309 10 3494 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. 2747 Title A name given to the resource MQL Machining – Oil on Water Droplet System Author Author EKINOVIC, Sabahudin BEGOVIC, Edin LUSIJA, Aldin Abstract A summary of the resource. Flood and through-tool delivering of cutting fluids have been widely used for the machining operations. The use of a large amount of cutting fluid can impact the environment and increase manufacturing costs, and possibly lead to ground contamination, excess energy consumption, the need for wet chip disposal and potential health and safety issues. Minimum Quantity Lubrication (MQL) machining involves the application of a minute amount of oil-based lubricant to the machining process in an attempt to replace the conventional flood coolant system. This paper presents a classification of MQL methods, discussing their advantages and drawback. Also, the results of measurements of cutting forces and surface roughness when machining one type of aluminum bronze using MQL, are presented. As a medium for cooling and lubricating a system of oil-on-water was used. The results show that the cutting force of less than 16%, and also parameters of surface roughness, compared to machining without the use of coolant and lubricants. Keywords: mql machining, oil-on-water droplet, aluminium bronze, cutting forces, surface roughness. 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 2014-06 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2233 - 0054 T Technology (General) https://omeka.ibu.edu.ba/files/original/7d4f32915e9fc78eaadeded95bba3db2.pdf 49eee5e8c43aa9f8c429cb6663ad13b2 PDF Text Text �� 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. 2422 Title A name given to the resource Uvodna riječ glavnog urednika - Broj 2/2014 Author Author BIKIĆ, Abedin Abstract A summary of the resource. “Social Perspectives - Journal for Legal Theory and Practice“ is available in full text at the Central and Eastern European Online Library - CEEOL (www.ceeol.com) and on the web page www.ssrc.ibu.edu.ba Publisher An entity responsible for making the resource available Social Sciences Research Center of International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2014-06 Keywords Keywords. Article PeerReviewed DOI Digital object identifier DOI: 10.14706/DO14111 Identifier An unambiguous reference to the resource within a given context ISSN 2303-5706 H Social Sciences (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. 2757 Title A name given to the resource Concept of Environment, Health and Energy Systems in Turkey Author Author ALPARSLAN, Mustafa CULHA, Turk AKSOY, Fatih BARIS OZALP, Hasan Abstract A summary of the resource. Since the Chernobyl disaster in the Black Sea region, it has been understood that environmental problems are not restricted to the countries of their origin. Research has shown that international attention given to the Mediterranean Sea has generated a more positive impact on environmental protection, as com-pared to that of the Black Sea. Industrialization around the Black Sea during the Cold War, a lack of international attention for long decades, and the region’s position since the Second World War as a crucial hub for the transport of the energy produced by Caucasian and Black Sea littoral countries to the energy consuming countries in Europe aggravated the environmental situation in the region. Pollutants created by chemical industries and oil leaking from tankers have caused a decrease in biological diversity. Thus, increased pollution in the sea en-tered the agendas of governmental and non-governmental international/regional organizations and individual states in the last two decades. Unfortunately, after the end of the Cold War and the collapse of the Soviet Union, the main priorities of the newly independent states included neither an increase of biological diver-sity nor a decrease in pollution. As the regional states put their efforts into competing in the international liberal market, they focused on increasing industrialization, trade and economic ties with the energy demanding countries. There are ten wind farms mainly on land clustered together in the west of the country and in the Aegean region, including in Çanakkale, close to the site of ancient Troy, Çeşme, Akhisar and on the island of Bozcaada. Wind powe in Turkey is gradually expanding in capacity. In 2006, 19 MW of wind power was installed, and in 2007, installed wind capacity increased to almost 140 MW. Turkey is set to double the amount of its electricity supplied by wind power with the construction of a wind farm in southeast Turkey which will have an installed capacity of 135 megawatts (MW) when it is completed in 2009. This very important project will use 52 of the latest generation of turbines from GE Energy, each rated at 2.5 MW.] Installed wind power is expected to reach 808.81 MW by the end of 2008.Wind energy potential for Turkey is 58GW. The European Wind Energy Association stated that installed wind power capacity in Turkey at the end of 2009 was 801 MW. A total of 343 MW of capacity was installed in 2009. According to Official Transmission Reports, installed wind power capacity in Turkey at the end of 2010 has increased to 1265 MW. The installed capacity is specified as 1645,30 MW by October, 2011 by the same reports. At the end of 2012 there will be over 80 windfarms in Turkey. At the end of 2012 Turkey will have 2 GWs of installed capacity. The Turkish government has a target of a 20 times increase in wind capacity by 2020. Keywords: environment, renewable energy, chernobyl disaster 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 2014-06 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2233 - 0054 T Technology (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. 