275 10 3494 https://omeka.ibu.edu.ba/files/original/b3039007dfe008e4df6bcd6b7058a509.pdf b5180b13d04447ca8ac24c2615d1648f PDF Text Text ���������������������������� https://omeka.ibu.edu.ba/files/original/e1a994af4ed9eb76861c1eec9a14dfbc.docx 8eeae7faedb49f668741f43dc79a3bff Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 3102 Title A name given to the resource Primjena konvencije o pravima osoba s invaliditetom u Hrvatskoj i Bosni i Hercegovini: Stvarnost ili utopija? Author Author ARAS, Slađana KLARIĆ, Ivana Milas Abstract A summary of the resource. Hrvatska i Bosna i Hercegovina ratificirale su Konvenciju Ujedinjenih naroda o pravima osoba s invaliditetom (u daljnjem tekstu: Konvencija), kojom se mijenja pristup zaštiti i položaju osoba s invaliditetom u međunarodnoj zajednici. U Konvenciji su sadržana načela i smjernice, koje se odnose na punu uključenost osoba s invaliditetom u društvo, njihovu ravnopravnost i nediskriminaciju, zaštitu od svakog oblika nasilja, kao i na zaštitu njihove autonomije volje. Cilj rada jest analizirati skrbničku zaštitu i položaj osoba s invaliditetom u obiteljskopravnim odnosima te njihovo sudjelovanje u sudskim, upravnim i drugim (nedržavnim) postupcima u kojima se rješava o tim odnosima prema važećem hrvatskom i bosansko-hercegovačkom uređenju, uz upućivanje na osnovne zahtjeve Konvencije te prijedloge novog hrvatskog zakonodavstva na tom području. U drugom dijelu rada, koji slijedi uvod, razmatraju se i uspoređuju važeća, hrvatska i bosansko-hercegovačka, rješenja u području skrbničke zaštite odraslih osoba, kao i njihov položaj u obiteljskopravnim odnosima. Potom se daje analiza položaja osoba s invaliditetom u sudskim, upravnim i drugim (nedržavnim) postupcima u kojim se raspravlja odnosno odlučuje o pravima i obvezama građanske naravi. Posebno se razmatraju odredbe o postupovnoj sposobnosti te zastupanju tih osoba u postupku. U četvrtom dijelu ističu se najznačajnije intervencije prema prijedlogu novog hrvatskog zakonodavstva u području skrbničke zaštite odraslih osoba, kao i u njihov položaj u obiteljskopravnim odnosima. Zatim slijedi prikaz novog uređenja postupovnopravnog položaja osoba s invaliditetom u različitim sudskim, upravnim, ali i drugim (nedržavnim) postupcima u kojim se raspravlja odnosno odlučuje o pravima i obvezama građanske naravi. Zaključno, određuju se projekcije de lege ferenda u cilju potpunog usklađivanja hrvatskog zakonodavstva sa zahtjevima Konvencije, kao i moguće smjernice za očekivane reforme u Bosni i Hercegovini. Publisher An entity responsible for making the resource available Pravni fakultet Univerziteta u Bihaću i Centar za društvena istraživanja Internacionalnog Burč univerziteta Date A point or period of time associated with an event in the lifecycle of the resource 2014 Keywords Keywords. Article PeerReviewed K Law (General) https://omeka.ibu.edu.ba/files/original/d38ab9d1fb86cc39026b5bc5177861fd.pdf 18be3e9c10ee062855f19f4e06316a54 PDF Text Text �����������   �        ��  ������ https://omeka.ibu.edu.ba/files/original/71a725618970e2cbf23e6256ffc13679.docx 303c055a71fc2a34f99fecd846952ba5 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 3097 Title A name given to the resource Interlokalni sukob zakona u oblasti imovinskih odnosa bračnih partnera u Bosni i Hercegovini: Osvrt na buduća komunitarna koliziona pravila Author Author ALIHODŽIĆ, Jasmina KREŠIĆ, Boris Abstract A summary of the resource. Ustavom Bosne i Hercegovine izvršena je podjela nadležnosti između države i entiteta. Koncept od kojeg polazi navedeni ustavno-pravni akt je enumeracija nadležnosti institucija Bosne i Hercegovine, uz presumpciju nadležnosti u korist entiteta. Time je oblast privatnopravnih odnosa dovedena pod jurisdikciju Republike Srpske, Federacije Bosne i Hercegovine, te Brčko Distrikta. Imovinski odnosi bračnih partnera u Bosni i Hercegovini uređeni su Porodičnim zakonom Federacije Bosne i Hercegovine, Republike Srpske i Brčko Distrikta, koji u pogledu zakonskog imovinskog režima sadrže imperativna pravila. Različita rješenja u pogledu regulisanja bračne stečevine mogu dovesti do nepravednih odluka u sudskoj praksi, kao i do neprovođenja bračnih ugovora. Imajući u vidu različito zakonsko normiranje karaktera bračne stečevine, autori ukazuju na mogućnost pojave interlokalnog sukoba zakona u situaciji kada je jedan privatnopravni odnos obilježen prisustvom međuentitetskog elementa, nakon čega predlažu i rješenja za prevazilaženje istog. Dodatni doprinos rada je eksplikacija odnosa između budućih komunitarnih kolizionih normi i domaćeg zakonodavstva u ovoj oblasti, što je posebno značajno imajući u vidu obaveze usklađivanja domaćeg prava sa acquis communautaire. Publisher An entity responsible for making the resource available Pravni fakultet Univerziteta u Bihaću i Centar za društvena istraživanja Internacionalnog Burč univerziteta Date A point or period of time associated with an event in the lifecycle of the resource 2014 Keywords Keywords. Article PeerReviewed K Law (General) Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 3396 Title A name given to the resource FOLK HERITAGE AS THE SOURCE OF CREATIVITY AND WRITING IN CLAUDE MCKAY’S A L ON G W A Y F R OM H OM E Author Author ALIHODZIC, Demir Abstract A summary of the resource. This paper examines the connections between folk heritage and literary creation, between folk religion and writing. How have writers named or recognized folk tradition in relation to their own writing? At what point does the writer act as a conjurer who calls up and creates literature, who transforms reality through the magical power of words? I argue that Claude McKay not only writes about his folk heritage in legitimizing ways, he writes from it. McKay’s autobiography A Long Way From Home points towards a concept of creativity that grounds itself in a complex imagination that moves between syncretic sources. In his writings, he truly recognizes the potential of folk heritage as a source of writing and innovation. Negritude poets turned to folk religion as evidence of an essential African culture, and the Harlem Renaissance writers conceived of folk culture as an indicator of authentic, albeit unsophisticated, Negro creativity. McKay, however, stands out as a rare writer who portrays folk heritage as a sign of writing itself--a writer who uses folk heritage to undercut a concept of authentic, unitary origins. McKay’s representations of folk religion act as barometers of his reaction to the class biases and political hegemony of the leading writers of the Harlem Renaissance. McKay locates within folk heritage an originary site of black literature. While he does not inscribe folk religion in his autobiography to the same degree as do other Afro-American writers, he does use a secular language of folk religion to depict the creative process of writing. Keywords: Claude McKay, folk heritage, creativity, writing, Afro-American literature. Date A point or period of time associated with an event in the lifecycle of the resource 2014 Keywords Keywords. Conference or Workshop Item PeerReviewed PE English Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 3548 Title A name given to the resource CULTURE, IDENTITY AND FOREIGN LANGUAGE TEACHING AND LEARNING Author Author A. Dumitrašković, Tatjana Abstract A summary of the resource. Language, culture and identity are essentially connected. But, it often happens that in foreign language classrooms teachers give little attention to the identity of the student. A student enters the classroom with his own identity and culture. When learning a foreign language, it is necessary for the student to learn and understand the culture of the foreign language, too. This is where the problem of culture and identity influencing teaching and learning foreign language arises. In general, students are representatives of the identity and culture of their first language and where they come from. In order for the student to learn the foreign language he must feel that he can express himself freely in the classroom. However, the students are likely to become confused when they are faced with the new culture of the foreign language. They now have to understand and adjust this to their sense of identity and their culture, and this can often lead to uncertainty. It can result in the student feeling unsure as to where they belong in the community. The teacher needs to be aware of this issue and should include it to the method of teaching and resources used. The paper deals with the question of how process of teaching and learning a foreign language affects the students’ identity and sense of belonging to a community. Keywords: foreign language, culture, identity Date A point or period of time associated with an event in the lifecycle of the resource 2014 Keywords Keywords. Conference or Workshop Item PeerReviewed PE English Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 3345 Title A name given to the resource THE IMPORTANCE OF GESTURES IN ANALYSING ESL CLASSROOM DISCOURSE Author Author A. Attelisi, Abdulhameed Abstract A summary of the resource. When people speak, they usually accompany their speech with movements of hands and arms. It is believed that some of these hand movements (gesture) exhibit a meaning which is related to the verbal message. Although the nature of the relationship between gesture and speech is still not clear, we all acknowledge that teachers in general and ESL teachers in specific rely heavily on gesture to make the learning process more effective. Therefore considering the essence of gestures in classroom interaction completes the picture of classroom discourse. The aim of this paper is to provide an example of the relationship between speech and gesture and how gestures play a crucial role in classroom interaction. Some extracts from ESL lesson were analysed with special focus on the use of gestures by the teacher and learners. The results indicate that in order to understand ESL classroom interaction we need to consider gestures in addition to speech. The study suggests some implications which might be beneficial when analysing ESL classroom discourse. Keywords: Gestures, Classroom interaction, ESL teaching, Conversation analysis. Date A point or period of time associated with an event in the lifecycle of the resource 2014 Keywords Keywords. Conference or Workshop Item PeerReviewed PE English https://omeka.ibu.edu.ba/files/original/5810f6380b29bea9d70f2a012184b072.pdf bf1c5e64f096ec74a1eb08c6455b7de0 PDF Text Text Journal of Economic and Social Studies The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis Ehigiamusoe Uyi Kizitoi Department of Research and Training National Institute for Legislative Studies, National Assembly, Abuja, Nigeria. ehiuyikizexcel@yahoo.com Abstract: One of the most commonly Keywords: Nigerian discussed issues in Economics is how tax Tax System, Economic rates relate to economic growth. An effective Growth, Tax Revenue, tax system ought to satisfy the twin purposes Consumption, of raising maximum revenue as well as Investment encourage production. In light of this, the paper examined the nexus between the JEL Classification: Nigerian Tax System and economic growth H2, O1, E0 using correlation method and Granger Causality to establish the relationship. The Article History paper revealed that the tax system has no Submitted: 11 Jun significant impact on growth because of the 2013 numerous challenges confronting the Resubmitted: 24 July system. Further analysis of the components 2013 of the tax system shows that Custom Duties Accepted: 29 July have more impact on economic growth than 2013 Company Income Tax, Value Added Tax and Petroleum Profit Tax. The paper also revealed a negative and insignificant relationship between Petroleum Profit Tax and Company Income Tax on the one hand, and between Petroleum Profit Tax and Value Added Tax on the other hand. Consequently, the paper recommended that the Nigerian tax system should be reformed so that it can have a significant impact on economic growth. Government should also embark on Introduction policies and programmes that will enhance the level of income of the citizens with a view The importance of taxation ininvestment, promoting economic growth and to accelerating consumption, development as the survival of many nations cannot be employment, as andwell tax revenue. 113 �Uyi Kizito Ehigiamusoe overemphasized. Through it, government ensures that resources are channelled towards important projects in the society. According to Emmanuel (2010), many developed and developing economies around the world had experimented and proven that no nation can truly develop without developing its tax system. Consequently, many countries have embarked on tax reforms and restructuring with a view to developing a tax system that maximizes government revenue without creating disincentiveness for investment. According to Kiabel and Nwokah (2009), within the last decade, the issue of domestic resource mobilization has attracted considerable attention in many developing countries due to unabating debt difficulties coupled with domestic and external financial imbalances. It is not surprising that many developing nations have been forced to adopt stabilization and adjustment policies which demand better and more efficient methods of mobilizing domestic financial resources with a view to achieving financial stability and promoting economic growth. A critical challenge of tax administration in the 21st century is how to advance the frontiers of professionalism, accountability and awareness of the general public on the imperatives and benefits of taxation in our personal and business lives which include: promoting economic activity; facilitating savings and investment; and generating strategic competitive advantage (Kiabel and Nwokah, 2009). If tax administration does not for any reason meet the above challenges, then there is a desperate need for reform. One of the most commonly discussed issues in Economics is how tax rates relate to economic growth. Advocates of tax cuts claim that a reduction in the tax rate will lead to increased economic growth and prosperity. Others claim that if we reduce taxes, almost all of the benefits will go to the rich, as those are the ones who pay the most taxes. What does economic theory suggest about the relationship between economic growth and taxation? Economic theory provides an explanation for a negative relationship between taxes and economic growth. Taxes raise the cost or lower the return to the taxed activity. Income taxes create a disincentive to earning taxable income. Individuals and firms have incentives to engage in activities that minimize their tax burden. As they substitute activities that are taxed at a lower rate for activities taxed at a higher rate, individuals and firms will engage in less productive activity, leading to lower rates of economic growth. In addition, government expenditures (how the taxes are spent) will also have impact on economic growth (Poulson and Kaplan, 2008). 114 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis In the case where government can finance spending out of taxation, productivity declines as the tax rate increases, as people choose to work less. The higher the tax rate, the more time people spend evading taxes and the less time they spend on more productive activity. So the lower the tax rate, the higher the value of all the goods and services produced. Secondly, government tax revenue does not necessarily increase as the tax rate increases. The government will earn more tax income at 1% rate than at 0%, but will not earn more at 100% than at 10% due to the disincentives high tax rates cause. Thus there is a peak tax rate where government revenue is highest. The relationship between income tax rates and government revenue can be graphed on what is known as Laffer curveii. The Nigerian tax system has undergone significant changes in recent times. The Tax Laws are being reviewed with the aim of repelling obsolete provisions and simplifying the main ones. Under current Nigerian law, taxation is enforced by the three tiers of government- federal, state, and local governments with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection) (Decree, 1998). According to the Decree, not withstanding anything contained in the Constitution of the Federal Republic of Nigeria 1999, as amended, or in any other enactment or law, the federal, state and local governments shall be responsible for collecting the taxes and levies listed in Part I, II and III of the Schedule, respectively. Emmanuel (2010) observed that the realisation was dawned on Nigeria’s government at a very critical period when its main source of revenue for decades, oil, witnessed an unprecedented crisis and decline due to general fall in the prices of oil at the international market. This affected the overall revenue of the country and the general performance of government at various levels, especially as it concerns execution of capital projects, which to a large extent, is key to national development. Consequently the federal government came up with a National Tax Policy which seeks to provide a set of guidelines, rules and modus operandi that would regulate Nigeria’s tax system and provide a basis for tax legislation and tax administration in the country. The primary objective of revamping, restructuring and reforming the Nigerian tax system is to make it the main source of revenue generation for the government. Many analysts have argued that the Nigerian tax system is repugnant to economic growth and development and that more reform is needed to reposition the system for utmost efficiency. On the other hand, some analysts have deposited that the Nigerian Tax System is an agent of economic growth due to the reforms and restructuring which took place in 115 �Uyi Kizito Ehigiamusoe the system in recent times. As the arguments on the relationship between the Nigerian Tax system and economic growth continue, it becomes pertinent to examine the Nigerian Tax System and its implications on economic growth. The primary objective of this paper is to investigate the role of the Nigerian Tax System in economic growth. Following this introduction, the remaining part of the paper is divided into four parts. Section two presents the theoretical and empirical issues. Section three contains an appraisal of the Nigerian tax system and economic growth, while section four presents the methodology adopted in the study. The fifth section presents the results of the study while the summary of major findings and conclusion are contained in the last section. Theoretical and Empirical Issues Theoretical Issues According to Barro’s (1979) tax- smoothening hypothesis, if the marginal cost of raising tax revenue is increasing, the optimal tax rate is a martingale. This implies that changes in the tax rate will be permanent. But a crucial question to ask about this hypothesis is whether government tax policies affect its output permanently or transitory? The endogenous growth theories posit that permanent change in a variable that is potentially influenced by government policies cause permanent change in the growth rate (Romer, 1986, 1987, 1990; Lucas, 1988; Rebelo, 1991; Grossman and Helpman, 1991; and Jones, Mannulli and Rossi, 1993). The policy effect in the endogenous growth model is contradictory to that of the neo-classical growth model (exogenous growth model) which anticipates that such changes will alter growth rate only temporary. The endogenous growth model argued that financing government activities through taxes may have impact on welfare and/or on growth (Ramsey, 1928; Solow, 1956; Cass, 1965; Feldstein, 1974). One of the prepositions of both the old and new growth theory is that income taxes have negative impact on the rate of economic growth. The endogenous growth models predict that temporary government spending policies have positive effects on output but a zero effect for permanent spending shocks. Similarly, a permanent changes in government policies can have permanent effects on the per capita growth rate of output but neo-classical growth model predicts that such policies cannot affect the per capita level of output permanently (Haq-Padda and Akram, 2011; Kocherlakota and Yi, 1999). Tax policy can affect economic growth by discouraging new investment and entrepreneurial incentives or by 116 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis distorting investment decisions since tax codes make some forms of investment more or less profitable than others or by discouraging work effort and workers’ acquisition of skills (Scully, 2006). It is necessary to note that several research works reveal an indirect relationship between tax burden and economic growth, hence, the higher the tax burdens, the lower the rate of growth, vice versa. Consequently, only optimal rate of taxation increases economic output in the future. The finding from the study conducted by Devereux and Love, (1995) using a two-sector endogenous growth model, observed that a permanent increase in the share of government spending in income that is financed by lumpsum tax will endorse interest and the long0run economic growth rate at the cost of social welfare. They further showed that a permanent increase in government spending reduces the long-run growth rates when it is funded with an increase tax, wage income taxes, while a temporary rise increases output but has no impact on long-run growth rate (Karras, 1999; Tomljanocich, 2004; Haq-Padda and Akram, 2011). Evan (1997) presents a procedure to examine whether fiscal policies (taxes) cause endogenous or exogenous growth (have permanent or transitory effect on economic growth). He used simple stochastic growth model that nests both endogenous and exogenous growth models and observed that growth rate should be stationary at level if growth is exogenous and difference stationary if it is endogenous when any policy variable which affect investment is difference stationary. This present study adopts tax rate as a policy variable which affects investment to check whether its effect is endogenous or exogenous on economic growth focusing on the Nigerian economy. Overview andChallenges of the Nigerian Tax System The Nigerian Tax System has undergone significant changes in recent times and under the current law, taxation is enforced by the three tiers of Government, namely the Federal, State, and Local, with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection) (Decree, 1998). The Decree gives the Federal, State and Local Governments the responsibilities for collecting the taxes and levies listed in Parts I, II and III of the schedule to the Decree, respectively. Part 1 of the schedule contains taxes to be collected by the Federal Government and they include: Companies Income Taxes; Withholding tax on companies, residents of the Federal Capital Territory, Abuja and non-resident individuals; Petroleum profits tax; Value added tax; Education tax; Capital gains tax on residents of the Federal Capital Territory, Abuja, bodies 117 �Uyi Kizito Ehigiamusoe corporate and non-resident individuals; Stamp duties on bodies corporate and residents of the Federal Capital Territory, Abuja; and personal income tax of members of the Armed Forces of the Federation, members of the Nigeria Police Force, residents of the Federal Capital Territory, and staff of the Ministry of Foreign Affairs and non- resident individuals. Similarly, Part II of the Schedule presents taxes and levies to be collected by the State Government and they include: Personal Income Tax in respect of –Pay-As-You-Earn (PAYE) and direct taxation (Self Assessment); Withholding tax (individuals only); Capital gains tax (individuals only); Stamp duties