is master instructor in the Institute of Finance and

Accounting at the University of Miskolc, Hungary. He is the Vice President of the
Hantos Elemér College for Advanced Studies. His field of research is management

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accounting. He is currently researching the significant differences the pecuniary,

financial and profitability situation of Hungarian district heat suppliers and the social
innovations in the field of district heating.
Zoltán MUSINSZKI, Phd, is an associate professor and Vice Dean for Scientific and
Accreditation Affairs in the Institute of Finance and Accounting at the University of
Miskolc, Hungary. His field of research is management control, management and
cost accounting. He is currently researching the evolution and development of
controlling and cost systems for small and medium-sized enterprises and their social
innovation aspects.
References
1. Anthony, R. N. and Govindarajan, V. (2009) Menedzsmentkontroll-rendszerek,
Panem, Budapest,
2. Bozsik, S. (2010) Vállalati pénzügyi tervezés, Miskolci Egyetem, Miskolc
3. Brealey, R., Myers, S. and Allen, F. (2011): Principles of corporatefinance. McGraw-
Hill/Irwin, New York, 10th Edition
4. Fenyves, V., Bács, Z., Zéman, Z., Böcskei E. and Tarnóczi, T. (2018) The Role of
the Notes to the financial statements in corporate decision-making, Corporate
ownership and controls 15:4 pp. 138-148.
5. Horngren, C. T., Datar, S. M. and Foster, G. M. (2006): Cost Accounting: A
Managerial Emphasis, Prentice Hall, 12th Edition
6. Illés, M. (1997) Vezetői gazdaságtan, Kossuth Kiadó, Budapest.
7. Molnár, V. (2016) Nem termelési folyamatok kontrollja Six Sigma
megközelítésben, Controller Info, 2016/2., pp. 37-44.
8. Musinszki, Z. (2013) Költség-e a költség? Költségek a vezetői számvitelben,
Controller Info, I. évfolyam, 2013/2., pp. 2-8.
9. Tóth, A. and Zéman, Z. (2018) Stratégiai pénzügyi controlling és menedzsment,
Budapest: Akadémia Kiadó.
10. International Accounting Standard 1 - Presentation of Financial Statements
11. Decree of the Minister of National Development no. 50/2011 (September 30) on
determining the price of district heat that is sold to district heating suppliers and the
charge of district heating supply provided for household consumers and specially
treated institutions
12. Decree of the Minister of National Development no. 51/2011 (September 30) on
the district heating subsidy

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ELECTRIC VEHICLES AND CRITICAL RAW MATERIALS
VARGA Beatrix, FODOR Kitti

Department of Business Statistics and Economic Forecasting, Faculty of
Economics, University of Miskolc, Miskolc, Hungary
stbea@uni-miskolc.hu
fodor.kitti@uni-miskolc.hu
Abstract: In the 21st century transportation became one of most the most important
aspects of our life. People use a lot of ways of travelling to work or having fun.
Nowadays, the most popular innovations are electric cars. For this green solution
critical raw materials are needed. Production of a lithium-ion battery requires a wide
scale of elements and materials, like cobalt. There are several reasons that cobalt is
one of the most important elements. One reason is that the main supplier is the
politically instable the Democratic Republic of the Congo. In 2017 Fund For Peace
ranked the Democtaric Republic of the Congo as the 7th most unstable country in
the World. Mol analysts believe that the future of electric cars really depends on the
Democtaric Republic of the Congo. The Democratic Republic of the Congo holds a
significant porportion (57%) of the cobalt stock. Due to technological improvements
in battery production, new types and solutions will become available in the next
decade. One of the most anticipated technological developments is the solid battery.
Some electric car companies see nickel as a potential solution, but this has both
advantages and disadvantages. Attempts are being made to eliminate cobalt from
the production process. Another pessimistic survey from DERA shows that cobalt
consumption in the area of e-mobility will likely increase. In addition, it is important
to note that the raw material market is highly concentrated, with many countries
having a monopoly position. To measure market concentration, we selected the
Herfindahl-Hirschman index and examined the value of some of the raw materials
needed to produce the lithium-ion battery. The price of cobalt has a strong influence
on the price of batteries and of electric cars. Forecasts say that if the price of electric
cars were more favourable, they would soon become more popular. In summary,
critical materials have a serious effect on transportation, and we examine the past,
present and the future.
Keywords: cobalt; CRM; electric car; transport; economic aspect.
1. Introduction
In the 21st century transportation became one most the most important aspects of
our life. People use a lot of ways of travelling to go work or have fun. Therefore, wide
scale of products transported by countries or companies across planet Earth. The
history of transportation began in ancient times, but it became even more important
in the last three hundred years. During these centuries, many means of
transportation were created and developed, like trains, airplanes and ships.