2756 Title A name given to the resource Security Of Wi-Fi Networks Author Author ALI AVCI, Durmus HAJDAREVIC, Kemal Abstract A summary of the resource. With the rapid increase in use of WLAN technology it is important to provide a secure communication over wireless network. This paper focuses on current security issues in Wi-Fi networks, and gives overview of already available set of security controls which can help organizations to secure their wireless LANs. The goal of this paper is to summarize existing means of securing Wi-Fi networks and to analyze the possible solutions for the Wi- Fi networks. Furthermore, the paper explains how the security mechanisms work and provide security in order to have best communication. Keywords: wlan, wi-fi, wireless, security, network, wi-fi security, wps 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 2014-06 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2233 - 0054 T Technology (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. 2759 Title A name given to the resource Microalgae for Renewable Energy: Biodiesel Production and other Practies Author Author AKSOY, Fatih KORU, Edis ALPARSLAN, Mustafa Abstract A summary of the resource. Sustainable production of renewable energy is being frequently debated globally since it is increasingly understood that first generation biofuels, primarily produced from food crops and mostly oil seeds are limited in their ability to achieve targets for biofuel production, climate change mitigation and economic growth. Currently, biodiesel is made from a variety of feedstocks, including pure vegetable oils, waste cooking oils, and animal fat; however, the limited supply of these feedstocks impedes the further expansion of biodiesel production. Microalgae have been recognized as potentially good sources for biofuel production because of their high oil content and rapid biomass production. In recent years, use of microalgae as an alternative biodiesel feedstock has gained renewed interest from researchers, entrepreneurs, and the general public. Food sourced feedstocks biodiesel concerns have increased the interest in developing second generation biofuels produced from non-food feedstocks such as microalgae, which potentially offer greatest opportunities in the longer term. Using algae as a feedstock for biodiesel has been considered for a number of years, but it has always had limitations, due mainly to the production methods used to grow and harvest the algae. This paper reviews the current status of microalgae use for biodiesel production, including their cultivation, harvesting, and processing. The microalgae species most used for biodiesel production are presented and their main advantages described in comparison with other available biodiesel feedstocks. The various aspects associated with the design of microalgae production units are described, giving an overview of the current state of development of algae cultivation systems (photo-bioreactors and open ponds). Other potential applications and products from microalgae are also presented such as for biological sequestration of CO2, wastewater treatment, in human health, as food additive, and for aquaculture. Keywords: Sustainable energy, biodiesel, algae, biomass. 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 2014-06 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2233 - 0054 T Technology (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. 2762 Title A name given to the resource Evaluation on Security of Energy Supply for Macedonia Author Author ABDURAHMAN, Suat TUGRUL, A. Beril Abstract A summary of the resource. In this study energy circumstance of Macedonia was analized in order to evaluation for security of energy supply. Firstly, energy resources and power plants were investigated.and tabulated. SWOT analysis applied with strengths, weaknesses, opportunities and threats (SWOT) concepts which were written for the country regarding geographical and strategical position, energy resources and economical situation of the country. As known that, SWOT analysis may be used in decision-making situation when a desired end-state (objective) has been defined. Internal and external analysis applied and some suggessions composed as the conclude evaluation of SWOT analysis for Macedonia energy analysis. Keywords: energy supply, energy demand, macedonia, swot analysis 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 2014-06 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2233 - 0054 T Technology (General) https://omeka.ibu.edu.ba/files/original/2a722cb0edfe9b24776a07238a75dbfd.pdf 9280025f2e2dca001159bc3954ebf479 PDF Text Text Journal of Economic and Social Studies Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Muhammad Rehan Shaukat College of Applied Sciences, Rustaq Ministry of Higher Education Sultanate of Oman mohammedrehan.rus@cas.edu.om Iqtidar Ali Shah College of Applied Sciences, Salalah Ministry of Higher Education Sultanate of Oman iqtidar.sal@cas.edu.om Abstract: This research studies three aspects relating to farmers Keywords: Agriculture, readiness for the proposed mobile phone information and trade Information System, Mobile, system (MAITS) namely (a) farmer readiness to adopt newly Pakistan, Readiness, Technology proposed mobile information and trade system (b) key factors that affect farmers mobile decision support systems (c) farmers readiness to connect with mobile enterprise networks. These were investigated using a qualitative research method. After a careful selection of a set of questions, interviews were conducted with selected farmers from four cities of Pakistan including Lahore, Faisalabad, Vehari and Khanewal. The analysis revealed that farmers readiness to embrace new mobile phone information systems requires maximum level of optimism and innovativeness along with deal of the inhibiting factors which affect the readiness state; inhibiting factors in MAITS adoption comprised of uncertainty factors and current faulty existing system services; and there has been a complete consensus among the farmers to practice MAITS along with mobile decision support