on instruments executed by individuals; Pools betting and lotteries, gaming and casino taxes; Road taxes; Business premises registration fee; Development levy (individuals Only); Right of Occupancy fees on lands owned by the State Government in urban areas of the State; and Market taxes and levies where State finance is involved. Part III of the Schedule contains taxes and levies to be collected by the local government and these include: Shops and kiosks rates; Tenement rates; On and Off Liquor Licence fees; Slaughter slab fees; Marriage, birth and death registration fees; Naming of street registration fee, excluding any street in the State Capital; Right of Occupancy fees on lands in rural areas, excluding those collectable by the Federal and State Governments; Market taxes and levies excluding any market where State finance is involved; Motor park levies; Domestic animal licence fees; Bicycle, truck. canoe, wheelbarrow and cart fees, other than a mechanically propelled truck; Cattle tax payable by cattle farmers only; Merriment and road closure levy; Radio and television licence fees (other than radio and television transmitter); Vehicle radio licence fees (to be imposed by the Local Government of the State in which the car is registered); Wrong parking charges; Public convenience, sewage and refuse disposal fees; Customary burial ground permit fees; Religious places establishment permit fees; and Signboard and Advertisement permit fees (See Taxes and Levies (Approved list for collection) Decree No 21 of 1998 Laws of the Federation of Nigeria). Micah et al. (2012) asserted that the current tax laws were enacted by the Military regimes while the civilian regimes since 1999 are yet to enact any tax law. However, these laws have been amended on a yearly basis to correct loopholes and promote the use of taxes as macroeconomic management instruments. He identified the major tax laws in existence as of September 2003 and various related amendment to include; Personal Income Tax Act of 1993; Companies Profits Tax Act of 1990; Petroleum Profits Tax Act of 1990; Value Added Tax Act of 1990; Education Tax Act of 1993; Capital Gain Act of 1990; Customs and Excise Management Act of 118 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis 1990; Minerals and Mining Act of 1999; Stamp Duties Act of 1990; and 1999 Constitution of the Federal Republic of Nigeria. The Nigerian tax system is faced with several challenges which prevent it from optimal performance. Some of these challenges as highlighted by FRN, 1997, 2002; Ariyo, 1997; Ola, 2001; Odusola, 2002, 2003, and Micahet al., 2012; include the following: a. Non availability of Tax Statistics: Tax statistics are not readily available in adequate quantity in Nigeria. Most of the Federal and State tax agencies such as Inland Revenue Services do not have adequate tax statistics that will enable them carry out their duties effectively. There is no adequate effort at collating, analyzing, storage, accessibility and retrieval of tax information. This, results to a serious problem of data management which does not provide much input to policy process. b. Inability to Prioritize Tax Effort: The political economy of revenue allocation in Nigeria does not prioritize tax efforts instead anchored on such factors as equality of states, population, landmass and terrain, social development needs, and internal revenue efforts (Micahet al., 2012). Of all these factors, internal revenue effort is accorded the least percentage. This scenario act as disincentive for a proactive internal revenue drive by the three tiers of governments, instead, encourages them to continue to rely heavily on volatile oil revenue. c. Poor Tax Administration: The Nigerian Tax System is characterized by poor tax administration because most of the tax agencies suffer from limitation in manpower, money, tools and machinery to meet the ever increasing challenges and difficulties. Micah,et al (2012) submitted that the negative attitude of most tax collectors toward taxpayers can be linked to poor remuneration and motivation. Similarly, Philips (1997) considered the paucity of administrative capacity as a major impediment to the government in its attempts to raise revenue in Nigeria. Most Inland Revenue Services in Nigeria do not have adequate tax professionals/officers. Micahet al. (2012) opined that anecdotal evidence shows that staffs are not provided with regular training to keep them abreast of developments in tax-related matters. This makes the administration of taxes in terms of total coverage and accurate assessment very weak. d. Multiplicity of Tax: The Nigerian tax system is characterized by multiplicity of taxes and as such many individuals and corporate bodies complain of the ripple effects associated with the duplication of taxes by the Federal and state governments. This problem arose from the states’ 119 �Uyi Kizito Ehigiamusoe complaints about the mismatch between their fiscal responsibilities and fiscal powers or jurisdiction. To compensate, some states took the initiative of levying certain taxes, which has led to arbitrariness, harassment and even closure of businesses (Micah et al., 2012). However, the list of Approved Taxes and Levies published by the Joint Tax Board has attempted to solve this multiple taxation. e. Regulatory Challenges: Micah et al. (2012) deposited that political risk and exchange controls pose some of the greatest business and regulatory challenges for companies doing business in Nigeria. Other challenging areas to companies include company law, protection of intellectual property, protection of investment and workforce. Political instability also poses a serious threat to business operations and by extension a serious problem to tax administration in Nigeria. f. Structural Problems in the Economy: The potential for maximizing the benefits of taxation in Nigeria is constrained by structural problems in the economy. More than 50 per cent of the Nigerian economy is predominantly informal sector which circumvent VAT because their operations are rudimentary and lack of adequate record keeping is low. Consequently many tax administrators resort to estimates to calculate taxes to be paid by those in informal sector which are prone to a wide margin of error or open up tax evasion opportunities (Micah et al., 2012). Similarly, Ariyo (1997) points out that the proportion of self-employed relative to the total working population is substantial, yet tax authorities have not devised appropriate means of collection effective personal income tax from this group. In fact, income from the self-employed or informal sector activities is grossly untapped. The same situation applies to income tax and excise tax. g. Underground Economy: According to Micah et al. (2012) the hidden or underground economy is usually taken to mean any undeclared economic activity and the major issue is how Inland Revenue Authorities can tackle hidden economy. These cover business that should be registered to pay tax such as VAT but are not; people who work in the hidden economy such as the rural areas with difficult terrain and pay no tax at all on their earnings; and people who pay tax on some earnings but fail to declare other additional sources of income. The serious policy issues that may results from the growth of the underground economy in Nigeria include tax evasion and inadequate official statistics on economic growth and this faulty information may lead to incorrect economic policy decision. As argued by Micah et al. (2012), the underground economy is just one of many concerns that affects the tax system and whenever there are taxes, 120 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis there will be tax evasion, and its consequences alters the way in which taxes impact on economic efficiency and income distribution. Empirical Issues Several studies have been conducted to investigate the relationship between tax policies and economic growth. Some of these studies suggest that tax policies have positive and significant impact on the rate of growth of output, while others observed that there is an inverse relationship between the two variables. Haq-Padda and Akram (2011) conducted a research to examine the impact of tax policies on economic growth using data from Asian economies and discovered that tax policies adopted by developing countries have no evidence that taxes permanently affect the rate of economic growth. Even though government policies can affect per capita income in the transitory path of the steady- state growth, this seems to be inconsistent with the endogenous class of growth models. The results of their study suggest that the relationship between output and the tax rate is best described by the neo-classical growth models because a higher tax rate permanently reduces the level of output but has no permanent effect on the output growth rate. Consequently, they recommended an optimal tax rate to finance the budget, with debt instrument used in financing transitory expenditure while permanent expenditure are to be financed through taxes. Ramot and Ichihashi (2012) used panel data from 65 countries during the period 1970 to 2006 to examine the effects of tax structure on economic growth and income inequality and discovered that company income tax (CIT) rates have a negative impact both on economic growth and income inequality. They also discovered that personal income tax rate does not significantly affect economic growth and income inequality. The authors therefore recommended the need to develop a modest design into the tax system because countries which are able to mobilize tax resources through broad-based tax structures with efficient administration and enforcement will be likely to enjoy faster growth rates than countries with lower efficiency. Also, the government should focus to reduce tax evasion, which is believed happen in the highest income group that could distort the horizontal and vertical equity in redistributing the income. Finally, very high earners or the highest income group should be subject to high and rising marginal tax rates, especially in the statutory top corporate tax rate. Ariyo (1997) evaluated the productivity of the Nigerian tax system given the negative impact of persistent unsustainable fiscal deficits on the Nigerian economy for the period 1970-1990 to devise a reasonably 121 �Uyi Kizito Ehigiamusoe accurate estimation of Nigeria’s sustainable revenue profile. The results of his study showed a satisfactory level of productivity of the Nigerian tax system. The author therefore recommended an urgent need for the improvement of the tax information system to enhance the evaluation of the performance of the Nigerian tax system and facilitate adequate macroeconomic planning and implementation. Omoruyi (1983) in his study took a comprehensive assessment of the productivity of the Nigeria tax system by evaluating the buoyancy of the tax system for the period 1960-1979. Focusing on both the indirect taxes such as import, export and excise duties, as well as direct taxes such as personal income tax and petroleum profit tax, evidence abound to support low level of productivity of the Nigerian tax system. Widmalm (2001) discovered in his study that a negative relationship exist between personal income tax and economic growth, while corporate income tax does not correlate with growth at all. The author measured personal income tax by using the average income tax.Lee and Gordon (2005) employed the top statutory income tax rate in their estimations and proposed that the concrete tax rates that greatly affect economic growth are the top statutory Company Income Tax (CIT) rates.From their estimation, it was discovered that only the CIT rate had a significant negative impact on economic growth in all their regressions by controlling the endogeneity of tax measures while the Personal Income Tax (PIT) rate and its progressivity did not significantly affect economic growth. Similarly, Arnold (2008) supports the results of Lee and Gordon (2005). He found that the CIT and PIT rate could reduce the economic performance of a country and compared progressive taxes and other tax indicators such as consumption tax and property tax. Analogously, Padovano and Galli (2002) argued that average tax rates lead to several biases which in turn lead to the conclusion that taxation has no impact on growth because of the possibility of high correlation with average fiscal spending. Poulson and Kaplan (2008) explored the impact of tax policy on economic growth in the states within the framework of an endogenous growth model from 1964 to 2004. In this model, differences in tax policy pursued by the states can lead to different paths of long-run equilibrium growth. Regression analysis was used to estimate the impact of taxes on economic growth in the states and the analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis underscores the negative impact of income taxes on economic growth in the states. 122 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis Ekeocha et al. (2012)examined the properties of the Nigeria’s tax system from 1970 to 2008 particularly the bases of the company income tax, value added tax and personal income tax. The result shows that company income tax base is not persistent, volatile, but sensitive, or pro-cyclical to the state of the economy. The value added tax base is not sensitive to the current state of the economy, not persistent and relatively volatile. It was also discovered that the base of the personal income tax is so volatile, and not persistent, but sensitive to the state of the economy. The policy implication of their finding supports the recent government tax policy reform of a shift in focus in the tax system from direct taxation to indirect taxation(Ekeocha et al 2012). Jibrin et al., (2012) used Ordinary Least Squares method to examine the impact of Petroleum Profit Tax on Economic Development in Nigeria for the period 2000- 2010. His finding revealed that Petroleum Profit Tax has a positive and significant impact on Gross Domestic Product in Nigeria. The author therefore recommended that government should improve on the effectiveness and efficiency of the administration and collection of taxes with a view to increasing government revenue. Enokela (2010)in his study, explore the relationship between Value Added Tax and economic growth of Nigeria using secondary data and multiple regressions. The results revealed that Gross Domestic Product (GDP) is positive and statistically significant to Value Added Tax, Government Capital Expenditure (GCE) is positive but insignificant to Value Added Tax, and Gross Domestic Product per Capita (GDPPC) is negative and statistically significant to Value Added Tax. The researcher recommended a zero tolerance for corruption to enable the revenue generated from VAT to be channelled to appropriate developmental projects. Emmanuel (2013) examined the effects of VAT on economic growth and total tax revenue in Nigeria using data covering 1994-2010. He formulated two hypotheses that VAT does not have significant effects on GDP and also on total tax revenue. The results of the regression analysis show that VAT has significant effect on GDP and also on total tax revenue. He therefore encouraged government to sensitize the people to enable it increase the tax rate so as to enlarge its annual revenue for economic development. An Appraisal of the Nigerian Tax System and Economic Growth 123 �Uyi Kizito Ehigiamusoe Taxation serves several useful purposes, some of which have political, economic or social bearings. These include; generation of revenue for the sustenance of the economic and social needs of the nation; control consumers demand, encourage investment and savings, fight economic depression, inflation and deflation, guarantee equitable distribution of income and wealth, control the general trend of the national economy, and ensure a proper allocation of national resources (Asada, 2011). Unfortunately, the structure of the Nigerian tax system has not been able to achieve these important purposes of taxation because of several impediments. Value Added Tax (VAT) was introduced in Nigeria as a substitute for sales taxes and is charged at a single rate of 5 percent on the supply of all taxable goods and services except those specifically exempted by the VAT Act. It has become one of the major sources of tax revenue for financing government expenditures. However, there are several issues emanating from the operation of VAT in the country, which has made many analysts to submit that the operation of VAT is far from what is desirable. Firstly, VAT rate in Nigeria is one of the factors contributing to the collapse of the real sector of the economy, because it disrupts the manufacturing sector by accelerating astronomical increase in the prices of goods and services. This is in addition to other teething problems already plaguing the sector such as inadequate power supply, poor transportation network, multiple taxation, etc. Even though VAT may not increase the production cost of companies, but it can increase the volume of unsold goods thereby reducing capacity utilization, increasing poverty levels, increase unemployment, discourage local and foreign investors and subject the country to economic volatility. Also, the removal of subsidy from petroleum products in January, 2012 by the Federal government has significant impact on tax revenue because this has significantly increase costs of production and distribution of companies leading to lower profits and the consequential lower revenue from company profit tax. Similarly, many companies and individuals will consume less, and therefore pay less VAT. If consumption among individuals and companies is reduced, this could have a knock-on effect on economic growth, profitability and employment, leading to less personal income taxes (Oyedele, 2011). Furthermore, the operation of VAT in Nigeria is capable of causing inflation because VAT is a consumption tax and as such increases the prices of goods and services. The real income of the final consumers is reduced leading to low purchasing power and further compound the poverty situation in the country. 124 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis Asada, (2011) provided evident to show that the operation of Personal Income Tax (PIT) in Nigeria remains the most unsatisfactory, disappointing and problematic of all the taxes in the tax system. Section 3 of the 1990 Decree enumerated the kinds of personal incomes chargeable to tax to include; (i) the gains or profits from any trade, business, profession or vocation; (ii) the salary, wages, fees, allowances or other gains or profits from any employment including gratuities, compensations, bonuses, premiums, benefits or other prerequisites allowed, given or granted to an employer; (iii) the gains or profits including premiums from the grant of rights for the use of occupation of any property; (iv) dividends, interests or discounts; (v) a pension, charge or annuity; (vi) any profits or gains not mentioned in the above categories. Despite this stipulation, the problem with income taxation in Nigeria is associated with the administration of the tax system bordering on tax collection, assessment, widespread corruption, and absence of competent administrators. Consequently, the problem of tax avoidance and evasion has reached an alarming proportion. It is thus important to note that the problem of tax collection lies more with direct assessment of the income and collection of taxes from the self employed rather than those under Pay-As-You-Earn (PAYE). Thus the problems of tax avoidance and evasion are more common with the self employed such as, distributors of manufactured goods, petrol dealers, contractors, doctors, and lawyers and other professionals in private practice, rather than those that derive their income from rents, dividends, interests, and properties. Infact, data or statistics had shown consistently over the years that while the self-employed paid less than 9.9% of their personal income as income taxes, employees under the (PAYE) scheme paid well over 90 percent (Asada, 2011). Asada, (2011, p. 8) observed that the “...assessment and collection of personal income tax from taxable individuals have been difficult in this country. There is apathy not only on the part of the educated but also the uneducated. While the illiterates refuse to pay taxes because they are unaware of the purpose of taxation and therefore regard a tax collector or rather a tax officer as an instrument of oppression, the rich ones refuse because they are not encouraged not only by the Government which wastes taxpayer's money on white elephant projects but also by the tax official who lives above his means.” An effective tax system ought to satisfy the twin purpose of raising maximum revenue and at the same time encourage production. Personal income tax is closely related to the pace of development and growth of the 125 �Uyi Kizito Ehigiamusoe economy; hence, there is the need for radical handling of the PIT system in Nigeria to reduce the incidence of tax avoidance and evasion. Besides, other problems plaguing personal income tax include; fraudulent practices of tax officials; high handedness on the part of tax officials in the process of dealing with tax payers; and undue delay in remitting approved benefits to legitimately entitled tax payers; problems of wilful default; delayed payment of tax; problem of lack of co-ordination between the various government departments especially when information is required from other government departments about certain tax payers which in most cases are not forthcoming (Asada, 2011). Petroleum Profit Tax (PPT) is the tax imposed on companies which are engaged in the extraction and transportation of petroleum products. It is particularly related to rents, royalties, margins and profit-sharing elements associated with oil mining, prospecting and exploration leases (Ekeocha et al., 2012). Government imposes Petroleum Profit Tax (PPT) to serve a number of useful purposes. Apart from providing revenue for the government, PPT also serves as instrument through which the government regulate the number of participants in the petroleum industry and gain control over public assets (Abdul-Rahamoh et al., 2013). It is an instrument for wealth re-distribution between the wealthy and industrialized economics represented by the multinational organizations, who own the technology, expertise and capital needed to develop the industry and the poor and emerging economies from where the petroleum resources are extracted (Jubrin et al., 2012). However, most of these objectives of PPT are not achieved in Nigeria because of several challenges such as lack of adequately trained tax inspectors and officials; inadequate application of technology; poor assessment of taxpayers; tax evasion and avoidance and ineffective tax laws and regulations Companies Income Tax (CIT) is charged on the profit or gain of any company accruing in, derived from, brought into, earned in or received in Nigeria. The tax rate has been 30% and it is applied on the total profit or chargeable profit of the company but the new tax policy has reduced it from 30% to 20%. It should be noted that Oil Marketing Companies, Oil Services Companies are liable to tax under CITA at the rate 20% and Education Tax at the rate of 2% on the assessable profit. According to Owizy, (2010) Companies Income Tax has significant impact on the economy of any nation because it serves as a stimulus to economic growth in the areas of fiscal and monetary policies. But the Nigerian case is difference because the revenue derived from CIT has been grossly understated as a result of several challenges. The factors responsible for the poor performance of CIT revenue in Nigeria include: high rate of tax 126 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis evasion and avoidance by companies, poor tax administration, poor taxpayers education, inconsistent government policies, lack of adequate statistical data, inadequate manpower and corruption among tax officials. Custom Duties constitute one of the oldest kinds of modern taxation in Nigeria having been introduced in 1860 as import duties. They are taxes on Nigeria’s imports charged either as a percentage of the value of the imports or as a fixed amount contingent on quality. Imports duties are the country's highest yielding indirect tax and are administered by the Nigerian Custom Service. Like PIT, CIT and PIT, the operation of custom duties in Nigeria is characterized by multidimensional challenges. These include; porous borders, problem of smuggling, security challenges, poor custom duty administration, inadequate data, shortage of adequately trained personnel, etc. these factors have contributed to the slow rate of growth of custom duties in Nigeria. Other taxes in the Nigeria’s tax system include the Education Tax which was introduced in 1993 and is seen as a social obligation placed on all companies in ensuring that they contribute their own quota in developing educational facilities in the country to prevent the education system from total collapse due to financial crisis that had rocked the sector for years. Excise duties are an ad-valorem tax on the output of manufactured goods and are administered by the country's custom services. Stamp duty is a tax raised by requiring stamps sold by the government to be affixed to designated documents, for example, conveyance document concerning land transfers bonds, debentures, conventions and warrants (Ekeocha et al., 2012). Capital gains tax is computed at the rate of 10% of the chargeable gain or profit made from the sales of goods or assets. In 1998, gains on sale of shares and stock of all forms were exempted from capital gains tax. Methodology This study adopts descriptive and analytical approaches to appraise the Nigerian tax system. To examine the relationship between the components of the Nigerian tax structure (PIT, CIT, VAT, PPT and Duties) and economic growth, the study employed correlation method for the investigation. But correlation is not causation, to establish the relationship between the components of the Nigerian tax system and growth the study adopted econometric techniques such as cointegration test. This enables us establish a long-run relationship between the variables and growth and as a basis for causality (Granger, 1986; Engle and Granger, 1987). If variables are cointegrated, it means causality exist. 