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Moreover, there is a tendency for all possible transportation technologies to evolve

to a higher level at an ever faster pace.
The history of trains began in the 19th century. That was when the first horse-drawn
carriage came out. Due to the technological innovations a few decades later the
people could use steam-powered trains. But the innovation did not stop with steam-
powered models. In the first half of the 20th century the maglev technology was
patented. “Maglev train, also called magnetic levitation train or maglev, [is] a floating
vehicle for land transportation that is supported by either electromagnetic attraction
or repulsion” (Encyclopeadia Britannica This technology requires very cold, liquid
helium, which is a critical raw material. In recent years the role of the railways in
freight transport is growing, which is reflected in the numbers. Between 2009 and
2017 the freight tonnekilometres for railways increased in Hungary. However, the
growth tendency does not reach the growth tendency of the total kilometres of goods
travelled, so we can talk about a decrease in proportion.
Nowadays, the most popular innovations are electric cars. For this green solution
some essential things are needed, called critical elements or critical raw materials,
such as graphite and cobalt. Several other critical raw materials are necessary in the
production of automobile components, as listed in Figure 1. In other transportation
systems, the tendency is the same.
Figure 1. Critical elements used in various components of a modern motor vehicle

Source: Universiteit Leiden
(https://www.universiteitleiden.nl/en/research/research-projects/science/cmlrare-
earth-supply-chain-and-industrial-ecosystem-a-material-flow-assessment-of-
european-union)
The ranking of critical materials is influenced by technological improvements day by

day, so the list of these elements continuously changes. The European Committee
created surveys in 2011, 2014 and 2017 of materials to be monitored on its list of

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critical elements. Based on the survey results, elements labeled critical elements are
those that have high significance for the economy and that have high supply risks .
2. Electric cars and cobalt
What is an electric car? The Answer is so simple: a car whose powertrain is operated
by an electric engine. When do you think the first electric car was designed? The
first electrically powered car was built in the late nineteenth century. In present times
the most popular pioneer of this technology is Tesla. This company started the mass
production of electric cars in 2008.
The first model, named the Roadster, was followed in 2009 by the Tesla Model S,
and then came the next model in 2012, a SUV called the Tesla Model X. The
company’s latest model is called Model 3. The first of this model was released in
2017. Model 3 soon became a popular model among Americans: in 2018
approximately 140,000 were sold. In terms of sales Tesla Model 3 is the second
most popular car in the US. Only sales from Toyota Camry were higher in 2018. But
it is not only popular in the United States. Following its European launch in early
2019, it became the best-selling electric car in Europe. Among the luxury SUVs,
Tesla ranked high in the U.S. market in 2018. The Model X was the second most
popular model. Tesla cars use lithium-ion batteries to store electric charges. The
weight of the battery accounts for a significant part of the weight of the car, which is
about 1/3 for the Tesla Roadster.
Electric cars are spreading fast due to their zero local carbon-dioxide emissions. As
is visible in Figure 2, the number of electric cars has increased dramatically in
Hungary, but in spite of this increase, the rate of electric cars was only 0.06 per cent
of vehicles on the road in 2017.
Number of EV's in Hungary 2012-2017

2.000
1.600
1.200
800
400
0
2012 2013 2014 2015 2016 2017
Figure 2. The number of electrical vehicles registered in Hungary, 2012–2017
Source: Eurostat

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Other countries are experiencing a similar trend. Figure 3 shows the change in the
number of electric cars in Norway and Japan. However, the number of electric cars
in these countries is significantly higher than in Hungary.
Number of EV's in Norway 2008-2018

200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Number of EV's in Japan 2009-2018