system because it can help them in crop planning, farm inputs (seeds, fertilizer, sprays etc), harvesting, transporting and trading. The findings of this study will provide guidance to the relevant organizations when considering readiness and barriers towards implementing of MAITS. The results of the study will give insight to many extension service and policy makers to understand what farmers actually need. JEL Classification: A1, Q00 Article History: Submitted: 6 August 2013 Resubmitted: 16 November 2013 Resubmitted: 10 December 2013 Accepted: 13 December 2013 http://dx.doi.org/10.14706/JECO SS11428 191 �Muhammad Rehan Shaukat, Iqtidar Ali Shah Introduction Pakistan is an agriculture country with seventy percent of its population living in rural areas. The agriculture sector is an important sector contributing 50 to 60% revenue to the national economy of the country and provides 50% of the jobs (Khan, 2011). Almost half of labor earnings come from this sector and it is one of the biggest sources of foreign exchange (Akhtar, 2007). The significance of agriculture, despite the fact that country has faced adverse climate change, drought and flash flood, has witnessed remarkable growth in the past (Thomas, 2011). A tremendous increase in out-put of crops (per acre) was registered in 2009 till 2013 (Pakistan Today, 2013). Despite of good contribution of agriculture sector in the economic development of Pakistan, the farmers are facing various challenges. There are farmers who work hard throughout the year to get their crops ready, but when the crops ready for selling, they face the problem of access to the retail markets and buyers to get competitive market rates. Thus, the quality of goods and commodities are affected and farmers are often paid lower market rates for their commodities. This process puts farmers into a situation where they barely mange to pay off loans which may have been taken for crop cultivation, and they end up with making little or no profit. Another key challenge is the location of the agricultural trade markets, which are often located far away from the villages. Due to lack of availability of transportation, it is very hard for farmers to take their goods to the market. When farmers are offered a lower rate, they have no other choice but to sell their goods sometimes without making any profit. Moreover, complicated procedures affecting agriculture farming comprise, crop planning and selling in the market which requires greater attention for farmers to choose the best route for them (Amjad, 2010). Similarly, scarcity of funds for rural infrastructure which affects farm productivity and growth is also one of the challenges. Moreover, the low literacy rate in the villages where most of the farmers cannot read and write is itself a big challenge. The farmers do not know how to access information using latest technology that could improve yields to get better market rates for their harvested crops. The farmers mainly rely on conventional information systems and are not familiar with the new technologies such as use of IT, whereas farmers in developed countries have realized the importance of information driven economies. To address various challenges, the government of Pakistan has focused more on research and development network which comprises of institutions such as the 192 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Agriculture Research Institutes (ARI), Agricultural Universities (AUs) and Agriculture Development Banks (ADB). The function of these set-ups in research and extension services support activities is of immense importance. However, there has been no major technological innovation which could give fresh momentum to agricultural productivity levels. Inadequate extension services for trading, and limited access to information further broaden the gap in the adoption of specific agricultural technology which results in the poor yields of agriculture products or crops. In order to achieve the higher levels of agricultural productivity, farmers must be equipped with up-to-date information and decision support in the agricultural systems. This has often been considered as the next step in modernizing agricultural setups. The current levels of mobile phones and mobile-enabled information services in rural areas could reduce information asymmetry and allow further awareness of the core expertise within the extension services. In the Pakistani context, the impact of mobiles as a mode of providing information for farming purposes would depend on how effectively the proposed mobile phone information and trading system network is embraced by the farmers in order to attain the market information. The impact of technology can generate significant results on productivity of crops in terms of increased returns by adapting changes in best practice for cropping patterns that could improve yields and the better price information for agriculture inputs and outputs which will make the farmer’s position better. Other non-price factors such as information regarding farming inputs, seed quality, and adoption of modern techniques are also crucial to enhance productivity. In order to maintain the enhanced productivity levels and to resolve crop selling hurdles like infrastructure limitations, distribution inefficiencies and the key factors resisting the spread / gain, and considering the high usage of mobile phones in Pakistan, the Government of Pakistan has shown immense interest by applying telecom industry exemplary model of growth with agriculture sector. The agricultural model can be more modified in a way that it can use telecommunications and access its benefits. Today in Pakistan 72% out of total telephone penetration rate is 119.9 million mobile users and Pakistan Telecommunication Authorities (PTA) has begun encouraging the development of indigenous based content on mobile/information and communication technology provisions and set to offer any kind of