127 �Uyi Kizito Ehigiamusoe However, since most time series are prone to unit root problem, therefore, before carrying out cointegration test, the unit root test is conducted on the series using Augmented Dickey-Fuller (ADF) and Philips Perron test. This enables us test for stationarity of the variables under consideration. Data for the study covered the period 1980 - 2011 and they were obtained from the Federal Inland Revenue Services (FIRS) and Central Bank of Nigeria (CBN) Statistical Bulletin, Economic Reports, and Annual Reports & Statement. Presentation of Results As a necessary but not sufficient condition for cointegration, each of the variables has been examined to determine whether it is stationary and, its level of stationarity. To achieve this, two set of unit root tests for stationarity are applied and these include the Augmented Dickey-Fuller (ADF) and the Philips-Perron (PP) tests (Dickey and Fuller, 1979; Phillips and Perron, 1988). The results of the Augmented Dickey-Fuller (ADF) and Phillips-Peron (PP) unit roots test results are reported in Table 1. Table 1. Unit Root Results Philips-Perron Test Statistic 1st Level Difference ADF Test Statistic Variables Level GDP CIT PPT VAT DUTIES 1% Critical Value 5% Critical Value 10% Critical Value 3.269889** 2.929596** 3.589488** 2.723028** 3.022049** -3.6752 1st Difference Conclusion -7.262526* -4.089735* -13.30042 I(O) -6.134331* -4.508666* -10.56448 I(O) -6.659538* -6.706078* -14.71899 I(O) -4.095043* 3.301270** -7.236022 I(O) -5.902162* -5.274464* -12.48892 I(O) -3.6752 -3.6752 -3.6752 -2.9665 -2.9665 -2.9665 -2.9665 -2.6220 -2.6220 -2.6220 -2.6220 Sources of data used: Central Bank of Nigeria (CBN) Statistical Bulletin, Economic and Annual Reports: World Bank National Accounts Data, CIA World Factbook. *indicates significant at 1% or a rejection of the null hypothesis of no unit root at the 1% level 128 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis ** indicates significant at 5% or a rejection of the null hypothesis of no unit root at the 5% level *** indicates significant at 10% or a rejection of the null hypothesis of no unit root at the 10% level Philips-Perron (PP) tests revealed that all the components of the Nigerian tax system are stationary at one percent except VAT variable which is significant at five percent and are all integrated of order zero with intercept terms, meaning that each series is level stationary. This shows that the hypothesis the states the presence of a unit root in any of the variables under the PP tests is rejected. However, the ADF test result is not as impressive as PP tests because all the components of Nigerian tax structure are significant at five percent and integrated of order zero. The ADF also showed that the absence of a unit root in any of the tax variables. Even though both PP and ADF arrived at similar results but the PP did so at lower significant percentage level. Therefore, this give more credence to the PP test because of its validity even if the disturbances are serially correlated and heterogeneous while the ADF tests require that the error term should be serially uncorrelated and homogeneous. Given the unit-root properties of the variables, we proceeded to establish whether or not there exists a relationship between tax variables and Gross Domestic Product using the correlation analysis. The result is presented in table 2. Table 2. Correlation Matrix GDP CIT PPT VAT DUTIES GDP 1.000000 0.306578 0.141539 0.043940 0.347506 CIT 0.306578 1.000000 -0.046138 0.566577 0.349796 PPT 0.141539 -0.046138 1.000000 -0.126909 0.205628 VAT 0.043940 0.566577 -0.126909 1.000000 0.282507 DUTIES 0.347506 0.349796 0.205628 0.282507 1.000000 Sources of data used: Central Bank of Nigeria (CBN) Statistical Bulletin, Economic and Annual Reports: World Bank National Accounts Data, CIA World Factbook. The results of the correlation analysis presented in table 2 show a positive and statistically insignificant (weak) relationship between real GDP (growth) and Nigerian tax structure (CIT, VAT, PPT, Duties) during the period under review. The correlation theory states that any correlation coefficient that is less than 5.0 is a weak correlation while that above 5.0 is strong. But the results of the correlation matrix presented in table 2 129 �Uyi Kizito Ehigiamusoe revealed that the correlation coefficient between economic growth and CIT is 0.31, while the correlation coefficient between economic growth and PPT is 0.14. Furthermore, the correlation coefficient between economic growth and VAT is 0.04, while the relationship between economic growth and Duties showed a coefficient of 0.35. Cross correlation among the components of tax structure showed that CIT and PPT are negatively and insignificantly related (-0.04), even though CIT is positively related to VAT (0.57) and Duties (0.35). This implies that as the growth rate of revenue from CIT increases, those of VAT and Duties will also increase, while the growth rate of revenue from PPT would be decreasing, vice versa. The correlation matrix also revealed that PPT and VAT have negative and insignificant relationship (-0.13) whereas a positive correlation exist between PPT and Duties (0.21). This means that as the growth rate of PPT’s revenue increases, VAT’s revenue would be experiencing declining growth rate. A positive and insignificant relationship also exists between VAT and Duties (0.28). This implies that as the growth rate of revenue from VAT is increasing, revenue from Duties would also be rising. The way the Nigerian tax system is administered focused mainly on the generation of revenue to the detriment of using taxation as an instrument of stimulating economic growth and development; creation of conducive environment for private sector development; provision of infrastructure and basic social amenities as well as accelerating the production of goods and services. Given that a relationship exist between the components of the Nigerian tax system and economic growth on the one hand and among the components of tax structure (CIT, PPT, VAT, Duties) on the other hand, it becomes pertinent to established the direction of the relationship. Having also established the unit-root properties of the variables, we proceeded to establish whether or not there is a long-run relationship among the tax variables by using Granger Causality method (Granger, 1986; Engle and Granger, 1987). 130 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis Table 3. Causality Test Results Null Hypothesis Obs FStatistic Probability Value CIT does not Granger Cause GDP 30 1.43071 0.25805 GDP does not Granger Cause CIT PPT does not Granger Cause GDP 30 30 3.62916 2.79415 0.04133* 0.08032** GDP does not Granger Cause PPT 30 1.00218 0.38135 VAT does not Granger Cause GDP 30 1.96257 0.16155 GDP does not Granger Cause VAT 30 0.86268 0.43422 30 0.28335 0.75564 30 2.07053 0.14721 VAT does not Granger Cause CIT 30 1.26130 0.30070 CIT does not Granger Cause VAT 30 2.62629 0.09220** PPT does not Granger Cause CIT 30 0.10421 0.90143 CIT does not Granger Cause PPT 30 0.47002 0.63040 DUTIES does not Granger Cause CIT CIT does not Granger Cause DUTIES 30 2.05660 0.14898 30 0.68207 0.51473 PPT does not Granger Cause VAT 30 0.33391 0.71926 VAT does not Granger Cause PPT 30 0.64127 0.53507 30 1.03461 0.37009 30 0.16600 0.84797 30 0.53125 0.59436 30 0.50671 0.60853 DUTIES does not Granger Cause GDP GDP does not Granger Cause DUTIES DUTIES does not Granger Cause VAT VAT does not Granger Cause DUTIES DUTIES does not Granger Cause PPT PPT does not Granger Cause DUTIES Remarks Accept Ho Reject Ho Reject Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Reject Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Accept Ho Sources of data used: Central Bank of Nigeria (CBN) Statistical Bulletin, Economic and Annual Reports: World Bank National Accounts Data, CIA World Factbook. * indicates significant at 5% or a rejection of the null hypothesis of no Granger causality at the 5% level 131 �Uyi Kizito Ehigiamusoe ** indicates significant at 10% or a rejection of the null hypothesis of no Granger causality at the 10% level Table 3 presents the results of the Granger Causality tests between the components of the Nigerian tax system and economic growth. The test is carried out to capture the direction of the causation between the components of the Nigerian tax system and economic growth. In other words, it is meant to show which out of the two variables drives the other and in which direction. The results show that CIT, VAT and Duties do not granger cause economic growth, while PPT granger causes economic growth. Instead, it is GDP that granger cause CIT, whereas GDP does not granger cause PPT, VAT and Duties. Similarly, all the components of tax system do not granger causes one another, except CIT which granger causes VAT. Summary of Conclusion Major Findings, Policy Implications and The paper discovered that the Nigerian tax system has no significant impact on economic growth. This could be adduced to several challenges confronting the system. This finding is consistent with the findings of Ramot and Ichihashi, (2012); Haq-Padda and Akram, (2011); and Poulson and Kaplan (2008). However, this finding is inconsistent with the findings of Kusi, (1998) who opined that the tax reform succeeded in improving revenue generation, enhancing the efficiency of the tax administration and improving equity in the tax system, as well as removed market distortions and strengthened economic incentives. Secondly, the paper also discovered that custom duties have more impact on economic growth than CIT, VAT and PPT. The reason for this revelation could be adduced to the high rate of imports in the country. As imports increases, the duties on imports will continue to experience growth, and ultimately increase output. The insignificant impact of VAT on growth is because VAT has effect on consumption which inturns has effects on investment and employment and ultimately income and output. Despite the dominance of the petroleum sector in the Nigerian economy, the growth rate of PPT revenue and its contribution to economic growth seems to be the least of the components of the tax system reviewed. Thirdly, it was also discovered that a negative relationship exists between PPT and CIT as well as PPT and VAT. This implies that as the growth rate of revenue from PPT increases, the growth rate of revenue from CIT will 132 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis continue to decline, vice versa. Similarly, as the growth rate of PPT revenue increases, the growth rate of VAT revenue declines, vice versa. The policy implication of the above findings is that the Nigerian tax system should be reformed to engineer a system that would have a significant impact on economic growth. If this is done, the growth rate of tax revenue would increase thereby accelerating the internally generated revenue in the country and make the tax system effective. An effective tax system should satisfy the twin purpose of raising maximum revenue and at the same time encourage production. For Petroleum Profit Tax (PPT) to have a significant impact on economic growth in Nigeria there is the need for the government to minimize or eliminate the widespread corruption and leakages that permeate the PPT’s assessment, collection and administration. The low growth rate of VAT revenue and its contribution to economic growth is a reflection of the low level of income of majority of Nigerians who purchase the goods and services which VAT is imposed on. It becomes pertinent therefore for the government to embark on policies and programmes that will enhance the level of income of the citizens so as to raise the consumption level of the people with a view to accelerating investment, employment, output, and ultimately tax revenue. VAT, being a consumption tax levied at each stage of consumption chain, is borne by the final consumer and is capable of increasing the prices of products thereby fuelling inflation and reducing real output. It may become necessary for the government to adopt the appropriate fiscal and monetary policies to control inflation arsing from the imposition of VAT. To increase the rate of growth of custom duties, the government should tackle the challenges of porous borders, smuggling, security and shortage of adequately trained personnel at the agencies responsible for the assessment, collection and administration of custom duties in Nigeria. Tax inspectors and officials should be professionally trained through onshore and off-shore training programs with a view to equipping them with the necessary skills and expertise of tax assessment and administration. It may also be necessary to re-visit and review some tax laws and regulations that are repugnant to the performance of the tax system so as to block and discourage the loopholes that are being exploited by taxpayers to either evade or avoid tax payments. 133 �Uyi Kizito Ehigiamusoe The revenue collection agencies should be equipped with the appropriate infrastructure and technology to effectively modernize the tax system in Nigeria to ease tax assessment, payment, monitoring and back-duty audit. To sanitize the tax system, the anti-graft agencies such as Economic and Financial Crime Commission (EFCC) and Independent Corrupt Practices and other related Offences Commission (ICPC) should be empowered to arrest and prosecute tax defaulters and corrupt tax officials to serve as deterrent to others. Also, tax revenue should be transparently and judiciously utilized for investment and in the provision of infrastructure and public goods and services so as to accelerate economic growth, employment and wealth creation. If the government is transparent and accountable to the people in the utilization of tax revenue in providing good roads, electricity supply, social amenities and other infrastructural facilities, taxpayers such as individuals and companies would be committed to tax payments and tax evasion and avoidance will be drastically reduced. 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Tax Reform and Revenue Productivity in Ghana. AERC Research Paper 74, African Economic Research Consortium, Nairobi 135 �Uyi Kizito Ehigiamusoe Moffatt, Mike (2010). The Effect of Income Taxes on Economic Growth: Income Taxes - Looking at Extreme Cases. PwC Nigeria Website, December 19. Micah, L.C., Chukwuma, E. and Umobong, A. A. (2012). Tax System in Nigeria: Challenges and the Way Forward.Research Journal of Finance and Accounting, 3(5), 1-14 Omoruyi, S.E. (1983). Growth and Flexibility of Federal Government Tax Revenue: 1960-1979. Economic and Financial Review, 21(1), 11–19. Osoro, N.E (1993). Revenue Productivity Implications of Tax Reform In Tanzania. AERC Research Paper, September. Owizy, S.O. (2010). The Problems of Companies Income Tax Administration in Nigeria: A Case Study of Federal Inland Revenue Service, Makurdi. Oyedele, Taiwo (2011). Fuel Subsidy Removal and Tax.PwC Nigeria Website, December 19. Poulson, B.W. & Kaplan, J.G. (2008). State Income Taxes and Economic Growth. Cato Journal, 28(1) Ramot, I. & Ichihashi, M. (2012). The Effects of Tax Structure on Economic Growth and Income Inequality. IDEC Discussion paper2012, Hiroshima University, Japan. Romer, P. M (1990). Endogenous Technological Change. The Journal of Political Economy, 98(5), 71-102. Romer, P. M (1986). Increasing Returns and Long-Run Growth. The Journal of Political Economy. 94(5), 1002-1037. Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70, 65-94. Tomljanocich, M. (2004). The Role of State Fiscal Policy in State Economic Growth. Contemporary Economic Policy, 22(3), 318-330. 136 Journal of Economic and Social Studies �The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis Appendix 1. The Growth Rate of GDP and Tax Structure Revenue in Nigeria 1980 -2011 Year CIT (N’billion ) Growth rate of CIT (%) VAT* (N’billion ) Growth rate of VAT PPT (N’billion ) Growt h rate of PPT Duties (N’billion ) Growt h rate of Duties Growt h rate of GDP 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.56 0.48 0.73 0.61 0.79 1.0 1.02 1.24 1.57 1.98 3.41 6.8 9.6 18.8 23.4 26.9 31.4 37.8 40.1 46.2 51.1 68.7 89.1 114.8 113.0 140.3 244.9 327.0 361.9 568.1 654.3 700.5 8.9 -14.3 52.1 -16.4 29.5 26.5 2.0 21.6 26.6 41.0 72.2 99.4 41.2 95.8 24.5 14.9 16.7 20.4 6.1 15.2 10.6 34.4 29.7 28.8 -1.6 24.1 74.6 33.5 10.7 57.0 15.2 7.1 0.41 0.65 0.68 0.87 0.69 0.98 1.04 0.82 0.98 1.37 2.01 4.9 8.9 16.2 19.1 25.3 29.4 33.5 39.3 47.1 58.5 91.8 108.6 136.4 159.5 178.1 221.6 289.6 394.4 468.5 549.5 649.5 42.6 58.5 4.6 2.8 20.7 42.1 6.1 -21.2 19.5 39.8 46.7 143.7 81.6 82.1 17.9 32.5 16.2 13.9 17.3 19.8 24.2 56.9 18.3 25.5 16.9 11.7 24.4 30.7 36.2 18.8 17.3 18.2 8.6 6.3 4.8 3.7 4.7 6.7 4.8 12.5 14.5 24.2 26.9 36.2 43,5 50.2 67.9 80.1 92.8 120.8 140.0 164.3 525.1 639.2 392.3 683.5 1183.5 1104.9 2038.3 1500.6 1951. 3 1256.5 3797.3 3976.3 20.1 26.7 -23.8 -22.9 28.6 42.6 -28.4 160.4 16.0 66.9 11.2 34.6 20.2 15.4 34.9 17.9 15.8 30.2 15.9 17.4 219.6 21.8 38.8 74.2 78.4 -6.6 84.5 -26.4 30 35.6 202.3 4.7 1.41 1.88 1.80 1.11 0.92 1.20 1.29 2.72 3.28 4.58 6.72 10.72 14.21 24.51 41.75 44.78 55.0 59.15 65.3 87.9 101.5 170.6 181.4 195.5 217.2 232.8 177.9 241.4 280.2 295.5 365.7 438.3 17.8 -25.0 -4.3 -38.3 -17.1 30.4 7.5 110.8 20.5 39.6 46.7 59.5 32.6 68.9 -80.6 7.3 22.8 7.6 10.3 34.6 15.5 68.0 6.3 7.8 11.1 6.9 -23.6 35.7 16.1 5.5 23.8 19.9 4.20 -13.13 -0.23 -5.29 -4.82 9.70 2.51 -0.70 9.90 7.20 8.20 4.76 2.92 2.20 0.10 2.50 4.30 2.70 1.88 2.70 3.50 3.50 3.0 7.1 6.2 6.9 5.3 6.4 5.3 5.6 8.4 7.2 Sources: Central Bank of Nigeria (CBN) Statistical Bulletins, Economic & Annual Reports; World Bank National Accounts Data, CIA World Factbook. *Note that VAT replaced Sales tax in 1994. iEhigiamusoe, Uyi Kizito is a Research Economist at the Research Division in the National Institute for Legislative Studies, National Assembly, Abuja, Nigeria. iiThe Laffer curve was developed in 1979 by Economist Arthur Laffer. According to Laffer's theory, changes in tax rates affect government revenues in two ways. 137 �Uyi Kizito Ehigiamusoe One is immediate, which Laffer describes as "arithmetic." Every dollar in tax cuts translates directly to one less dollar in government revenue. The other effect is longer-term, which Laffer describes as the "economic" effect. This works in the opposite direction. Lower tax rates put more money into the hands of taxpayers, who then spend it. This creates more business activity to meet consumer demand. 138 Journal of Economic and Social Studies � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 2399 Title A name given to the resource The Nexus between Tax Structure and Economic Growth in Nigeria: A Prognosis Author Author Uyi Kizito, Ehigiamusoe Abstract A summary of the resource. One of the most commonly discussed issues in Economics is how tax rates relate to economic growth. An effective tax system ought to satisfy the twin purposes of raising maximum revenue as well as encourage production. In light of this, the paper examined the nexus between the Nigerian Tax System and economic growth using correlation method and Granger Causality to establish the relationship. The paper revealed that the tax system has no significant impact on growth because of the numerous challenges confronting the system. Further analysis of the components of the tax system shows that Custom Duties have more impact on economic growth than Company Income Tax, Value Added Tax and Petroleum Profit Tax. The paper also revealed a negative and insignificant relationship between Petroleum Profit Tax and Company Income Tax on the one hand, and between Petroleum Profit Tax and Value Added Tax on the other hand. Consequently, the paper recommended that the Nigerian tax system should be reformed so that it can have a significant impact on economic growth. Government should also embark on policies and programmes that will enhance the level of income of the citizens with a view to accelerating consumption, investment, employment, and tax revenue. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2014-03-15 Keywords Keywords. Article PeerReviewed H Social Sciences (General) https://omeka.ibu.edu.ba/files/original/5496cf1b44501ccea9654946832f9758.pdf 7cf80f3f726e41995ad94f6331ac1a28 PDF Text Text Journal of Economic and Social Studies Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government Lauren O’Byrne lobyrne@knights.ucf.edu Michael Miller mike.miller@knights.ucf.edu Ciara Douse ciara.douse.ucf@knights.ucf.edu RupaVenkatesh rupa.venkatesh@knights.ucf.edu Naim Kapucu School of Public Administration University of Central Florida Orlando, FL 32816 USA kapucu@ucf.edu Abstract: Innovation is being utilized as an Keywords: Social important governance tool for improving Innovation, government functions. The purpose of this Sustainable research is to identify social innovation Innovation, Seoul programs and initiatives in Seoul, South Korea, Metropolitan through a review of literature on social Government, innovation and a case study of the Seoul Partnerships for Metropolitan Government (SMG). This research Innovation suggests that the SMG fosters social innovation through a variety of metropolitan examples and JEL Classification: such innovation projects help to sustain H10 metropolitan governance and develop partnership opportunities and collaboratives. This study contributes to the literature on social Article History innovation in the public sector by looking at the Submitted: 16 Jan. 2013 motivations for innovation, the culture to Resubmitted: 08 Feb. facilitate innovation, collaboration as a tool for 2013 innovation, and finally how to sustain Accepted: 25 March innovation. The study also emphasizes how 2013 collaboration with the civil society and the private sector helps to promote social innovation Introduction through creativity, leadership and sustainability. Other metropolitan governments can benefit The concept of the innovation is not new presented to government. Although scholars from exploring social innovations only began focusing on innovation in the public in this study because the examples demonstrate a sector within the past way for government to become more effective 53 and efficient by using innovation as a tool for governance. �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu decade (Bartlett and Dibben, 2002; Borins, 2002; Fernandez and Rainey, 2006; Gonzalez and Healey, 2005), innovative ideas in the public sector have permeated public administration’s history, from the New Public Management movement of the early 1980’s to the New Public Service movement (Denhardt and Denhardt, 2000). Innovation is important and an essential tool for improving public services (Albury, 2005). This study focuses on social innovation in the public sector through a case study of the Seoul Metropolitan Government (SMG), South Korea. Social innovation in this study is defined as the successful implementation of activities, such as ideas, practices, or objects, through new collaborations and partnerships, in ways that positively impact society by improving the delivery of public services. Social innovation in the public sector incorporates a new framework that allows for collaboration not only with other public organizations but also with its citizens (Baxter et al., 2010). The importance of social innovation is something that should be taken advantage of in democratic nations. The opportunities that collaborations and partnerships create to share each other’s resources are significant in many governments that are burdened by severe budget deficits among other resource constraints. With a lack of new revenue streams, pooling each other’s assets, including human and social capital, is critical. The research looks at what is meant by social innovation in the public sector and provide examples from SMG. The purpose of the study is to identify examples of social innovation in SMG, and consider how collaborative strategies with the civil society and the private sector may promote social innovation through creativity, leadership, and sustainability. Also, factors for innovation will be examined and suggested, as well as barriers that may cause threats to discovering innovative strategies for SMG. Technology is considered a viable resource for innovation in the public sector (Borins, 2002). Over 50% of Seoul’s citizens utilize the Internet (Holzer and Kim, 2002) and innovative technology will continue to advance Seoul’s civil society and public sector performance. In fact, Seoul has recognized that government service is being rapidly changed by advances in technology and has already initiated social innovation programs pertaining to technology (Kim, 2009). This study focuses on identifying a variety of social innovation strategies designed to transform public services in South Korea, as well as reviewing results of these services (Calista et al., 2010). To get a full understanding of SMG’s innovative strategies, the following research questions were examined as part of the study: What is the recent economic and political context for the social innovation of SMG, at the 54 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government national and metropolitan levels, and in terms of globalization of urban competitiveness? What are the benefits of social innovation? What is the significance of creativity (including technological innovation, entrepreneurship, and artistic/cultural forms) for urban governance, competitiveness, and development? How are social innovation programs sustained over time? What are the motivations behind social innovation in SMG? How will Seoul’s citizens benefit from the innovative programs? Why should the public sector collaborate with the nonprofit and private sectors to help in social innovation? Literature suggests that there are some governance factors that may influence the promotion of social innovation, such as leadership, partnerships/empowerment, diffusion of innovation, culture of innovation, sustainability, resources for innovation, champions of innovation and successful implementation (Abramson and Littman, 2002; Bartlett and Dibben, 2002; Borins, 2002). This study contributes to the literature on social innovation in the public sector by looking at the motivations for innovation, the culture to facilitate innovation, collaboration as a tool for innovation, and finally how to sustain innovation. Lessons learned in this study can be used in other metropolitan settings in other regions of the world. Literature Review and Background Ample literature of the past decade has given a renewed focused on innovation in the public sector (Bartlett and Dibben, 2002; Borins, 2002; Fernandez and Rainey, 2006; Goldsmith, 2010; Gonzalez and Healey, 2005). This section begins with discussing the motivations for innovation in the public sector, specifically addressing SMG, South Korea. Following is a section addressing the need for a culture of innovation, including how to foster innovation and what the barriers to innovation may be. Next is a section on collaboration, and includes the importance of collaboration with a focus on public-private collaborations in SMG, South Korea. Finally, sustaining innovation is addressed, and will include policies and procedures for innovation as well as funding for research and innovation. Innovation is a deliberate act spurred by public interest and put into action by the public sector, the private sector, and non-profit organizations. The concepts of social innovation have been implemented in numerous countries around the world and continue to evolve over the years (Goldenberg et al., 2009). When considering innovation, the idea can be applied across industries and has recently been embraced by the public and private sector alike (Lichenthaler, 2011). The idea of innovation 55 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu involves the use of “purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively” (Lichenthaler, 2011, p. 76). Research conducted on the impact of innovation in industry has highlighted the importance of innovation and strengthened awareness (Lichenthaler, 2011). Motivations for Innovation As private sector companies strive to increase profits in the face of mounting challenges, they have turned to innovation as a means to confront the challenges and attain a positive outcome (Hippel, 1988). For example, the multi-billion dollar company Proctor and Gamble was able to utilize innovation to implement a new design effort for potato chips. When the initial new design effort was being considered, the costs and timeframe to implement the new design were high, so the company utilized innovation to search for additional resources (Hudson and Sakkab, 2006). Utilizing innovation, Proctor and Gamble was able to partner with another company to implement the new design and eventually made their North American Pringle’s business record doubledigit growth within two years. The strategies pertaining to open innovation as utilized by Proctor and Gamble have resulted in billions of dollars in revenue (Hudson and Sakkab, 2006). The growth of social innovation has resulted in the concept being considered a legitimate public policy affecting public policy on social and economic issues. Social innovation is embraced by the United States government and the Canadian government to address emerging social challenges (Goldenberg et al., 2009). While the idea of social innovation sounds progressive, there are facts behind the motivations of government to actually consider, plan, and implement a social innovation program. The successes in other countries and the obstacles encountered may help shape motivational forces involved with implementing social innovation in Seoul, South Korea. As governments throughout the world have initiated major reforms due to the call for reductions in the work force, reduction of state influence through organization, and the reform of public enterprises, Seoul has followed along the same path. This path came to light after the 1997 economic crisis in Korea, which resulted in leaving the governments within Korea to deal with severe financial burden. The reforms in Korea have been primarily aimed at addressing main weaknesses of the Korean government including centralization, lack of transparency, rigidity and low competitiveness. Korean President Dae Jung Kim set the following 56 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government objectives for carrying out their restructuring program: build a small but efficient government, create a highly competitive government, and create a customer-oriented government (Kim, 2000). Culture of Innovation Innovation is not an option for governments today that in the current economy have been forced to downsize, privatize, reengineer, and improve customer service (Kim, 2000). This means that adapting to a culture of innovation is essential. The degree to which organizations function and have the ability to reform is vastly dependent upon the organization’s culture (Raadschelders, 2009). Research has identified several different organizational functions that may foster innovation, as well as functions that may serve as barriers to innovation. Organizational aspects like leadership, openness, trust, and access foster a culture of innovation (Ahmed, 1998). Leadership paradoxically requires flexibility, empowerment, control, and efficiency (Khazanchi et al., 2007), making it difficult to establish the boundaries of a good innovative culture. Through empowerment, however, managers can help their subordinates develop new skills, foster trust, and reduce potential resistance to innovation (Khazanchi et al., 2007). Other factors of organizational and societal cultures may also foster innovation. Cultures that have champions for innovation may sometimes have a culture that encourages innovation. One study, however, found that there might be some type of interactions among the type of champion and specific cultural factors (Bartlett and Dibben, 2002). For example, Bartlett and Dibben (2002) found that “a champion working without a sponsor and doing so in a culture which focuses more on creativity than implementation is less likely to see innovations through to successful implementation” (p. 114). Champions may work with different organizational areas, such as promoting e-government. In fact, the ability of an organization to develop IT capacity, including IT resources, financial resources, and e-government resource knowledge has been shown to support e-government innovation (Kim, 2009). One of the strongest indications of innovations is the availability of resources (Kim, 2009). Both the organizational culture and the culture of SMG that has resources at its disposal may be more apt to embracing attitudes of innovation. The culture that is most accepting of innovation is one that adopts the attitude of “we can innovate” rather than “we do not have the means to innovate.” This idea can be seen in Bartlett and 57 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu Dibben’s (2002) literature on the ideas of including a champion and sponsor as a means to public entrepreneurship. There are instances in which organizations or certain organizational cultures may limit the opportunity for innovation. These barriers to social innovation include short term budgets and planning, poor risk/change management skills, few rewards or incentives to innovate, technologies constraining organizational arrangements, overly relying on certain sources of innovation, reluctance to close failing programs, culture of risk aversion, and pressures and administrative burdens (Albury, 2005). Some research has identified ways to combat these barriers. A culture that is open to new ideas, allows and empowers communities, citizens, and staff, and fosters learning can increase the likelihood of having a culture of innovation. In addition, organizations that are forward looking and proactive, and try to enable risk taking may also increase the likelihood of an innovative culture. Other ways to combat barriers include good management practices, clear communication, sound implementation processes, clear drivers, strong incentives, and the involvement of the private and/or nonprofit sector through collaborations (Baxter et al., 2010). Collaboration for Innovation Partnerships are used in the public sector to enhance their administration as well as create good governance. Forming successful partnerships is considered a characteristic of good governance. Before collaborations encompassed South Korea’s public sector, SMG made a difficult but needed transition from centralization to decentralization in the mid 1980’s. After this hurdle was crossed, plans to partner with nonprofit organizations were SMG’s next movement (Holzer and Kim, 2002). Collaboration in South Korea enables their public sector to foster other organizations’ innovative ideas and apply it to their own administration (Baxter, 2012). Seoul Metropolitan Government’s goals are to increase public engagement by partnering with NGOs and NPOs, and maximize networks with public and private partnerships to improve Seoul’s environment. This study will look at innovative examples of how Seoul developed successful partnerships with nonprofit organizations as well as other private and public organizations. 58 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government Civic engagement is a prominent influence of South Korea values. SMG are continually searching for new ways to educate citizens and increase their participation. One of their methods of doing so is collaborating with NGOs, NPO, and public-interest organizations to develop new ways engage citizens. Studies suggest that NGO’s and NPOs address more prevalent issues, such social support for the poor, than government agencies (Lowry, 2008). In fact, civil society organizations seem to steer public servants in the right direction when it comes to participation. For example, when the democratic evolution began in the mid 1980’s, effective public interest groups were formed by the younger generation to close the gap between citizens’ uncertainty in participation and education. Their mission was to empower citizens to participate in public debate and decision-making, defend human rights, and protect public use (Kim, 2011). SMG has taken the initiative of maximizing private and commercial partnerships to provide a safer environment for citizens. Since Seoul’s population has increased vastly over the years, their environmental needs continue to affect citizens’ quality of life (Cohen, 2009). The challenges of urban renewal developments were reasons SMG formed public and private partnerships to ameliorate Seoul’s environment. For example, to restore Seoul’s attractiveness, SMG collaborated with Fraunhofer, Europe’s largest research and development institute, to discover the Cheonggyecheon Restoration project. During the First World War, Cheonggyecheon’s area functioned as a sewer waste for local neighborhoods. Soon enough, the roads in the Cheonggyecheon roads were covered by rivers, which damaged small businesses in surrounding areas and housing units for the lower class. However, in 2002, SMG decided to restore the Cheonggyecheon area by dismantling the roads and recovering what was lost. Overall, partnering with Fraunhofer’s researchers was an effective project that both SMG and citizens can benefit from. Lastly, forming collaborations with public organizations is another example used for innovation. Consider the housing concerns for lower class citizens in South Korea. SMG formed joint development projects with public organizations to assist in developing concrete ideas that may advance housing opportunities for the lower class. In the late 1980s’, five year housing plans were created in urban areas to make up for the massive housing destructions for the less fortunate. In 1983, South Korea adopted the innovative idea of launching joint-development plans for lower and middle class citizens. For instance, SMG developed housing renewal projects for various income groups through collaboration with 59 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu homeowners’ associations and construction companies. Popular construction companies handled housing expenses and homeowners were responsible for the area developments (Ha, 2003). In order for SMG to remain effective in building successful collaborations, sustainable concepts must be addressed. Sustainability of Innovation in Public Sector The concept of sustainability relies on the policies to be able to sustain its positive benefits over a long period of time without burdening future generations. In order for the public sector to successfully implement innovative policies, it must have policies in place that can allow for such innovation to take place for those areas. If social innovation is not supplemented by policies that allow for its continued successes, then its citizens will only enjoy its benefits in the short term rather than the long term. Currently, scientific research is geared towards traditional areas such as science and technology but fail to recognize the need for supportive policies in social areas such as education, health, and social welfare (Baxter et al., 2010). These areas also require funding sources to be readily available. However, the recent economy does not allow the government this luxury. This is where collaborating with the private and nonprofit sectors would benefit the public sector in making up the differences in terms of monetary resources by joining together the power of the public sector’s human capital. Healthy Outlook is an example of the partnership between the public and private sectors in order to realize a common goal of mitigating the health risks of the chronically ill. By joining forces with the already existing data sets of the public sector with the existing skills of the private firm, Medixine, this goal was met (Baxter et al., 2010). Solutions to complicated social issues involve an integrated approach, which involves more collaboration between policy areas. Again, this includes the public sector working with the private sector who can supply the revenue sources or already existing technologies that the public sector may not have access. Accessible funding sources allow for the public sector to sustain innovation over a greater period of time. Governance capacity is the ability to build relationships with different sectors within government and nontraditional partners in order to work more effectively towards a common goal. Effective governance capacity is necessary in order to build long lasting relationships to ensure that innovative practices are continued. In addition, mutual understanding of what each party’s responsibilities is important as well. The most 60 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government sustainable way is to formally create rules that define the roles. The Ouseburn Trust in Great Britain is an example of the government opening the opportunity for the public, specifically to “change agendas and practices such as the decisions over planning permission in the valley” (Gonzalez and Healy, 2005, p. 2062). It does this by allowing the trust to sit on the Advisory Committee that makes these decisions, equaling its members to the number of elected city officials. Though the Trust’s powers are limited, it does allow the opportunity for the government to encourage new ideas from a sector of society that traditionally does not have a direct role in making decisions. It is also the recognition that government may not have all the answers and should build its capacity of finding all possibilities to a solution. Public participation is another important tool for social innovation that can lead to sustainability. Citizens are more likely to be involved in their government if they feel they can have a direct impact on its creation, especially in terms of policy. The fostering of this sense of responsibility and pride can lead to societal stability as civil unrest decreases. Porto Alegre, Brazil institutionalized participatory budgeting after the poor districts revolted against the government for being underrepresented. After allowing these districts to be involved in the allocation of monetary resources, renovations in public schools and roads were underway in the poor districts as this was ranked as top priorities (Novy and Leubolt, 2005). The idea that citizens are allowed to have a direct say in resource allocation so that government is meeting the needs of those that are traditionally underrepresented is a huge step in creating trust between civil society and government. Rather than exploring the adoption of social innovation in governance as a whole, this study seeks to utilize different dimensions that have been shown through the literature to enhance innovations in focusing on why the SMG is seen as an innovative government. Each dimension discussed, obtaining motivations for innovation, adopting a culture of innovation, collaborating to innovate, and working to sustain innovation may lead to the outcome of sustainable social innovation is seen in Figure 1, the conceptual framework to this study. The conceptual framework is based on previously literature, suggesting what leads to increased social innovation. Based on the conceptual framework, the research explores how and why SMG innovates and works to sustain innovation in their government structure. 