300000
250000
200000
150000
100000
50000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Figure 3. The number of electrical vehicles registered in Norway (left) and Japan,
2008–2018
Source: Statistic Norway, Statista.com
Norway is paying close attention to this green solution, which is supported by the
fact that the share of electric cars in cars in Norway reached the highest proportion
in 2018 (49.1%). The second on this list was Iceland (19.1%) and the third was
Sweden (8.0%). In China only 4.4% of cars are electric, while in the USA the

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proportion is only 2.1%. A Reuters article in April 2019 reported that in March 2019
nearly 60% of cars sold in Norway were fully electric. So it can be stated that the
Norwegian people treat this area as a priority.
Production of a lithium-ion battery requires a wide scale of elements and materials,
like lithium, cobalt, nickel, graphite, aluminium and copper. Many of these elements
appear on the 2017 critical materials list of the European Committee. One of the
most critical elements is cobalt. There are several reasons that cobalt is one of the
most important elements. One reason is that the main supplier is the politically
instable the Democratic Republic of the Congo. In 2017 Fund For Peace ranked the
Democtaric Republic of the Congo as the 7th most unstable country in the world.
Another is that cobalt is mined as a by-product. Figure 4 shows the amount of this
element mined worldwide between 2008 and 2018.
Cobalt mine production worldwide (in metric tons)

145.000
135.000
125.000
115.000
105.000
95.000
85.000
75.000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Figure 4. Cobalt production worldwide, 2008-2018
Source: Statista.com
Mol analysts believe that for these reasons above, the future of electric cars really
depends on the Democtaric Republic of the Congo. The Democratic Republic of the
Congo is the main supplier of cobalt, and this country holds a significant porportion
(57%) of the cobalt stock. Most electric car companies require cobalt for the lithium-
ion batteries, including Tesla. The world cobalt production in 2018 was about
140,000 metric tons. The production of an electric car requires nearly 10 kg of cobalt,
and less than half of the produced cobalt is used to make batteries.
Some electric car companies see nickel as a potential solution, but this has both
advantages and disadvantages. One of the advantages is that these batteries have
a longer operating time, but one big disadvantage is that they are more flammable.
However, optimistic scenarios believe that battery issues will not get in the way of
electric cars, because as soon as it becomes a priority, researchers will come up
with a better solution.

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Due to technological improvements in battery production, new types and solutions

will become available in the next decade. One of the most anticipated technological
developments is the solid battery. It is important to highlight that the base material of
this improvement is lithium. Attempts are being made to eliminate cobalt from the
production process due to the problems mentioned above.
3. Environmental and economic aspect
We think that these two areas are closely linked but can be approached from various
perspectives. In 2013 and 2014 PwC made a study about the future of electric cars.
This includes both environmental and economic aspects, with different scenarios.
The study analysed the impact of environmental factors through air and noise
pollution. We can divide the effects in two groups. There are local and global effects.
In the case of a fully electric car there are zero direct emissions. But in measuring
global impacts it is essential to speak about emissions linked to manufacturing, raw
material production and processing, and it is important to speak about the source of
energy. In our opinion, this is important because some renewable energy devices
(solar panels, wind turbines) require the use of critical raw materials, and the mining
and processing of these materials imposes additional burdens on the environment.
Regarding noise pollution, the PwC survey shows that the use of electric cars is
approximately 70% quieter than a petrol- car.
In economic terms, the use of electric cars has both benefits and costs. The first of
these is the group of different financial incentives, which in the case of the EU is
about 5000 EUR/car, which may include tax breaks and free parking. These
incentives are predicted to exceed EUR115 million by 2023. In order for electric cars
to become more and more popular, it is necessary to build an appropriate charging
station infrastructure; the total cost for this could be close to EUR 120 million. As we
mentioned, the use of electric cars may be generate tax benefits, and since these
vehicles do not require petrol or gas oil, the tax and revenue from these products is
expected to decrease. The expected loss is estimated to be 205 million euro up to
2023. The last measurable factor is the CO2 emissions. As mentioned, the local
emissions of electric cars are zero, so CO2 emissions are expected to decrease; this
means that the unnecessary CO2 quota can be sold. Figure 5 displays average CO2
emissions per km for new passenger cars. We can see that the values are the best
in western and northern Europe.
Overall, it can be concluded that, from an economic viewpoint, many negative effects
of electric cars can be observed. However, there are factors that are more difficult to
quantify. According to PwC's analysis, these factors are:
 “acquisition of new sources of research and development
 acquisition of infrastructure development sources
 expanding the capacity of the domestic automobile manufacturer
 expansion of the automotive supplier range
 expansion of related technology products
 expansion of non-related technology products
 creating new jobs