support to benefit farmers by offering the reliable and timely information (Saadia, 2012; Aziz 2012). The objective of this study is to explore and evaluate farmer’s readiness and barriers towards implementation of newly proposed mobile information and trade system 193 �Muhammad Rehan Shaukat, Iqtidar Ali Shah (MAITS) in Pakistan. More specific objectives are to investigate a) farmer readiness to adopt newly proposed mobile information and trade system (MAITS) b) key factors that affect farmers' mobile decision support systems and c) farmers readiness to connect with mobile enterprise networks. The rest of the paper is organized as: after introduction, literature review has been carried out followed by methodology. In next section, analysis and discussion has been presented followed by findings. The conclusion of the study is given at the end of the paper. Literature Review Despite a huge organizational setup by the government of Pakistan, the extension services do not reach to the most of farmers because of the geographical scatter and low motivation of the extension staff serving them (Siraj, 2011). Resultantly, this affects the growth of agriculture sector. There are various government, private and multinational organizations, as well as Non Government Organizations (NGOs) working to empower the farmers by providing the necessary agricultural information tools and inputs. However, the most striking cause which the farmer experiences is the shortage of relevant information needed for taking befitting timely action. Farmers are therefore disadvantaged and are unable to benefit with the existing agricultural knowledge. To provide timely and relevant information to the farmers, the government and some ICT organizations are planning to develop mobile phone information and trading system (MAITS). The purpose of mobile information and trading system is to create an information pool allowing access to farmers and to provide them appropriate training, support and motivation, and also rewards to serve the whole community in a productive way. The use of ICT in agriculture is not a new attempt in Pakistan as almost every mobile operator has launched agriculture associated services on partial basis (Siraj, 2011). For example, Telenor mobile operator has provided “e-Mandi” (Urdu name for e-market) information which consist only the rates of each agriculture commodity (Telenor, 2009). The ICT technology still has not been diffused in agriculture in Pakistan. There is a need to evaluate the readiness of farmers towards implementation of MAITS in Pakistan. The term technology-readiness refers to people’s inclination to embrace and apply novel technologies for accomplishing goals and objectives. It can be viewed as an evaluation process of overall state of mind that determines a person’s predisposition to make use of novel ideas by using those technologies 194 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan (Parasuraman, 2000). Although new technologies are diffusing through different segments of daily life at a much faster pace than ever before but on the other hand other survey-based evidence have shown signs of growing technology adopter’s frustration and disillusionment (Alsop, 1999). Though overall benefits of technology is seen as prolonging the adoptive process - for instance, the automobile took 55 years to attain 25% share of the market, compare to the cellular telephones which took only 13 years to reach the same level of market share (Berry, 1999). The concept of ICT readiness has received very infrequent attention in the literatures. Some studies have shown the evidence of higher level of technology readiness generally leads to lower level of innovation risk with a greater successful implementation outcome (Basole and Chao, 2004). A similar argument can be use in the context of mobile ICT: higher levels of mobile ICT readiness leads to lower technology risks and implementations that could also be successful. Individual readiness is important in explaining and predicting about the inclination to adopt new technology (Lin et al., 2007). Most of the models such as Technology Acceptance Model (Davis, 1989) and Technology Readiness Model (Parasuraman, 2000) were originally established for evaluating people’s technology readiness or technology adoption behavior in particular organizational environments (Lin et al., 2007). People in work settings may unwillingly or reluctantly to adopt new technology due to management influence. However, individuals or consumers in free market settings are free to choose among conventional and mobile phones information and trading systems. When people make their minds to use new mobile information and trade system, they mutually create an e-service with the system but do not hold ownership of the system (Siraj, 2011). According to Lovelock et al. (2004), in e-service perspective, service provisions cannot be created separately from the customers’ full contribution and participation explaining what they would like. Likewise a similar input is required from Pakistani farmers. Farmer readiness conceptualizes their general beliefs about technology, decision support factors and enterprise readiness linked with their engagement in technology-based products and services (Parasuraman, 2000; Basole and Chao, 2004; Basole, 2007). Indication of evidence from the work done in the field confirm that all the readiness and decision making factors are not enough to explain why farmers do not adopt new technologies, such as mobile phones with agriculture information systems or trade tracking systems. Earlier research studies have developed different models/constructs/frameworks that had critically focused on several success factors related to technology adoption 195 �Muhammad Rehan Shaukat, Iqtidar Ali Shah decisions (Agarwal et al., 1997; Damanpour, 1991). Some focused on individual technology adoption of technologies which combined theories of consumer