61 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu Figure 1. Conceptual Framework for Social Innovation Context of the Study The South Korean government is a republic with shared powers among the president, legislature, and courts, and has three different branches of government: the executive, judicial, and legislative. The economy has seen a fairly remarkable growth in the past decades. In 2010, the GDP was approximately $1.459 trillion. In addition, South Korea oversees around $270 billion in annual expenditures. This growth has helped the country move past the Korean War and into the Organization for Cooperation and Development (OECD). Now, South Korea is the seventh largest trading partner to the United States and holds the 15th largest economy in the world. South Korea is known for electronics manufacturing, telecommunications, automobile productions, chemicals, shipbuilding, steel, and overall innovations. South Korea has nine provinces, seven of which are administratively separate cities. As the capital, Seoul is the largest city with around 10.5 million people. Seoul makes up the SMG, and is known to have several innovative urban governance strategies, such as their bus system (Kim and Dickey, 2005). The bus system reform of 2004 serves as only one 62 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government example that researchers in this study draw their conclusions on for SMG’s social innovations. Other examples include: SMART Seoul, Han River, Seoul International Business Advisory Council, the 2013 pilot project, and the SIBAC meeting. Like the US, the Korean administrative values are typically viewed as Weberian and bureaucratic top-down systems (Raadschelders, 2009). The Korean government has followed the traditions of NPM and been faced with demands for the government to operate more like a business (Kim, 2000). An example of this may be often seen in the negative public opinion of bureaucracy and civil servants, which stands out over good public service (Goodsell, 2004). The negative public opinion of these views, though administration has progressed over the years, may limit the culture and opportunity for innovation among public organizations. Korean and US governments alike must find ways to improve public opinion in order to create an increased culture of innovation. One way that has been shown to create public value is to develop ways to put together resources to support e-government development strategies (Kim, 2009). Method A literature review was conducted using scholarly books and journal articles, and materials obtained from the SMG field study, including briefings, field visits, focus groups, and interviews with members of SMG. The field visit afforded researchers first-hand experience communicating and interacting with government members, and includes SMG discussions on innovations that are a valuable part of this research. Specifically, the key issues addressed in the literature review were studied throughout the fieldwork of lectures, site visits, observations, and interactions and interviews with key SMG officials. Keywords used in the literature review search included: social innovation, metropolitan governance, sustainable innovation, Seoul metropolitan government, leadership, and partnership for innovation. Results and Discussions Based on a field visit to the SMG, researchers have explored data collected on SMG from researchers, policy makers, and government staff through information sessions, as well as first hand conversations with these individuals, and through field visits throughout Seoul. Findings indicate several instances of social innovation throughout the SMG, which are discussed in four sections below: motivation, culture, collaboration, and 63 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu sustainability. Examples seen in the field study of how Seoul is socially innovative are presented in Table 1 and discussed in the following sections. Table 1. SMG Innovations Seoul Innovations Descriptions SIBAC Meeting Culture of leadership 2013 pilot project Culture of creativity and increased citizen participation Han River Governance sustainability Seoul International Business Advisory Council (SIBAC) Building governance capacity SMART Seoul Technology Innovation Motivation The motivations for SMG to implement social innovation are numerous, but they ultimately rest with becoming a more competitive global city and raising the quality of life levels for current residents of Seoul. The previous research endeavors completed by other countries such as Canada and by private companies like Proctor and Gamble provide motivation to implement social innovation projects because positive results have been attained in the past. Seoul’s strong desire to improve the quality of life for their citizens and to increase their competitiveness as a global city have led to the implantation of social innovation programs. The culture of Korea and the cohesiveness of the Korean population and specifically the population in Seoul also highlight the region’s strong beliefs towards working for the good of all people, which is a key aspect of social innovation. Motivation to engage in social innovation was observed first-hand at the annual SIBAC conference hosted in Seoul in October of 2012. SIBAC, which had 21 members in 2011, focuses on presenting economic policy issues to the Seoul mayor and an effort to make Seoul a more competitive global city. Seoul Metropolitan Government was motivated to engage in innovation and formed SIBAC in 2001 to further their plan to bring 64 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government international business leaders to the table to exchange ideas and offer different perspectives to improve Seoul. SMG has also implemented the Seoul Global Resource center, which is a center dedicated to assisting the growing foreigner population in Seoul. The implementation of such a resource for foreigners highlights SMG’s quest to innovate by bringing in members from the international community to help make Seoul a more competitive global city. Culture of Innovation As seen in the literature review, a culture that fosters leadership helps create and maintain innovation (Ahmed, 1998; Albury, 2005). Researchers witnessed a number of examples of such actions of leaders taking initiative to innovate within SMG. One prime example is the way that Park Won-soon, Mayor of Seoul, pushed innovation through his leadership in the SIBAC meeting. The formation of SIBAC was made possible by the support of Korean culture, which facilitated the leadership and motivation to engage in social innovation. One way that Seoul creates an innovative culture is by creating a culture of creativity within the city itself. A lack of creativity hinders the full use of technology and resources that are needed to become innovative. A goal of Seoul is to be a “cultural city being created together with citizens.” In the global era of Seoul, the creative culture is made up of city management, citizen’s life, and activities. The city management is focused on life with human dignity, and the urban economy is based on creativity, and other capabilities. According to materials gathered in Seoul, the long-term vision is to supplement, fulfill, and develop jointly with its citizens. This is accomplished in Seoul by considering both people-oriented humanism and communication. This means that people are placed before other values, and they are the highest standard for human measurement. In addition, communication means moving from a closed system with its citizens, to that of an open communication net. Other ways to create an innovative culture is by creating a culture that fosters growth. Seoul has a creative cultural industry, and prides itself on their job creation culture. In addition, Seoul establishes a foundation for local community activities by increasing residents’ cultural space for communication and operations. Currently, Seoul is working to increase and expand the village space for cultural activity use in the community and working to support citizens’ participation in community media. Some of the ways they are planning to do this are through opening town art workshops and book cafes, operating village cultural classrooms, as well 65 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu as building and supporting a media center pilot project that will begin in 2013. Collaboration for Innovation Some challenges Seoul faces are the innovative use of information technology (IT) required responding to emerging urban issues, such as citizen participation, housing, and low economic growth. The use of IT is an evident factor that is used to transform Seoul into a world-class city. Seoul proposed SMART SEOUL 2015 to improve the competiveness in civic engagement and crisis interventions. According to Lee Changhee, Manager of Information Planning, Seoul Metropolitan Government introduced four strategic imperatives designed to enhance Seoul’s technology and improve the access of technology throughout Seoul. First, SMG’s vision is to become recognized as a city that utilizes technology. Some of the interesting gestures SMG considered are to offer one million citizens hands-on training by 2015, and free Wi-Fi around the city to make Internet access easily accessible. Second, on and off-line interactions with the help of Internet Addiction Prevention Education, which focuses on students, teachers, and parents, is another vision SMG believes will empower citizens to engage more with their fellow citizens, especially educators. Additional strategies Changhee mentioned were to advance living infrastructure through CCTV, which are innovative camera systems that monitors traffic and public safety. The use of CCTV is expected to reduce crime rates by ten percent by 2015. In addition, living structures are anticipated to increase through the use of Love PC campaign, which targets low-income families and social welfare facilities. Lastly, Smart Seoul 2015’s aim is to make Seoul an innovative economic and global culture hub through open governance, which provides citizens with comprehensive open data regarding living concerns or issues, such as air or water quality. Sustainable Innovation One of Seoul’s most important resources is the Hangang (or Han) River, which flows through the center of the City and was named as the most important landmark of Seoul in a 2011 survey. It is a remarkable what Seoul has done in such a short time as the city’s needs have evolved. During the 1900s-1950s, the main purpose for the river was for transportation needs and its water supply. From 1968-1979, Seoul turned Han River into a development project to allow citizens to reside near the 66 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government river and also started restoring the purity of the water. After the City received its bid to host the 1988 Olympics, 9 parks were created along the River. As a result, 8 ecological parks remain. Recognizing that the Han River’s purpose changes as the city itself evolves and new policies are created around this need is an example of sustainability. Policies should be dynamic since the progression of a city does not remain static. Seoul has continued plans for Han River to restore it to its original appearance. Part of this vision is to incorporate eco-friendly management practices to reduce the barriers preventing access to its environment. In addition, along with the theme of the new government under Mayor Won Soon, Seoul wants to promote its city’s rich culture using the Han River by creating culture programs and leisure activities. Encouraging the public to participate in these types of activities fosters national pride and a sense of unity. Knowing that the government is center to enhancing quality of life by creating parks and programs for its citizens to enjoy creates good will towards the government from its citizens. This adds to the social stability of the city. Finally, the SIBAC 2012 is an example of SMG building its governance capacity by inviting prominent international business leaders to Seoul to share with the Mayor ideas on how he can further develop his city economically. This year’s theme was entitled “Seoul as a Role Model in Triple Partnership: Business, Government, Citizens.” The title in itself is a testament to SMG’s interest in building its governance capacity by being open to hearing advice from the private sector but also keeping its citizens actively engaged. The private sector can lend innovative ideas, as well as funding sources, to SMG while SMG must ensure that its citizens’ needs are being met and that there is public support for these projects. Briefly mentioned by several presenters, most notable Mr. Sang oh Shim (Deputy Director of Low-income and Homeless Assistance), there seems to be a gap of services to elderly citizens. Traditionally, their children took care of their parents when they became old and moved them into their own place of residence. However, culture is changing where this is no longer taking place and SMG officials have recognized a need to address this issue. Researchers see this is an opportunity to create innovative strategies to provide for one of their most vulnerable citizens, the elderly. Based on the success of SIBAC, a similar conference regarding the rapidly aging population may be beneficial to not only Seoul but also to other governments across the globe, that are facing similar issues. 67 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu Conclusion This research contributes to previous research by providing an understanding of the social innovation initiatives in Seoul, South Korea, and how social innovation projects in SMG have led to or are leading to sustainable metropolitan governance. In addition, considering social innovation techniques in other governments may have practical applications in other nations with similar resources or similar capabilities and access to innovation. The various facets of social innovation implemented by SMG including Han River sustainability, formation of SIBAC, 2013 Pilot Project, and SMART Seoul all touch on Seoul’s quickly evolving economic and political status. As far as significance for creativity for urban governance, competitiveness, and development, this can be seen in the innovative, creative culture of the SMG. Seoul is consistently looking at ways to build and increase community cultural space, as well as space that can be used for arts and even citizen participation in community media. The pilot project in 2013 for constructing and supporting media centers throughout Seoul for citizen participation is just one example of the creativity for urban governance, competitiveness, and development. Social innovation programs are sustained over time by not only meeting short-term needs but also recognizing that long-term needs also need to be incorporated into any plans. The motivations behind social innovation in SMG rest on previous successes by other organizations with innovation programs, increasing global competitiveness, and increasing the quality of life for Seoul residents. It is clear the benefits that Seoul’s citizens receive from numerous programs and initiatives that have been discussed throughout this paper. One example is the cultural space and access to citizen participation initiatives that the government is working on with the pilot project. Another example is the access and convenience of several of these initiatives for citizens, which can be increased by collaboration between public and nonprofit sectors. Collaborating with public and private organizations is needed to transform Seoul into a competitive city. Seoul’s Mayor recognizes that there is a dire need for SMG to become receptive to hearing how global competitive organizations enhance their services that both citizens and administration will benefit from. SMG held the SIBAC meeting to gain insight of the outcomes of forming successful collaborations with the private and public sector. One of the keynote speakers, Nicholas Walsh, Vice Chairman of Chart, emphasized that partnering with both sectors are more capable of diminishing social challenges. Although Seoul is 68 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government progressing, they continue to face hurdles in affordable housing for lower class, public education, and their environment. However, with the help of global competitive organizations and their ideas, Seoul will prevail and become a world-class city, where both Seoul’s administration and citizens can benefit from (SIBAC, 2012). The benefits seen in SMG from social innovation include benefits for the governance structure, the citizens, and the networks in which Seoul is involved. Continuing to utilize innovation as a tool for governance within Seoul has made the city more competitive, and contributed to it being among the seventh largest trading partner to the US and hold the 15 th largest economy in the world. South Korea is also known for its overall innovations. The considerations of the SMG throughout this paper have demonstrated a prime example of why the city has helped the nation to be considered innovative. Certainly this research is not without its limitations. Researchers did not have limitless information to the governance projects and initiatives presented throughout this paper. In addition, many research presentations were transcribed to English from Korean, which presented a language gap in communicating with governance officials and presentations of information. We are not attempting to argue that Seoul is the number one metropolitan government that other governance structures should be modeled after. Instead, researchers are suggesting that there are several innovations within the SMG that other metropolitan governments may consider when pursuing social innovations as a governance tool. Moving forward, researchers suggest that Seoul continue to motivate for innovation, continue to create a culture of innovation, and continue to partner and collaborate among their own sector and across sectors. Sustaining innovation among the SMG will be done through each of these, as well as through policies and procedures for sustainability and governance capacity to foster new ideas. Acknowledgements: The field research put forth by the authors of this paper would not have been possible without the leadership and assistance of the Seoul Metropolitan Government and the University of Seoul. 69 �Lauren O'Byrne, Michael Miller, Ciara Douse, Rupa Venkatesh, Naim Kapucu References Abramson, M. A. & Littman, D. (2002). Innovation. New York, NY: Rowman & Littlefield. Ahmed, P. K. (1998). Culture and Climate for Innovation. European Journal of Innovation Management, 1(1), 30-43. Albury, D. (2005). Fostering Innovation in Public Services. Public Money and Management, 25(1), 51-56. Baxter, D., Schoeman, M., Goffin, K. & Micheli, P. (2010). Public sector innovation: the role of commercial partnerships.Bedfordshire, UK: Cranfield School of Management. Bartlett, D. & Dibben, P. (2002). Public Sector Innovation and Entrepreneurship: Case Studies from Local Government. Local Government Studies, 28(4), 107-121. Borins, S. (2002). Leadership and Innovation in the Public Sector, Leadership and Organization Development Journal, 23(8), 467-476. Calista, D., Melitski, J., Holzer, M. & Manoharan, A. (2010). Digitized Government in Worldwide Municipalities between 2003 and 2007. International Journal of Public Administration, 33 (12-13), 588-600. Cohen, A. M. (2009). Seoul: Model of Sustainability. The Futurist, 11-12. Fernandez, S. & Rainey, H. G. (2006). Managing Successful Organizational Change in the Public Sector. Public Administration Review, 66(2), 168-176. Goldenberg, M., Kamoji, W. Orton, L. & Williamson, M. (2009). Social innovation in Canada: An update. Canadian Policy Research Network. Retrieved December 13, 2012 from http://www.cprn.org/documents/51684_EN.pdf. Goldsmith, S. (2010). The Power of Social Innovation: How Civic Entrepreneurship Ignite Community Networks for Good. San Francisco, CA: Jossey- Bass. Gonzalez, S. & Healey, P. (2005). A Sociological Institutionalist Approach to the Study of Innovation in Governance Capacity. Urban Studies, 42(11), 20552069. Goodsell, C. T. (2004). The Case for Bureaucracy: A Public Administration Polemic. Washington, DC: CQ Press. Ha, S. K. (2004). Housing poverty and the role of urban governance in Korea. Environment and Urbanization, 16, 139. Hagen, K. (2002). Civil Society and Democracy in South Korea. The Good Society, 11(2), 40-45. 70 Journal of Economic and Social Studies �Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government Hippel, E. V. (1988). The Sources of Innovation. New York, NY: Oxford University Press. Holzer, M. & Kim, B.J. (2002). Building Good Governance: Reform in Seoul. The National Center for Public Productivity & Seoul Development Institute. Hudson, L. & Sakkab, N. (2006). Connect and develop: Inside Proctor and Gamble’s new model for innovation. Harvard Business Review, 84(3), 58-66 Khazanchi, S. Lewis, M. W. & Boyer, K. K. (2006). Innovation-supportive culture: The impact of organizational values on process innovation, Journal of Operations Management, 25, 871-884. Kim, P. S. (2000). Administrative Reform in the Korean Central Government. Public Performance & Management Review, 24(2), 145-160. Kim, P. S. (2011). Civic engagement, politics and policy in South Korea: Significant developments but a considerable way to go. Public Administration and Development, 31(2), 83–90. Kim, S. (2009). A Case of Local E-Government Performance in South Korea: Do Leadership and Management for Results Matter. International Public Management Review, 10(1), 170-199. Lichtenthaler, U. (2011). Open innovation: Past research, current debates, and future directions. The Academy of Management: Perspectives, 1(25), 7593. Lowry, C. (2008). Civil Society Engagement in Asia: Six Country Profiles. Asia Pacific Governance and Democracy Initiative (AGDI). Retrieved January 16, 2013 from http://www.eastwestcenter.org/fileadmin/resources/research/PDFs/Combin ed_country_reviews.pdf. Novy, A.& Leboult, B. (2005). Participatory budgeting in Porto Alegre: Social innovation and the dialectical relationship of state and civil society. Urban Studies, 42, 2023-2069. Raadschelders, J. C. N. (2009). Trends in the American Study of Public Administration: What Could They Mean for Korean Public Administration? The Korean Journal of Policy Studies, 23(2), 1-24. Seoul International Business Advisory Council (SIBAC). (2012). Retrieved from http://english.seoul.go.kr/gtk/news/news_view.php?idx=15711. U.S. Department of State. (n.d.). Background note: on South Korea. Retrieved December 7, 2012 from http://www.state.gov/r/pa/ei/bgn/2800.htm 71 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 2396 Title A name given to the resource Social Innovation in the Public Sector: The Case of Seoul Metropolitan Government Author Author O’Byrne, Lauren Miller, Michael Douse, Ciara Venkatesh, Rupa Kapucu, Naim Abstract A summary of the resource. Innovation is being utilized as an important governance tool for improving government functions. The purpose of this research is to identify social innovation programs and initiatives in Seoul, South Korea, through a review of literature on social innovation and a case study of the Seoul Metropolitan Government (SMG). This research suggests that the SMG fosters social innovation through a variety of metropolitan examples and such innovation projects help to sustain metropolitan governance and develop partnership opportunities and collaboratives. This study contributes to the literature on social innovation in the public sector by looking at the motivations for innovation, the culture to facilitate innovation, collaboration as a tool for innovation, and finally how to sustain innovation. The study also emphasizes how collaboration with the civil society and the private sector helps to promote social innovation through creativity, leadership and sustainability. Other metropolitan governments can benefit from exploring the social innovations presented in this study because the examples demonstrate a way for government to become more effective and efficient by using innovation as a tool for governance. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2014-03-15 Keywords Keywords. Article PeerReviewed H Social Sciences (General) https://omeka.ibu.edu.ba/files/original/95141b69fd91607c2de20f675340014b.pdf 87098b862d6caad5d862284eeac68774 PDF Text Text Journal of Economic and Social Studies Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison Mehmet Mercan Faculty of Economics and Administrative Sciences Hakkari University Hakkari, Turkey mercan48@gmail.com Abstract: Nowadays, in the new world order caused by economic globalization, technological and political changes in world economy result in changes in the competitiveness of the countries. Everyday, countries intensify their effort to gain, develop and protect their power to compete with other countries. Today, even the most developed countries are trying to strengthen their competitiveness in order to enlarge their share in the world economy. Turkey desires to increase its competitiveness in all sectors in order to raise the welfare level of its people and to speed up its economic growth. Turkey endeavors to increase its competitiveness against EU, who is one of the most important economic partners of Turkey, in all sectors. In this study, the period of 1980-2010 is used to measure the competitiveness of Turkey towards the EU countries and aims to achieve predictions for the future, and the watermark. Keywords: Globalization, Competitiveness, International Trade, Turkey, EU. JEL Classification: F12, F14, F15 Article History Submitted: 10 August 2012 Resubmitted: 19 July 2013 Resubmitted: 02 August 2013 Resubmitted: 11 August 2013 Accepted: 27 August 2013 39 �Mehmet Mercan Introduction The common objective for all the countries in the changing world order is to provide competition conditions and increase the prosperity. However, competition is a multidimensional fact. Competitiveness of the countries and companies is depended on various factors. The importance of competitiveness has increased after the rapid change and development with the globalization in every sense. Studies about competition and competitiveness in countries also have increased. Since competition and competitiveness are handled by various discipline in various aspects, there is no a common definition or measurement technique. However, if we want to classify in general, there are two points of view in the measurement of competitiveness. The first one is the studies carried out in micro (business and industry) level. The second one is the macro (country) point of view. While the competition among businesses inside the country and the effects of this competition on national and international market is emphasized in micro level approach, the status of the country in international competition is emphasized in macro approach. Competitiveness means that while countries try to increase the incomes of their citizens under the conditions of free and established market, at the same time they can present their products and services to the international markets and become successful. The definition mostly attributed in macro approach is this one (Çivi et al., 2008). We can put in order the three basic characteristics of competitiveness according to the study results like this: The first one is that the main objective of having competitiveness is to provide an increase the living standards in the country and the prosperity of the citizens. This prosperity increases can be provided by paying attention to the activities like investment and production, increasing the cooperation between all institutions and paving the way for specialization. The second one is that the country should focus on its specific features, abilities and potentials in order to catch the opponent countries in producing the products and services and distributing them. The third one is that numerous indicators are used to analyze the competitiveness of the country. For instance, international market share, trade balance of the country, production, employment, openness i.e. (Çivi et al., 2008). The competitiveness of Turkey with 15 basic countries of EU between 1980 and 2010 periods was tried to be measured by the globalization index measuring the competitiveness. It was aimed to make predictions for the future according to the upcoming results. 40 Journal of Economic and Social Studies �Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison This study consists of four sections. In the first section literature scanning was carried out. In the second section data set and method was presented and explained. In the third section there are analysis results. In the fourth section a general evaluation will be carried out and recommendations will be made. Literature Review Theoretical foundations of international competitiveness date back to the period of classical economics. There are several numbers of approaches such as the Theory of Competitive Advantage Approach, Double Diamond Approach, and Nine Factors Model Approach for international competitiveness. The issues such as the definition of international competitiveness concept, assessment, explaining the determiners for this concept and stating the economic relations of it ranges according to the chosen approach. So there is no generally accepted approach for international competitiveness (Kibritçioğlu, 1996:112). In theoretical context, there is no certain consensus about international competitiveness and the factors affecting it and also it is not possible to say that the explanations are complementary each other (Yapraklı, 2011). The concept of international competitiveness is one of the significant facts of the globalization process. The concept of international competitiveness in literature is handled and tried to be defined in three different ways as in firm, sector and international level (Kesbiç and Ürüt, 2004: 56-59). Neither there is a generally accepted approach for the definition of the concept of international competitiveness, nor there is an approach for assessment and determining the factors affecting it. In international economy literature, macroeconomical, microeconomical and commercial approaches are generally used in order to assess the competitiveness in international trade. Among these approaches, the commercial approach is based on the theory of international foreign trade and it searches the foreign trade performance of sector/country. As a part of commercial approach, international competitiveness can be calculated via the Revealed Comparative Advantage Index which was built up by Balassa in 1965 (Wziatek-Kubiak, 2003: 2-4). In order to assess international competitiveness many indices are also used in literature such as The Relative Export Advantage Index, The Relative Import Influence Index, The Relative Trade Advantage Index, Intra-industry Trade Index, Specialization in Export Index, Similarity in Export Index, Relative Competition Advantage Index, i.e. (Altay and Gürpınar, 2008: 262-267). 41 �Mehmet Mercan When we deal with the factors affecting the international competitiveness, many factors are used such as micro and macro economical, price and out of price, within firm and non-firm, structural, qualitative, social and political, i.e. In economy literature, many qualitative and quantitative factor affecting the competitiveness are handled, but price- oriented factors are usually emphasized for the ease of finding data and assessment. In other words, in the factors affecting the international competitiveness and its assessment issues there are versatile studies in economy literature. However, depending on the time, as a result that developing countries began to compete more than with developed countries, studies on the efficiency of the factors affecting the international competitiveness began to increase. In this sense, many economic variables were handled and labor cost, foreign exchange rate, market volume (GDP) and openness were mostly used variables. So we can clasify the studies in four main titles (Yaprakli2011: 377-379): First group studies searched the relationship between the labor costs and competitiveness. As a determiner for competitiveness labor cost is the contraversial field. Studies about the effect of the cost of labour on the international competitiveness was performed by Fagerberg (1988), Jorgenson and Kuroda (1991), Guerrieri and Meliciani (2005). As a result of these studies, it was found out that the high price level in the labor costs meant high productivity and qualified labour employment. This result is the indicator of the efficient source usage and productivity-cost advantage and it affects the international competitiveness positively. On the other hand, Agrawal (1995), Wang (2002), Omel and Varnik (2009) and Du Toit (2010) found out in their studies that high labor costs had a negative effect on the competitiveness. As a conclusion, we can not say that there is a certain consensus about the effect of labor cost on the international competitiveness. The other variable used to measure the factors affecting the international competitiveness was intended for assessing the relationship between market volume and international competitiveness. The common view about this issue is that: Expansion of market volume increases the competitiveness. Studies about this issue was carried out by Fagerberg (1988), Kim and Marion (1997), Esterhuizen (2006), Mu and Zhang (2010) and Feinberg and Weymouth (2011). As a conclusion of these studies it was identified that Gross Domestic Products of the countries was a significant factor for international competitiveness. Also the expansion of market volume increases the international competitiveness by benefiting from scale economies and providing efficient source usage. However, it was found out that GDP was not enough to explain the 42 Journal of Economic and Social Studies �Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison international competitiveness in the studies on developed and developing countries by Cho, Moon and Kim (2008). Another variable used to measure international competitiveness was foreign exchange rate. In the studies measuring the effect of foreign exchange rate on international competitiveness by Yoshitomi (1996), Zawalinska (2005) it was identified that the increase in the exchange rate affected the international competitiveness positively. However, in the studies by Safin and Rajtar (1997), Du Toit (2010) it was identified that the increase in the exchange rate affected the international competitiveness negatively. As a result, it is necessary to present the certain effect of the foreign exchange rates about increasing or decreasing the competitiveness. If the positive effect’s is bigger than the negative effect, the increase in foreign exchange rates affects the competitiveness positively; if the negative effect’s is bigger than the positive effect, it affects the international competitiveness negatively. Also in some studies measuring the international competitiveness openness was used. Openness degree of a country is usually measured by the proportion of its GDP to its foreign trade volume (export + import) (Kazgan, 1988: 116). In the studies by Fagerberg (1988), Feinberg and Weymouth (2011) and Egbetokun (2011), it was found out that there was a positive effect between openness and international competitiveness. This result was obtained by the country’s becoming more competitive due to the reasons such as efficient resource distribution, production increase and technology transfer while the openness degree increased. Globalization Index in our study is based on Çoban and Çoban (2004: 167). The method used in the Çoban and Çoban’s (2004) study, based on Human Development Index of United Nations Development Plan (UNDP). In the study by Çoban and Çoban (2004), competitiveness of Turkey and European Countries between 1970 and 2001 periods was analyzed by GI (Globalization Index) developed by A.T. Kearney Consulting Company. Even when country experiences took into consideration, it was found in the study that competitiveness of Turkey increased remarkably and accession to the EU would affect this process positively. Data Set and Methodology In this study a comparative competitiveness of Turkey with EU countries between 1980 and 2010 periods was to be expressed with the help of GI (export + import / GDP), globalization index in goods and services. The 43 �Mehmet Mercan data set in the analyses which was consisted of total export, total import, foreign direct investments, population, the number of incoming and outgoing tourists to the country, domestic loan volume, the number of internet users and GDP series in terms of countries was collected from the World Bank database (World Bank, 2012). The issues such as economic integration, political links, technology and personal communication which are considered to be a factor for the globalization can be expressed parametrically with the help of globalization index called shortly as KFP and used to measure the international competitiveness of the countries (Çoban and Çoban, 2004). With the use of globalization index the issues such as international affairs and policies, commercial and financial movements, human mobility, thoughts and international data flow can also be embodied. So competitiveness can be explained more significantly (A.T. Kearney, 2001). Globalization Index is originally based on the HDI (Human Development Index) developed by UNDP (United Nations Development Programme). At first step the variables to be used in the index are identified and then quantitative measurements of the variables involved are carried out. The obtained quantitative values after these two steps are normalized to clear the problems which can be seen in various variables identified with different modules. For example, before normalizing the two variables such as average life span (year) and GDP in human development index, the second one approaches nearly one hundred times of the first one. At last, the aggravated sum of normalized variables which gives a numerical result for each country is checked out. In the globalization index consisting of 11 variablesi the weights of variables used in index calculations are drown up in Table-1 (Lockwood, 2001: 5). 44 Journal of Economic and Social Studies �Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison Table 1. The Variables in Globalization Index Category Variable Name Globalization in Goods and Services Commerce Financial Globalization Globalization in Personal Communications Convergence Income Foreign Direct Investments (FDI) Portfolio Investments (PI) Tourism Telephone Transfer payments Internet Users Internet Connections (Personal Connections) Internet Sites Security Servers Variable Definition (Export +Import)/GDP GDP according to Nominal GDP/PPP* (Loans + Depths)/GDP (Incoming FDI + Outgoing FDI)/GDP (Incoming PI + Outgoing PI) / GDP (Incoming Tourists Number + Outgoing Tourist Number) / Total Population International Phone Call to and for per Individuals (Minute) (Loans + Depths)/GDP Internet Users/ Total Population Number of Servers for Each One Million People Number of Security Servers for each one million people Weights 1 1 1 2 2 1 2 1 2/3 2/3 2/3 *PPP: Purchasing Power Parity When Table 1 is observed, we can see that globalization index was calculated by considering four categories as globalization in goods and services, financial globalization, globalization in personal communication and internet connection. The degree of economic integration is calculated by combining the data about international trade, foreign direct investments and capital flows, wages for foreign workers and workers exchange rates in globalization index. Also the index embodies the international technological communication by regarding the number of internet users, internet sites and security servers. 45 �Mehmet Mercan 46 Journal of Economic and Social Studies �Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison Analysis Results Competitiveness of Turkey with EU countries was comparatively analyzed by means of globalization index developed by A.T. Kearney Consulting Company in this study. Index values calculated by us and given in Appendix-1 were also displayed in Table 2, Figure 1 and Figure 2 with a summary like approach reflecting the globalization trend in terms of competitiveness. There are periodical averages of globalization values of the countries between 1980-2000 and 2001-2010 periods in Figure 1 indicating the development of globalization index in terms of periods. Table 2. Development of Globalization Index and Change in Terms of Periods Ran k Countries 1980-2000 Term 1 Denmark 2 Sweden 3 Luxembou rg 4 EU 5 Belgium 6 Netherland s 7 Austria 8 Ireland 9 Germany 10 France 11 Finland 12 United 6.79 9 6.21 8 4.63 9 3.92 9 3.46 7 3.46 2 3.45 8 3.45 2 2.87 0 2.77 2 2.67 0 2.44 9 Countries 2001-2010 Term Change (%) Denmark 16.59 Denmark 143.9 Sweden 14.18 Portugal 139.1 Ireland 7.566 Turkey 130.8 Austria 7.132 Sweden 128.1 Luxembourg 7.033 Ireland 119.1 EU 6.885 Austria 106.2 Netherlands 6.096 Greece 101.3 Belgium 5.381 Spain 98.54 Portugal 4.982 United Kingdom 97.79 Finland 4.972 Finland 86.17 United Kingdom 4.844 Netherlands 76.09 Germany 4.678 EU 75.21 47 �Mehmet Mercan Kingdom 13 Spain 14 Italy 15 Portugal 16 Greece 17 Turkey 2.34 4 2.28 6 2.08 3 1.92 2 1.014 Spain 4.655 Italy 72.17 France 4.558 France 64.37 Italy 3.935 Germany 62.96 Greece 3.872 Belgium 55.21 Turkey 2.342 Luxembourg 51.59 As we can see Table 2 and Figure 1, Denmark is in the first in both periods in EU countries. Sweden is the second in both periods, too. Considering the periods of 1980 and 2000 Luxemburg, Belgium and Holland follow Denmark and Sweden in turn. When considering the periods of 2001 and 2010 Ireland, Austria, Luxemburg and Holland follow Denmark and Sweden in turn. Another remarkable point in Table 2, 12 countries in 1980-2000 terms and 10 countries in 2001-2010 term remained below the EU average. In the studies by Çoban and Çoban (2004); Austria holds its fourth place in both of the periods between 1970-1985 and 1986-2001. According to the periods of 1970 and 1985 Denmark, Sweden, Finland, Germany, England, Greece and Italy receded for a row in the period of 1986 and 2001. The ninth country of the period between 1970 and 1986 and the full member of EU in 1986 Portugal showed a significant development and it climbed up to the fifth place. The twelfth country of the period of 1970 and 1985 France climbed up to tenth place in the periods of 1986 and 2001. Figure 1. Development of Globalization Index in Terms of Periods 48 Journal of Economic and Social Studies �Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison In the studies by Çoban and Çoban (2004) again, we can see that Denmark is again the first in the periods of 1970 and 2001. Ireland, Holland, Austria and Denmark followed this country in turn. In the periods involved the countries having important roles in EU such as Germany, England, France and Italy were quitely in back rows. Also when the averages are taken into consideration, EU countries averages are 3.55 in the periods of 1970 and 1985; 4.23 in the periods of 1986 and 2001 and 3.89 in the periods of 1970 and 2001.Turkey, which is in the developing countries category and the arguments about EU membership has increased recently, was in the last place in all three periods. However, when the figure in Appendix-2 is observed, we can see an increase trend in globalization index of Turkey since 1996 when Customs Union happened. This means that accession of Customs Union affected the competitiveness of Turkey positively. The changing of index values indicated on Figure 1 in terms of periods are as in Figure 2. Figure 2. Change of Index Values In Terms of Periods (%) 49 �Mehmet Mercan According to Figure 2 the changing rate averages of the periods of 19802000 and 2001-2010 is 0.75 in EU countries and this means that globalization index of EU countries increased in the rate of 75 % in the periods involved. When the change in terms of periods in globalization index for Turkey is observed, it was found remarkable increases. The involved change rate was 1.31 between 1980-2000 and 2001-2010 periods. This means that globalization index of Turkey has increased in the rate of 131% from 1980 to 2010.These increase rates are above the averages of both EU and EU countries (exclude Denmark and Portugal) and they indicate that competitiveness of Turkey has remarkable increased in time. Results and Policy Implications Competitiveness of Turkey with EU countries was comparatively analyzed by means of globalization index developed by A.T. Kearney Consulting Company in this study as the periods of 1980 and 2010 are considered. Periodical avarages of index values in the period of 1980-2000 and 20012010 are taken by the globalization index. As a result, it is observed that Denmark is the first country in both periods. Sweden is the second in both periods, too. Considering the periods of 1980 and 2000 Luxemburg, Holland and Belgium follow Denmark and Sweden in turn. Turkey, which is in the developing countries category and the arguments about EU membership has increased recently, was in the last place in all 50 Journal of Economic and Social Studies �Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison three periods. However, when the figure in Appendix-2 is observed, we can see an increase trend in globalization index of Turkey since 1996 when Customs Union happened. This means that accession of Customs Union affected the competitiveness of Turkey positively. When we observe the changing rate averages of the periods of 1980-2000 and 2001-2010 is 0.99 in EU countries and this means that globalization index of EU countries increased in the rate of 99 % in the periods involved. When the change in terms of periods in globalization index for Turkey is observed, it was found remarkable increases. The involved change rate was 1.72 between 1980-2000 and 2001-2010 periods. This means that globalization index of Turkey has increased in the rate of 172 % from 1980 to 2010. These increase rates are above the averages of both EU and EU countries and they indicate that competitiveness of Turkey has remarkable increased in time. Çoban and Çoban’s (2004) studies contains the periods of 1970 and 2001 and our study contains the periods of 1980 and 2010. When Çoban and Çoban’s (2004) study and ours are evaluated together, it can be said that competitiveness of Turkey has remarkably increased in the periods used in the analysis and the accession in EU would affect this process positively as the experiences of the countries considered. According to the results of both studies, we can say that Turkey which has a young and active population is in a good position in terms of international competitiveness and follow right policies in its foreign trade and it increases its competitiveness every year. 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Determinants of International Competitiveness-An Empirical Study of The Progress, Difficulties, Models, Statistical Research, No.4, 20-24. WorldBank (2013). Retrieved Jan. 1, 2012, from www.worldbank.org Wziatek-Kubiak, A. (2003). Critical Synthesis, Review of the Main Findings, Methodologies and Current Thought on Competitiveness of Accession Countries. Mapping of Competence, Center for Socail and Economic Research. Retrieved Aug. 30, 2012, from http://www.case.com.pl. Zawalińska, K. (2005). Changes in Competititiveness of Farm Sector in Candidate Countries Prior to The EU Accession: The Case of Poland. Retrieved July 15, 2012, from http://ageconsearch.umn.edu/ bitstream/24520/1/cp05za01.pdf i Vide infra for the involved variables: http://www.atkearney.com(03.09.2003). 54 Journal of Economic and Social Studies � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 2395 Title A name given to the resource Measurement of the Competitiveness of Turkey: EU Countries, 1980-2010 Period Comparison Author Author MERCAN, Mehmet Abstract A summary of the resource. Nowadays, in the new world order caused by economic globalization, technological and political changes in world economy result in changes in the competitiveness of the countries. Everyday, countries intensify their effort to gain, develop and protect their power to compete with other countries. Today, even the most developed countries are trying to strengthen their competitiveness in order to enlarge their share in the world economy. Turkey desires to increase its competitiveness in all sectors in order to raise the welfare level of its people and to speed up its economic growth. Turkey endeavors to increase its competitiveness against EU, who is one of the most important economic partners of Turkey, in all sectors. In this study, the period of 1980-2010 is used to measure the competitiveness of Turkey towards the EU countries and aims to achieve predictions for the future, and the watermark. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2014-03-15 Keywords Keywords. Article PeerReviewed H Social Sciences (General) https://omeka.ibu.edu.ba/files/original/7323a93e2c7070a0965bd5c5cfb7c48a.pdf 1f4ba1c655d37622a98c535dc557cb31 PDF Text Text Journal of Economic and Social Studies Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis Gelengul Kocaslan Faculty of Economics Istanbul University Istanbul, Turkey kocaslan@istanbul.edu.tr Oguzhan Ozcelebi Faculty of Economics Istanbul University Istanbul, Turkey ogozc@istanbul.edu.tr Suna Mugan Ertugral Faculty of Economics Istanbul University Istanbul, Turkey mugan@istanbul.edu.tr Abstract: Statistics of Central Bank of the Republic of Turkey (CBRT) and World Bank (WB) imply that the foreign trade volume of Turkey with its major trade partners in the Balkans (Bulgaria, Greece and Romania) may have a positive effect on Turkey’s economy even under the circumstances of the recent financial crisis. In this respect, on the basis of Vector Error Correction (VEC) model, Granger causality analysis has been performed to make inferences about the consequences of a possible regional trade agreement of Turkey with Bulgaria, Greece and Romania on the real economic activity in Turkey. Thereby, it is aimed to determine whether it is reasonable for Turkey to make a regional trade agreement with Bulgaria, Greece and Romania. Empirical findings reveal that Turkish economy may benefit from a regional economic integration with these Balkan countries. Keywords: Regional Trade Agreements, Balkan Countries, Causality Analysis JEL Classification: F10, F14, F15. Article History Submitted: 11 Jun 2013 Resubmitted: 17 Sept. 2013 Accepted: 26 September 2013 25 �Gelengul Kocaslan, Oguzhan Ozcelebi, Suna Mugan Ertugral Introduction Economic growth and competitiveness depend on the realization of investments and gross fixed capital formation and accordingly increasing economic growth may lead to an expansion of international trade. Besides, historical and cultural connections promote trade relations. Turkey, as a Balkan country, has historical, cultural and political ties with other Balkan countries and economic relations have been growing especially after the collapse of the Eastern Bloc. As shown in Table 1, foreign trade volume of Turkey with its major trade partners (Bulgaria, Greece and Romania) in the Balkans has been increasing gradually from 1990. Thus, GDP of Turkey may be affected positively by the increasing foreign trade volume with Bulgaria, Greece and Romania. Table 1. Foreign Trade Volume of Turkey with Bulgaria, Greece and Romania (Million $) and GDP Growth Rates (%) Years Foreign Trade Volume of Turkey with Bulgaria Foreign Trade Volume of Turkey with Greece Foreign Trade Volume of Turkey with Romania GDP Growth Rate of Turkey (%) GDP Growth Rate of Bulgaria (%) GDP Growth Rate of Greece (%) GDP Growth Rate of Romania (%) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 42 216 297 329 329 585 520 585 581 529 718 693 889 1.311 1.848 268 221 234 239 274 411 521 729 690 694 869 742 903 1.348 1.759 286 304 429 452 404 670 755 753 813 669 1.000 873 1.228 1.829 2.925 9,27 0,72 5,04 7,65 -4,67 7,88 7,38 7,58 2,31 -3,37 6,77 -5,70 6,16 5,27 9,36 -9,12 -8,45 -7,27 -1,48 1,82 2,86 -9,03 -1,65 4,86 1,96 5,70 4,20 4,70 5,50 6,70 0,00 3,10 0,70 -1,60 2,00 2,10 2,36 3,64 3,36 3,42 4,48 4,20 3,44 5,94 4,37 -5,60 -12,90 -8,84 1,51 3,97 7,16 4,01 -6,10 -4,79 -1,20 2,10 5,70 5,10 5,20 8,40 26 Journal of Economic and Social Studies �Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis 2005 2.369 1.851 4.069 8,40 6,40 2,28 2006 3.231 2.648 5.019 6,89 6,50 5,51 2007 4.012 3.213 6.757 4,67 6,40 3,54 2008 3.992 3.581 7.535 0,66 6,20 -0,21 2009 2.506 2.765 4.474 -4,83 -5,50 -3,14 2010 3.199 2.997 6.048 9,16 0,40 -4,94 2011 4.097 4.123 6.677 8,50 1,70 -7,10 Source: Central Bank of the Republic of Turkey and World Bank 4,17 7,90 6,00 9,43 -8,50 0,95 -0,37 In this study, we examine whether regional integration between Turkey and Balkan countries (Bulgaria, Greecei and Romania) may promote the real economic activity in Turkey, whereupon it is attempted to determine whether it is reasonable for Turkey to make a regional trade agreement with Bulgaria, Greece and Romania. Thus, we examined the causal relations among GDP of Turkey and foreign trade volume of Turkey with Bulgaria, Greece and Romania using Vector Error Correction (VEC) model framework. Theoretical Considerations and Previous Research Various researches have investigated the welfare implications of regional trade agreements and their impact on the global economy. Beginning with contributions by Viner (1950) and Meade (1955), regional integration arrangements have been widely studied in economic analysis. Viner (1950) concluded that regional integration might be predominantly trade diverting and therefore welfare reducing. Thus, regional integration arrangements have failed to yield universally applicable policies. However, economic theory says that a regional integration agreement can be structured in a way that creates gains for the member countries without harming any nonmembers (McMillan, 1993, p. 2). Viner (1950) also suggested that the theory of second best implying that reducing tariffs under a regional integration arrangement moving in the direction of Pareto optimality does not guarantee an improvement in welfare for individual countries or the world economy as a whole (DeRosa, 1998, p. 21). According to the economic theory, it is possible for regional agreements to avoid harm to outsiders while improving their own welfare. Chang-Winters (2002) found that preferential trade agreements reduced trade diversion and harmed nonmembers by reducing the prices of imports from nonmembers. It is denoted that the neoclassical Ricardian model is failed to provide an adequate empirical framework to explain the growth of open economies (Robinson, 1999, p. 10). 27 �Gelengul Kocaslan, Oguzhan Ozcelebi, Suna Mugan Ertugral Although regional trade agreements are questioned whether they increase welfare, research on regional trade agreements show that trade creation greatly exceeds trade diversion and increase welfare for all members. Regional trade integrations represent trade diversion by shifting production from an efficient nonmember country to a less efficient member country. According to the Kemp-Wan theorem; if a regional integration arrangement promotes exports from nonmember countries to the members, the welfare of nonmember countries and the world economy as a whole must improve (Robinson, 1999, p. 2). Any change in trade policy produces gainers and losers. Member countries’ welfare increase as new members join the regional trade agreement providing evidence that there are gains from expanding the regional trade agreements (Robinson, 1999, p. 15). Meade (1955) admitted the possibility of not only spillover effects of regional integration arrangements on non-member countries, but also feedback effects of international adjustments to the formation of regional integration arrangements on member countries themselves (De Rosa, 1998, p. 22). Empirical studies about foreign direct investment also demonstrated a positive incidence of regional integration on foreign direct investments (Montout-Zitouna, 2005, p. 2). In contrast to Viner (1950) and Meade (1955) who emphasized the association of gains from regional integration arrangements with scale economies, Corden (1972) set down that scale economies and market structure was not linked formally (De Rosa, 1998, p. 39). Bhagwati-Panagariya (1996) and Schiff (1996) concerned in the economic size of countries joining a regional integration arrangement and found that a small country is expected to gain more from joining a large regional integration arrangement than a small regional integration arrangement. Frankel, Stein-Wei (1995) concluded statistically significant results on the effects of economic size, distance and the existence of a regional trade agreement between partners on bilateral trade (Frankel, Stein-Wei, 1995, p. 73). Baldwin-Venables (1995) described the domino theory of regionalism suggesting that countries seek to join regional trade agreements because of the fear of exclusion (Robinson, 1999, p.1). Regionalism is expected to result in economic integration of neighboring countries; (Oman 1996, van Liemt 1998) adopted technology, politics, institutions and culture besides neighborhood defining integration. Neighbor countries whose relative resource endowments are highly complementary are expected to expand their trade relations significantly by forming a regional trading bloc in order to derive particularly large benefits (DeRosa, 1998, p. 34). 28 Journal of Economic and Social Studies �Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis Cairncross (1997) emphasized that the impetus from these driving forces is transmitted via reductions of transaction costs, in other words, via a decline of economic distance between the countries involved (BodenSoltwedel, 2010, p. 2). Bhagwati (2004) and Schulze-Ursprung (1999) provided evidence that these reductions of transaction costs are expected to change income level, employment and growth rates. However, transaction costs are difficult to determine because of their heterogeneity. The most concise concept of economic integration defines economic integration to be the inverse of transportation (Boden-Soltwedel, 2010, p. 2). Krugman (1993) considered natural trading blocs among neighbor countries and found that low transportation costs contribute to welfare gains when these countries in a regional trade agreement. Empirical Analysis For understanding the nature of any non-stationarity among the different series and improving longer term forecasting over a model, VEC models can be used. Within VEC model framework, Granger causality analysisiihas been performed for determining whether Turkey’s foreign trade volume with Bulgaria, Greece and Romania is useful in forecasting GDP of Turkey. Analysis is carried for the period from the first quarter of 1990, after liberalization of the capital account of Turkey in 1989to the fourth quarter of 2011. Data is on quarterly basis and following variables are used: the log of GDP for Turkeyiii; gdpttr , the log of foreign trade volume with Bulgaria, Greece and Romaniaiv; ftbulttr , ftgrettr and ftromttr . All series are in levels and derived from CBRT and OECD databases. Unit Root Tests for the Time Series For determining whether the variables used in the empirical exercise are stationary or not, we employ the most widely used unit root tests in the econometric literature namely the Augmented Dickey-Fuller (ADF). Since critical values of the test depend on the deterministic terms which have to be included, Pantula principle proposed by Pantula (1989) is followedv. Since all series included in the empirical analysis have a nonzero mean and a linear trend, unit root tests are implemented with constant and trend terms and for determination of the lag length of ADF test, Akaike Information Criteria (AIC) is employed. At the 1 percent significance level; all series in levels form are non-stationary, whereas all series are stationary in first-differences. All series are regarded as integrated of 29 �Gelengul Kocaslan, Oguzhan Ozcelebi, Suna Mugan Ertugral order 1; thus we explored the possibility of cointegration relationship among the series. Table 2. Augmented Dickey-Fuller Tests Variables ADF Test Statistic Number of Lagged Differences gdpttr (c, t) -2,68 1  gdpttr (c) -8,84 0 ftbulttr (c, t) -2,00 9  ftbulttr (c) -5,05 8 ftgrettr (c, t) -3,43 1  ftgrettr (c) -14,50 0 ftromttr (c, t) -2,02 8  ftromttr (c) -3,58 8 VEC Model The Concept The general framework of VEC model is based on a VAR( p) model with deterministic terms as represented below; yt  A1 yt 1  ...  Ap yt  p  Dt  ut (1) where yt =(y 1t .…y Kt ) ' is a vector of endogenous variables with K elements, Ai is the parameter matrix. u t is an unobservable white noise process that has positive covariance matrix E( u t u t' )=Σ u (Lütkepohl, 2007, p. 88). Within the VAR model framework in (1), Equation (2) can be specified as a VEC model. yt  yt 1  1yt 1  ...   p 1yt  p 1  ut 30 (2) Journal of Economic and Social Studies �Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis In (2), yt does not contain stochastic trends by the assumption that all variables can be at most I (1) . Thus, the long-runpart yt 1 contains I (1) variables and it must be I (0) .  can be written as a product of ( K  r ) matrices  and  with rk( )  rk(  )  r ;    ' when rk()  r . By premultiplying yt 1   ' yt 1 ( ' )1 ' ,  ' yt 1 is obtained. Thus,  ' yt 1 is I (0) and contains co integrating relations.  is the co integrating rank of the system since r  rk() linearly independent co integrating relations exist among the components of yt .  is a co integration matrix, whereas the loading matrix  contains the weights attached to the co integrating relations in the individual equations of the model. Finally, i are referred as the short-run parameters (Lütkepohl, 2007, pp. 89-90). For the determination of whether or not the linear combination of these variables are I (0) , we employed the widely used in the literature Johansen co integration test - as represented below; (3) y t = Dt +x t where D t =  0 + 1 t is the deterministic part with a linear trend term and x has a VAR representation as in equation 2. If 1 =0, y t -  0 =x t and thus (3) has the VEC form (Lütkepohl, 2007, pp. 111-112). t p 1  y t =  (y t 1 -  0 )+   j y t  j  u t (4) j 1 Within the framework of (4), the pair of hypothesis below is tested to determine the co integrating rank of the system (JMulTi 4.23 Help System). H 0 =(r 0 ): rk (  ) =r 0 versus H 1 =(r 0 ): rk (  ) >r 0 r=0.……... K -1 (5) Table 3. Johansen Co integration Test 31 �Gelengul Kocaslan, Oguzhan Ozcelebi, Suna Mugan Ertugral Series: gdpttr , ftbulttr , ftgrettr , ftromttr No. of Included Lags (Levels): 9 %95 Critical %90 Critical Value Value 56,46 63,66 70,91 r 1 36,17 42,77 48,87 r2 16,84 25,73 30,67 Null Hypothesis Test Value r 0 Table 3 indicates that there exists one co integrating relation both among the variables ( gdpttr , ftbulttr , ftgrettr , ftromttr ). Thus, causality relations among these variables are investigated within VEC model framework for making inferences about the effects of foreign trade volume of Turkey with Balkan countries on GDP of Turkey. Granger-Causality Analysis Granger (1969) has introduced a causality concept that has become quite popular in the econometrics literature. Accordingly, y2t is to be causal for a time series variable y1t if the former helps to improve the forecasts of the latter. For testing this property, a bivariate VAR( p) process of the form below can be considered (Lütkepohl, 2007, p. 144-145).  y1t  p  2 11,i 12,i   y1,t i  u   CDt   1t      y      2t  i 1  21,i  22,i   y2,t i   u2 t  (6) The null hypothesis that y2t is not Granger-casual for y1t is tested by; 12,i  0, i  1, 2,..., p  1. (7) Accordingly, y2t is not Granger-causal for y1t if its lags do not appear in the y1t equation. Granger-causality can also be investigated in the framework of the VEC model (Lütkepohl, 2007, p. 146). 32 Journal of Economic and Social Studies �Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis p 1  y  11,i  y1t  '  1,t 1      y    y   2t   2,t 1  i 1  21,i  12,i   y1,t i  u  22,i   y2,t i  t (8) Equation (8) is equivalent to  12,i  0 (i  1,..., p  1) and the element in the upper right-hand corner of  ' is also zero. If r  1 ,  and  are (2 × 1) 1    1  2    1 2  2    1 1  . In this case, 12  0  2 1  2  2  needs to be checked besides  12,i  0 and there must be Granger-causality in at least one direction since  and  both have rank one (Lütkepohl, vectors and  '   2007, p. 146). On the other hand, y2t is said to be instantaneously causal for y1t if knowing the value of y2t in the forecast period helps to improve the forecasts of y1t . More precisely, y2t is said to be instantaneously noncausal for y1t if y1,t 1|t  y1,t 1|t  y2,t1 (9) where t is the set of all the relevant information in the universe and  denotes union. y2t is instantaneously causal for y1t , if and only if u1t and u2t are correlated (Lütkepohl, 2007, p. 146). 33 �Gelengul Kocaslan, Oguzhan Ozcelebi, Suna Mugan Ertugral Table 4. Granger Causality Tests tr tr tr tr Series: gdpt , ftbult , ftgret , ftromt No. of Included Lags (Levels): 10 H 0 : ftbulttr , ftgrettr and ftromttr do tr tr tr tr Series: gdpt , ftbult , ftgret , ftromt No. of Included Lags (Levels): 10 H 0 : No instantaneous causality between tr not Granger-cause gdpt ftbulttr , ftgrettr , ftromttr , gdpttr Test Statistic p-value- F Test Statistic p-value-  3,54 0,00 16,17 0,00 Optimal lag lengths of the model are determined by the AIC. In our empirical exercise tests for causality are based on the estimation of the VEC(10) model with the time series vector tr tr tr tr ' yt  ( gdpt , ftbult , ftgret , ftromt ) .Table 4 exposes that the two noncausality hypothesis can be rejected since the p-values of the tests are smaller than 0,05, both Granger-causal and instantaneous-causal relations among ftbulttr , ftgrettr , ftromttr , gdpttr is detected, revealing that increases in the foreign trade volume of Turkey with Bulgaria, Greece and Romania may lead to an expansion in the domestic real activity of Turkey, which in turn promote economic development. Conclusion Our findings reveal that making a regional trade agreement with Bulgaria, Greece and Romania may provide a strong competitive effect and increasing returns for Turkey. Besides, Turkey may benefit from spillover and feedback effects that may occur from a regional trade agreement with these countries. On the other hand, there may be limitations to signing the trade agreement among Bulgaria, Greece, Romania and Turkey since Greece is an existing member of the Euro area. However, there have been ongoing debates whether Greece should leave the Euro and return to the drachma. Thus, signing regional trade agreement with Bulgaria, Romania and Turkey may be an alternative to the Euro area and be advantageous for Greece. Since Greece has a relatively higher inflation rate than Bulgaria, Romania and Turkey; by signing a regional trade agreement, Greece may purchase goods from Bulgaria, Romania and Turkey at lower prices, which in turn have a positive impact on inflation. Furthermore, for overcoming the negative effects of the economic recession, Bulgaria, Greece and Romania may benefit from a possible regional trade 34 Journal of Economic and Social Studies �Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis agreement since increased competition may lead to the rationalization of production and the removal of inefficient duplication of plants and may cause firms to cut prices and expand their sales. References Baldwin, R. E. & Venables, A. J. (1995). Regional Economic Integration. In: Handbook of International Economics, Vol. III (eds. G. Grossman & K. Rogoff), Chapter 31. Amsterdam: Elsevier. Bhagwati, J.& Panagariya, A. (1996). Preferential trading areas and multilateralism strangers, friends or foes? In: The economics of preferential trade agreements, (eds. J. Bhagwati, A. Panagariya), 1-78. Washington, D.C.: The AEI Press. Bhagwati, J. (2004). In defense of globalization Oxford: Oxford University Press. Boden, C. K. & Soltwedel, R. (2010). European economic integration in econometric modelling – concepts, measures and illustration. Kiel Working Paper, No. 1661, 1-24. Cairncross, F. (1997). 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TMD Discussion Paper, No. 34, 1-21. 36 Journal of Economic and Social Studies �Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis Schiff, M. (1996). Small is Beautiful: Preferential trade agreements and the impact of country size, market share, efficiency, and trade policy. Policy Research Working Paper 1668. International Trade Division, The World Bank. Washington, D.C. Schulze, G. G. & Ursprung, H.W. (1999). Globalisation of the economy and the nation state. World Economy, 22, 295-352. Van Liemt, G. (1998). Labour in the global economy: Challenges, adjustment and policy responses in the EU. In: Globalisation of labour markets. Challenges, adjustment and policy responses in the EU (eds. Memedovic, Kuyvenhoven, Molle). London: Dordrecht. Viner, J. (1950). The customs union issue. New York: Carnegie Endowment for International Peace. Greece is a member of the Euro area, however in the wake of the political and economic problems in Greece, there have been ongoing debates whether the country should leave the Euro and return to the drachma. ii For the details of the test, see (Granger, 1969, pp. 424–438) iiiGDP series are extracted from OECD’s database, expressed as indices and seasonally adjusted with base year 2005 = 100. iv Foreign trade volumes are obtained from CBRT’s database. v Accordingly, if a linear trend term is needed in the test for y , only a constant t i term should be used for , yt ’s test; if just a constant is necessary in the test for yt yt ’s test is carried out with no deterministic terms (Lütkepohl et al., 2007, pp. 54-55). 37 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 2394 Title A name given to the resource Is a Regional Trade Agreement with Balkan Countries Applicable for Turkey? A Time Series Analysis Author Author KOCASLAN, Gelengul OZCELEBI, Oguzhan Ertugral, Suna Mugan Abstract A summary of the resource. Statistics of Central Bank of the Republic of Turkey (CBRT) and World Bank (WB) imply that the foreign trade volume of Turkey with its major trade partners in the Balkans (Bulgaria, Greece and Romania) may have a positive effect on Turkey’s economy even under the circumstances of the recent financial crisis. In this respect, on the basis of Vector Error Correction (VEC) model, Granger causality analysis has been performed to make inferences about the consequences of a possible regional trade agreement of Turkey with Bulgaria, Greece and Romania on the real economic activity in Turkey. Thereby, it is aimed to determine whether it is reasonable for Turkey to make a regional trade agreement with Bulgaria, Greece and Romania. Empirical findings reveal that Turkish economy may benefit from a regional economic integration with these Balkan countries. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2014-03-15 Keywords Keywords. Article PeerReviewed H Social Sciences (General) https://omeka.ibu.edu.ba/files/original/ddf62d8c9e7c9b1f6ffa1ca7f0e0f51e.pdf 69b67d1ef975399b0b4a88ea79a78356 PDF Text Text Journal of Economic and Social Studies Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysisi İsmet Göçer Faculty of Economy Adnan Menderes University Aydın, Turkey igocer@adu.edu.tr Mehmet Mercan Faculty of Economics and Administrative Sciences Hakkari University Hakkari, Turkey mehmetmercan@hakkari.edu.tr Osman Peker Faculty of Economics and Administrative Sciences Adnan Menderes University Aydın, Turkey opeker@adu.edu.tr Abstract: Foreign Direct Investments (FDI) are regarded as a significant source of investment in developing countries. However, FDI may affect domestic investments in different aspects. They can enforce the domestic firms to crowd out or crowd in of the sector. Keywords: FDI, Crowding in - Crowding out Effects, GMM. JEL Classification: E22, F21, P33. Article History In this study; the effects of FDI on Submitted: 27 June 2012 developing countries was examined by Resubmitted: 19 January means of dynamic panel data analysis for 2013 30 developing countries using 1992-2010 Resubmitted: 29 July period data. According to the empirical 2013 analysis results; FDI have crowding in Accepted: 15 August 2013 effects in Asian, Latin American and Caribbean countries, although they have Introduction crowding out effects in the African developing countries.involving a long term relationship that control of a FDI is an investment resident entity in one economy reflects a lasting interest and in that 73 �İsmet Göçer, Mehmet Mercan, Osman Peker enterprise resident in an economy other than that of the foreign direct investor (OECD, 1992). FDI refers to the net inflows of investment to acquire a lasting management interest, 10 percent or more of voting stock, in an enterprise operating in an economy other than the investor (World Bank, 1999). These kinds of investments involve setting up the factory; purchasing a domestic firm and privatisation, joint venture with a local firm, licensing agreements and purchases real estate. FDI have significant effects on economies. It can provide a country with access to new markets, cheap production, new technology, alternative products, labour and management skills and financing (Sun, 1996; Barelli and Pain, 1997; Sun, 1998; Jayaraman, 1998; Borensztein, Gregoria and Lee, 1998 and Javorcik, 2004). FDI has recently begun to play a major role in the internationalisation of business. FDI reached this volume due to liberalisation policies, new economic integrations, trade acts, tariff liberalisation, thanks to new information technology that negates communication and remote management costs. FDI may have different effects on host country economies. It may cause crowding out or crowding in of domestic firms from the sector. The purpose of this study is to analyse these effects on developing countries. These effects will be analysed via the dynamic panel data analysis method using the 1992-2010 period data from 30 developing countries. Theoretical Framework The impacts of the FDI on domestic investments are determined by the complementarily and substitution features. While FDI producing substitute goods, it may cause crowding out, especially of inefficient domestic firms; conversely FDI will cause crowding in of domestic investment that produces complementary good so it will use row material from the domestic market (Van, 1977; Buffie, 1993). If FDI have got crowding out effects on domestic investments, a unit FDI leads to an increase of total investment in the host country smaller than one unit. Conversely, if FDI have got crowding in effects on the domestic investment, one unit of FDI increase will lead to more than one unit increase of total investment in the host country. If the effect is neutral, a unit FDI increases causes a unit increases on total investment (Misun and Tomsik, 2002). 74 Journal of Economic and Social Studies �Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis Crowding out effects of FDI may take place when foreign and domestic firms are in the same industry. When FDI comes to a sector that includes intensive domestic activities, domestic firms cannot with stand the resulting competition and they will be crowded out of the sector (Driffield and Hughes, 2003). If the FDI go towards the indigenous sectors, which there are less investment in this sector, through increase in the volume of trading and market in this sector, they will be crowding in the domestic firms in this sector (De Mello, 1999). FDI positively effects domestic investments by means of its investments to factor markets, because they increase revenues of domestic firms and factory owners (Cardoso and Dornbusch, 1989). The positive externality and the spreading tendency of FDI empower domestic investors (Kim and Seo, 2003). To sum up, foreign investment by creating new markets, increasing the demand for inputs, supply new technologies will creates pill over effects and domestic investment will stimulate the economy (Cotton and Ramachandran, 2001: 1). Conversely, FDI increases wages and the price of inputs in the host country and this causes a decrease in the use of input and employment and leads to crowding out (Apergis, Katrakilidis and Tabakis, 2006). When the technological differences between foreign and domestic investors are on a large scale and there are few skilled labour; FDI will enforce the domestic firms to crowd out (Kokko, 1994; Aitken and Harrison, 1999). For analysis of crowding in and crowding out effects of FDI, we can begin with a simple modelii where investment (INV) in a country is the sum of domestic investment (INVd) and FDI; Domestic investment depends on the Gross Domestic Product (GDP) and domestic interest rate (INT). The model maybe arranged as follows: By replacing (2) in (1) a model for total investment was obtained: In the equation (3) it is assumed that FDI haven’t got any macroeconomic externalities on domestic investment. Therefore, FDI have a neutral effect. 75 �İsmet Göçer, Mehmet Mercan, Osman Peker Since the equation (3) is rearranged in order to determine the effect of externalities: While investors are investing not only the current year, but also look at the past years’ economic growth rate. Therefore the investment dynamic process can expand as follows: (5) Here p is the optimum lagiii. Weather long term crowding in and crowding out effects will be tested with this relevant coefficient: If , means that FDI haveacrowding in effect on domestic investment that a unit of FDI can bring more than one unit of total investment. If , it means that FDI haveacrowding out effect on domestic investment that a unit of increase in FDI to the total increase in investment is less than one unit. There have been many studies on the FDI effects on domestic investment in the economy literature. These studies have reached different conclusions. Lubitz (1966) determined a significant effect of FDI on domestic investments in Canada and found that; $1 of FDI led to $3 of capital formation in the host country. Similarly, Van Loo (1977) studied Canada with 1948-1966 period data and found that; $1 of FDI led to $1.4 of capital formation in the host country. Borensztein, et al, (1998), tested these effects on69 developing countries for the 1970 to 1989 period and founded that FDI has encouraged domestic investments. Jomo (1997) studied for Indonesia, Malaysia and Thailand the mainly microelectronics-related toys and other consumer goods and determined that FDI has crowding in effects in these industries. Massimiliano and Massimiliano (2003) tested the relationship between economic growth, domestic investment and FDI inward in Korea for the 1970 to 1989 period. They found that FDI has some positive effects on domestic investments. Ang (2009) studied the impact of FDI on domestic investment for Malaysia through VAR analysis using 1960-2003 periods and found that; $1 FDI increase domestic investments $1.25. Therefore, FDI involves crowding in effects in the Malaysian economy. Gan and Gao (2010) 76 Journal of Economic and Social Studies �Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis studied the impact of FDI on domestic investment for China via panel data analysis methods using 1992-2007 period data and found that: $1 FDI increase the domestic investment in central region $4.08 and $5.88 in Shanxi region. So, FDI have got crowding in effects in China economy. Agosin and Machado (2005), studied of the impact of FDI on domestic investments and found FDI don’t have a positive effect on domestic investment. Apergis, Katrakilidis and Tabakis (2006), with a panel study involving 30 countries found that; FDI have crowding in effects in the single-variable model, but have crowding out effects in the multivariate model. Lin and Chuang (2007) tested the effects for the Taiwan economy and found FDI crowding out to little domestic firms and crowding in the big domestic firms. Agosin and Mayer (2000) conducted an econometric study on the effects of FDI on domestic investments. This study covers the 1970-1996 period data for 39 developing countries by means of panel data analysis. They found that; while there was crowding in effects in Asia and Africa countries, while there was crowding out effects in Latin American countries. Driffield and Hughes (2003) found FDI have crowding in effects. According to Backer and Sleuwaegen (2003), in the context of occupational choice models, FDI declines the power of local entrepreneurs. However, FDI increases domestic investments through networking, chains and learning effects. Acar et al. (2012) have seen that FDI have crowding out effects in MENA countries. FDI in Developing Countries Global FDI flows increased from $54 billion in the 1980’s to $1.524 trillion in 2011. Emerging regions, such as East and South-East Asia and Latin America experienced strong growth in FDI inflows (UNCTAD, 2012). FDI has changed course and has been directed towards developing countries in recent years. Table 1 shows the distribution of FDI in the economies. 77 �İsmet Göçer, Mehmet Mercan, Osman Peker Table 1. Distribution of the FDI in Economies (Billion $) Worl d Developing Economies Share of Developing Economies Transition Economie s Share of Transition Economie s Developed Economie s Share of Developed Economie s 1980 54 7 14 0 0 47 86 1990 207 35 17 0 0 173 83 2000 1403 258 18 7 1 1 138 81 2005 983 1 462 1 971 1 744 1 185 1 244 1 524 332 34 31 3 619 63 429 29 55 4 978 67 573 29 91 5 1 307 66 658 38 121 7 965 55 511 43 72 6 603 51 574 46 68 5 602 48 684 45 92 6 748 49 2006 2007 2008 2009 2010 2011 Source: UNCTADSTAT. According to Table 1, while FDI inflows are increasing in developing countries, they are decreasing in developed countries. Developing and transition economies together attracted more than half of global FDI flows. Most FDI attracting developing countries in 2011are shown in Table 2. Table 2. Most FDI Attracting Developing Countries (Million $) YEAR 1980 199 0 2000 2006 2007 2008 2009 2010 2011 China Hong Kong Brazil 57 3 487 40 175 72 715 83 521 108 312 95 000 105 735 123 985 710 3 275 61 937 45 060 54 341 59 620 52 393 71 069 83 155 1 910 989 32 779 18 822 34 585 45 058 25 949 48 438 66 660 Singapore 1 236 5 575 16 484 29 348 37 033 8 588 15 279 38 638 64 003 India 79 237 3 588 20 328 25 350 42 546 35 649 24 640 31 554 Mexico 2 099 2 633 18 110 20 052 29 734 26 295 15 334 18 679 19 554 Indonesia 180 1 092 -4 495 4 914 6 928 9 318 4 877 13 304 18 906 Chile Saudi Arabia Turkey 213 661 4 860 7 298 12 534 15 150 12 874 15 095 17 299 -3 192 312 183 17 140 22 821 38 151 32 100 28 105 16 400 18 684 982 20 185 22 047 19 504 8 411 9 071 15 876 78 Journal of Economic and Social Studies �Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis Source: UNCTADSTAT. According to Table 2, China was the best FDI attracter among developing countries in 2011. China and Hong Kong’s share is 13.5% of the world. Other countries are following them. Turkey attracted $15.8 billion FDI in 2011. Empirical Analysis Data Set A balanced panel of 570 annual observations from 30 developing countries over the period of 1992-2010 was used in this study. The sample of countries represents all major regions in the world as FDI attracting in 2010. It includes 11 countries from Latin Americaiv and the Caribbean, 9 from Asiav and the Pacific, 8 from Africavi and 2 from economies in transitionvii. Investment (INV), Gross Domestic Product (GDP), Foreign Direct Investment (FDI) and Interest Rate (INT) are the study variables. All data currency is US dollars. INV represents investment to GDP ratio; FDI represents FDI to GDP ratio; G represents growth of real GDP. The data set was obtained from the World Bank, UNCTAD and IMF. Method For this study data set included in the dynamic processes, the dynamic panel data analysis method was used. The dynamic panel data analysis method takes into consideration the dynamic structure between the dependent and independent variables (Baltagi, 1995). In addition, use of panel data in estimating ensures control for missing or unobserved variables and relationships allow identification of country-specific effects (Arellano-Bond, 1991; Matyas and Sevestre, 1996). The dynamic panel allows dynamic effects to be introduced into the model and allows feedback from current or past shocks (Hsiao, 1986). A simple equation of dynamic panel data model is (Hsiao, 2003: 75): (7) for i=1,2,...,N; and t=1,2,...,T.  is a scalar, xit is kx1, it denotes the ith individuals effect and uit is the error term of regression. In this study, among dynamic panel data estimation methods the Generalised Method of Moments (GMM) technique was used. GMM 79 �İsmet Göçer, Mehmet Mercan, Osman Peker procedures are more efficient than other estimators (Arellano and Bond, 1991). The resulting GMM estimator is asymptotically efficient (Baltagi, 1995). GMM estimators use all possible lagged values of dependent and independent variables as instrumental variable (Arellano and Bond, 1991). There are three GMM methods; level GMM, difference GMM and system GMM. System GMM was used in this study. The crucial point here is that variables must be endogenous in order to useGMM. For this reason, before beginning the analysis, a test of endogeneityis required. For this purpose; Durbin’s score (1954) and WuHausman (Wu, 1974; Hausman, 1978) tests can be used. These hypotheses would be expressed as: H0: Variables are exogenous H1: Variables are endogenous If H0 is rejected, variables are endogenous. In this case, using the GMM is suitable. The Sargan test used to determine whether instrumental variables of the GMM are suitable (Greene, 2003).These hypotheses would be expressed as: H0: Moment conditions are valid. H1: Moment conditions are invalid. The hypothesis tested with the Sargan-J statistic. This statistic will be asymptotically chi-squared (  2 ) with m-k degrees of freedom. m is the number of instrumental variables and k is the number of the parameter. If the null hypothesis is accepted, instrumental variables are suitable. Arellano and Bond (1991) developed an autocorrelation test for GMM. The Arellano–Bond test for autocorrelation is actually valid for any GMM regression on panel data (Roodman, 2009). These hypotheses would be expressed as: H0: No Autocorrelation H1: Autocorrelation 80 Journal of Economic and Social Studies �Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis Panel Unit Root Test Panel unit root testing is more widely accepted for only the time dimension of time series unit root tests, since it covers the data of both time and cross-sectional size (Im, Pesaran and Shin, 1997; Maddala and Wu, 1999; Taylor and Sarno, 1998; Levin and Lin, 1992; Hadri, 2000; Choi, 2001; Levin, Lin and Chu, 2002; Breuer and Wallace, 2002; Carrion-i-Silvestre, 2005; Pesaran, 2006; Beyaert and Camacho, 2008). At the same time, the addition of the cross-sectional size of the analysis increases the variation in the data. The first problem encountered in the panel unit root tests is whether each cross-section is independent or not. Panel unit root tests are divided into first generation and second generation tests. While Breitung (2000), Hadri (2000) and Levin, Lin and Chu (2002) based their studies on the assumption of a homogeneous model; Im, Pesaran and Shin (2003), Maddala and Wu (1999), Choi (2001) based their studies on the assumption of a heterogeneous model. In this study; the Im, Pesaran and Shin (2003) (IPS) test will be used, since the countries aren’t homogeneous. The IPS test is based on this model: (8)  i is an error correction model. If series istrend stationary. IPS unit root test was applied and obtained results shown in Table 3. 81 �İsmet Göçer, Mehmet Mercan, Osman Peker Table 3. IPS Unit Root Test Test Prob. Statistics Values INV -1.92** 0.02 FDI -2.04** 0.02 Whole Panel GDP -7.34* 0.00 INT -1.85** 0.03 INV -9.31* 0.00 FDI -2.22** 0.01 Asia GDP -5.97* 0.00 INT -9.16* 0.00 INV -3.071* 0.001 FDI -2.976* 0.001 Latin America and the Caribbean GDP -6.701* 0.000 INT -4.435* 0.000 INV -1.503*** 0.066 FDI -6.216* 0.000 Africa GDP -4.551* 0.000 INT -2.223* 0.001 Note: In panel unit root tests Schwarz criterion is used and length was1 taken (*), (**) (***) indicating stationarity and significance levels 1%, 5%, 10% respectively. Variables According to the Table 3, all series are stationary in level values. This means that analysis performed in this series is reliable and equation (6) can be used. The Endogeneity Test In this study, the Durbin (score) (1954) and Wu (1974)-Hausman (1978) endogeneity test was used. Hypotheses of these tests are as follows: H0: Variables are exogenous H1: Variables are endogenous Endogeneity test was applied by Stata 11 and obtained results are presented in Table 4. 82 Journal of Economic and Social Studies �Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis 83 �İsmet Göçer, Mehmet Mercan, Osman Peker Table 4. Results of Endogeneity Test Durbin (score) Chi2(1) = 5.21978 (0.0223) Chi2(1) = 0.9697 Asia (0.03248) Latin America and the Chi2(1) = 0.066635 Caribbean (0.01796) Chi2(1) = 1.2594 Africa (0.02618) Note: The values in parentheses are probabilities. Whole Panel Wu-Hausman F(1,474) = 5.2112 (0.0229) F(1,138) = 0.9355 (0.0335) F(1,170) = 0.064387 (0.018) F(1,122) = 1.21237 (0.0273) According to Table 4, H0 was rejected and concluded that the variables were endogenous. So it was decided that the GMM method should be used. Dynamic Panel Data Analysis Dynamic panel data analysis was made using equation (5) via GMM and long term relevant coefficient was calculated by equation (6). The results are presented in Table 5. Table 5. Results of Dynamic Panel Data Analysis Coefficient (  LT ) Wald Test Sargan Test AR(1) AR(2) Whole Panel 0.79 Chi2(15)=2988.13 (0.00) Chi2(163)=16.2065 (1.00) -1.0542 (0.2918) -1.2794 (0.2008) Asia 4.67 Chi2(8)=138.59 (0.00) Chi2(93)=93.84468 (0.4560) -2.0323 (0.0421) 1.1558 (0.2478) Latin America and the Caribbean 1.34 Chi2(10)=1456.39 (0.00) Chi2(142)=165.362 (0.8801) -2.5289 (0.0114) -2.17 (0.320) Africa 0.81 Chi2(15)=874.63 (0.00) Chi2(118)=132.7087 (0.1677) -1.5791 (0.01143) 1.3003 (0.01935) Note: The values in parentheses are probabilities. The White Period method was used to correct the standard errors. Since there are few transition countries, their individual analysis was not applied. 84 Journal of Economic and Social Studies �Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis According to Table 5; as a result of the Wald tests, it was seen the model is meaningful. According to the Sargan tests, it was decided that instruments are suitable. In autocorrelation tests, there are no second order autocorrelation problems in these models. Based on these findings, analysis results are significant and reliable. Long term investment coefficients found for the whole panel were 0.79, for Asia 4.67, for Latin American and the Caribbean 1.34 and for Africa 0.81. These results show; in a developing country, $1of FDI increases total investments $0.79 in the home country. This value smaller than 1. Therefore, FDI has a crowding out effect in these developing countries. However, in Asian countries $1of FDI increases total investments $4.67 in the home country and FDI has crowding in effects. $1of FDI increases total investments $1.34 in Latin American and Caribbean countries and FDI has crowding in effects. However in African countries $1of FDI increases total investments $0.81 and it has a crowding out effect. Conclusions There are different opinions about the effects of FDI on domestic investment in economics literature. Some economists admit that FDI reduces domestic investment and it has crowding out effects. In other words, FDI increases domestic investment and it has crowding in effects. The main purpose of this study is to analyse these effects in developing countries. For this purpose, using data from 1992-2010 for 30 developing countries, a dynamic panel data analysis was performed. According to the empirical results; FDI increases domestic investment and has crowding out effects in developing countries. $1 increase in FDI leads to an increase of $0.79 total investment for these countries. This result is similar to Chudnovsky, Lopez and Porta (1996); Agosin and Machado (2005) and Lin and Chuang (2007). In analysis carried out for country groups, different results were obtained. In Asian countries, $1 FDI increases total investments by $4.67 in the home country and FDI has crowding in effects. $1 FDI increases total investments $1.34 in Latin American and the Caribbean countries and FDI has crowding in effects. These results are compatible with Lubitz (1966); Van Loo, (1977); Borensztein, et al, (1998), Massimiliano and Massimiliano, (2003); Ang, (2009) and Gan and Gao (2010). However, in African countries $1 FDI increases total investments by $0.81 and it has a crowding out effect. The findings of the study suggest that; differences in results among different country groups related with the FDI policies implemented, trade 85 �İsmet Göçer, Mehmet Mercan, Osman Peker openness ratio, human capital adequacy and to the extent that domestic firms are ready for international competition. For example, it is a fact that Asian countries, including China, have been providing tax advantages, easing administrative procedures for foreign investors and establishing free trade zones in order to accelerate economic development improve the capital and technology capacity and attract more FDI. Owing to such policies, foreign investments have been attracted and domestic firms have been protected. As a result, FDI has a significant effect on the total investment level in developing countries. 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Alternative tests of independence between stochastic regressors and disturbances: finite sample results, Econometrica, 42(3), 529-546. iThis study is a mostly renewed and developed version of the same name study, which was presented in the 3rd International Symposium on Sustainable Development(ISSD) at International Burch University, 31 May-2 June 2012, Sarajevo. iiAgosin and Mayer (2000); Misun and Tomsik (2002) has been followed here and the model has been extended by the authors with interest rate. iii In this study; following to Misun, and Tomsik (2002) lag was taken 3. iv Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Rep., Mexico, Panama, Peru, Uruguay, Venezuela. vChina, Indonesia, S. Korea, Malaysia, Qatar, Singapore, Thailand, Turkey, Vietnam. vi Algeria, Angola, Congo, Egypt, Ghana, Libyan, Morocco, Nigeria. viiRussian Fed., Ukraine. 91 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 2397 Title A name given to the resource Effect of Foreign Direct Investments on the Domestic Investments of Developing Countries: A Dynamic Panel Data Analysis Author Author GÖÇER, İsmet MERCAN, Mehmet PEKER, Osman Abstract A summary of the resource. Foreign Direct Investments (FDI) are regarded as a significant source of investment in developing countries. However, FDI may affect domestic investments in different aspects. They can enforce the domestic firms to crowd out or crowd in of the sector. In this study; the effects of FDI on developing countries was examined by means of dynamic panel data analysis for 30 developing countries using 1992-2010 period data. According to the empirical analysis results; FDI have crowding in effects in Asian, Latin American and Caribbean countries, although they have crowding out effects in the African developing countries. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2014-03-15 Keywords Keywords. Article PeerReviewed H Social Sciences (General)