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 strengthening and building international relations” (PwC, 2014)

To get the full picture, it is important to mention that, in addition to the above, there
are analyses that prove that electric cars do not pollute less than cars with internal
combustion engines. One study made by German experts was widely attacked. In
response, VW conducted its own analysis. They compared the CO2 emissions from
an electric and a diesel engine for the same type of car. According to VW, the diesel
car has 21g/km higher CO2 emissions.
Figure 5. Average CO2 emissions per km for new passenger cars

Source: Eurostat
In addition, it is important to note that the raw material market is highly concentrated,
with many countries having a monopoly position. To measure market concentration,
we selected the Herfindahl-Hirschman index and examined the value of some of the
raw materials needed to produce the lithium-ion battery. To highlight two, the index
for cobalt is 5326 and for natural graphite is 4444. According to the literature, if the
index is above 2500, it is a highly concentrated market.

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The price of cobalt has a strong influence on the price of batteries and of electric
cars. Forecasts say that if the price of electric cars were more favourable, they would
soon become more popular. However, the price of cobalt has been very volatile in
recent years, which is also confirmed by Figure 6.
Figure 6. Price of cobalt, 2010-2019 (USD/MT)

Source: Tradingeconomics.com
As a final factor, we would like to write about the impact of electric cars on the labour
market. If electric cars become more widespread, this will have repercussions on
other areas, including the automobile industry and the labour market, due to the
simplicity and shorter time needed to produce electric cars. For an internal
combustion engine, the number of hours required to assemble the engine is 3.5, and
for an electric motor, it is only 1 hour, according to Alix Partners. The German
Automotive Association has calculated what could happen if internal combustion
engines are banned in Germany in 10 years. They concluded that as a result more
than half million jobs would be lost within 10 years, and two-thirds of the job losses
would come from car manufacturers and their suppliers.
In summary the impact of raw materials and electric cars on the economy and the
environment is diverse and constantly changing. For this reason it is important to
keep track of changes.

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4. What is the future?
Many people see one of the biggest disadvantages to electric cars as its low
operating range. Another problem is the fact that after its battery is discharged, a lot
of time is required for recharging. Battery researchers are focusing on extending the
operating range of cars, increasing the capacity of batteries and reducing the
charging time. The design of the future by one automotive factory is production of a
car with a 640 km operating range and a charging time of nine minutes. If this dream
comes true, it means the next step of life of electric cars, because it makes them a
sustainable solution to replace traditional cars. Prototypes are expected to be
available at the beginning of 2021. The final problem is the price; the cost of such an
electric car is around USD 100,000. In spite of the price, forecasts show the market
share of electric cars is expected to grow several times higher than the 2017 figure
of under 5% in the next 10 years.
A pessimistic survey from DERA shows that cobalt consumption in the area of e-
mobility will likely increase from 8.2% to 26% by 2026 and 55% of this consumption
will be used in battery production. According to another survey from Bloomberg,
consumption of materials like cobalt, graphite and lithium will increase from less than
1,000,000 metric tons in 2018 to 7,000,000 metric tons in 2030. This can be seen in
Figure 7. From these predictions, we can assume that in ten years a large number
of batteries will be using cobalt and sales of electric vehicles will have increased
considerably.
Figure 7. Metals and materials demand from lithium-ion battery packs in passenger
EVs
Source: Elektromos autók: lesz-e elég akkumulátor? (2018.12.31.)
(https://kiszamolo.hu/elektromos-autok-lesz-e-eleg-akkumulator/)

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It is important to consider demand from customers, since the problems described

above have a significant effect on the market for electrical cars. An international
research study surveyed customers in 2015 and 2018 on their opinions about electric
cars. It found that the concerns of customers during the purchase of an electric
vehicle. The three main problems are – as mentioned above – the price, the
operating range and the charging time. Interestingly, the number of potential
customers concerned with the range and price dropped by 10%, while a larger
number of people listed charging time as a negative factor in 2018. These factors
should be taken into account in the design of electric vehicles.
5. Conclusion
We are living in a world where innovations follow each other day by day. We are eye
witnesses to the phenomenon that a now-new technology may be obsolete by
tomorrow, replaced by something even newer In our opinion this is true for
transportation as well. Scientists are looking for new, better solutions for problems.
This tendency affects the constantly changing list of on strategically important
materials, elements and countries. Based on forecasts, the lead price of new
technologies will decrease and the consumption of expensive critical materials
during production will also decrease, contributing to lower prices for electric vehicles
In summary, critical materials have a serious effect on transportation, but new
research is focusing on improving technology day by day, to find smart solutions and
implement their findings that will make this industry more sustainable and will
influence (and be influenced by) the list of critical raw materials.
6. Acknowledgements
The described work was carried out as part of the “Sustainable Raw Material
Management Thematic Network – RING 2017”, EFOP-3.6.2-16-2017-00010 project
in the framework of the Széchenyi 2020 Program. The realization of this project is
supported by the European Union, co-financed by the European Social Fund.
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ROMANIA

MINISTRY OF EDUCATION AND RESEARCH

2nd ISSUE / DECEMBER 2019

ISSN 1222-569X (printed format)

The papers published in this volume are exclusively engaging authors.

SECTION: ECONOMICS, BUSINESS ADMINISTRATION, TOURISM AND

SECTION: MANAGEMENT, MARKETING, ECONOMIC INFORMATICS AND

EMPLOYMENT IN BIHOR COUNTY. CONCRETE RESEARCH: “THE

BEKESI Delia Georgeta

The Annals of the University of Oradea. Economic Sciences

2. Theoretical considerations concerning employment

Employment can be analyzed from the perspective of the concepts of workforce

The Annals of the University of Oradea. Economic Sciences

The Annals of the University of Oradea. Economic Sciences

3. Aspects concerning employment in Bihor County

3.1.2. Unemployment in Bihor County, 2018

The Annals of the University of Oradea. Economic Sciences

3.1.3. The activity of the AJOFM in 2018

The Annals of the University of Oradea. Economic Sciences

3.2. Qualitative study concerning the perception of employers in Bihor on the

The Annals of the University of Oradea. Economic Sciences

The universe subject to this investigation is represented by all employers in Bihor,

3.2.2. The results of the research

The Annals of the University of Oradea. Economic Sciences

The Annals of the University of Oradea. Economic Sciences

The Annals of the University of Oradea. Economic Sciences

The Annals of the University of Oradea. Economic Sciences

The Annals of the University of Oradea. Economic Sciences

system and the stimulation of employment] actualized by Law no. 195/2015,

The Annals of the University of Oradea. Economic Sciences

THE EUROPEAN TRANSLOCAL EMPOWERMENT: AN ECONOMETRIC

CIALFI Daniela, COLANTONIO Emiliano

The Annals of the University of Oradea. Economic Sciences

Nowadays, there are numerous initiatives in response to contemporary socio-

2. The translocal empowerment and social innovation concepts

 have access to resources, defined as mental (such as information and

In particular, the self-determinant theory is based on the satisfaction of

The Annals of the University of Oradea. Economic Sciences

 Relatedness, which refers to be part of a social group and receive

According to Thomas and Velthouse (1999), the ability to achieve goals

3. Methodology, data collection and variables used

Yit  a j X j ,it   i   it (1)

The Annals of the University of Oradea. Economic Sciences

Table 1: List of used variables (years: 2007-2017)

Social protection expenditure

Competence Commercial and physical infrastructures

Gender pay gap

The Annals of the University of Oradea. Economic Sciences

Empowerment dimension Variable

Meaning Cultural and social norms

Resilience Fear of failure rate

Table 2: Summary statistics

The Annals of the University of Oradea. Economic Sciences

Table 3: Determinants of social protection expenditure

Residual Sum of Squared:

The Annals of the University of Oradea. Economic Sciences

In this paper we have explored in an empirical way how the transactional

The Annals of the University of Oradea. Economic Sciences

The Annals of the University of Oradea. Economic Sciences