behavior and psychology. A variety of models have emphasized technology acceptance and use by individuals and these investigations have provided key indicators to technology adoption decisions. However, they do not describe organizational technology adoption decisions essential for integration process (Legris et al., 2003). Other researchers developed key dimensions of technology readiness (Basole, 2005) from the domain of engineering management, information systems, organization behavior and strategy, which has shown the different avenues of organizational adoption decision making criterion very well in adopting those technologies. (Lai and Guynes, 1997; Tornatzky and Klein, 1982). In the literature, the recent and the most suitable and popular methodologies developed and adopted to evaluate the readiness of users for technology adoption are: Technology Adoption Model (TAM) (Parasuraman, 2000) which include optimism, innovativeness, discomfort and insecurity, Technology Readiness Index (TRI) (Basole and Chao, 2004) which include timeliness, trust, information richness, ease of use and Decisions Support Systems (DSS) (Basole, 2007) which include technology readiness, further including data and information readiness, process readiness, resource readiness, knowledge readiness, leadership readiness, employee readiness values and goals readiness… According to Basole (2007) any business entity itself passes through three phases which evaluate the readiness which include; preparedness, potential and willingness to adopt the mobile technology. A complete readiness assessment involves an evaluation process across the three layers along eight readiness dimensions. The first layer preparedness is assessed for all eight dimensions and refers to an organization’s ability to adopt, distribute, and assimilate mobile information system. The second layer potential is evaluated along the process, employee, and value and goals dimensions which are aligned with organization’s processes, employee, and strategy that could benefit from mobile information system. Third, willingness is assessed along the employee and leadership dimensions that reflect the leadership and employee attitudinal orientation towards adopting the mobile phone as a tool. Basole (2007) further find out the eight modes of readiness (key parameters) in evaluating specific aspects of readiness with actual information so that any company or entity can test these dimensions to check the readiness level before introducing the technology in their setup. These models include technology readiness, data and 196 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan information readiness, process readiness, resource readiness, knowledge readiness, leadership readiness, employee readiness and, value and goals readiness. Methodology In the literature, various methods have been adopted to evaluate the stakeholders' readiness for technology adoption. To evaluate the farmers' readiness to adopt mobile technology for agriculture development purpose, the following conceptual framework has been developed from Parasuraman (2000), Basole and Chao (2004) and Basole (2007) and adopted in this study. Figure 1. Conceptual Framework for Evaluating Farmers Readiness for Technology Adoption 197 �Muhammad Rehan Shaukat, Iqtidar Ali Shah The following basic questions were designed on the basis of above framework. • How ready are farmers to embrace the new mobile phone agriculture services in Pakistan? • What are the key factors in mobile decision support systems which affect farmer readiness to adopt new mobile phone agriculture information and trade systems? • How ready are farmers to work with mobile enterprise networks after getting agriculture services on their mobile phones? The new proposed Mobile Phone Agriculture Information and Trade System (MAITS) is a mobile phone information system which will provide important market information to the farmers and traders about agriculture. The basic objective of MAITS is to increase farmers' returns by providing various information about agriculture activities including better price, better quality of seed, weather conditions, better time for cultivation, better pesticides and fertilizers etc for agriculture inputs and outputs which will make the farmer’s position better. Data was collected from four important city of Pakistan including Lahore, Faisalabad, Vehari and Khanewal using interview methods. The interview guide has been developed (see Appendix). In order to get valid and reliable data, interview was recorded from only those farmers who were listed by agriculture development banks and agriculture research institutes. Twenty people including farmers (Progressive Farmers, Economical Farmers and Small Farmers i) and agricultural experts were interviewed. Interviews were conducted in local language Urdu and then translated into English because English was not the first language of informants. The research theme and the interview guide were sent to the informant a day prior of interview, so interviewees have clear perception about the research and be able respond correctly. A credit officer better known as a mobile credit officer from the Agriculture Development Bank and a second officer from the Agriculture Research Institute cooperated in conducting interview. A digital recorder was used to record all the interviews in order to increase the accuracy of the data collected and to remain more attentive to the informant. 198 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Analysis and Discussion Technology Adoption Model (TAM) In Pakistan farmers are aware of the new technology uses in their personal life. Information is needed to cut down their problems related to agriculture. Different interactions with the people give them an ability to appraise and appreciate use of new technology whilst working in their fields. They use technology to produce more crops and to get good offers from customers or market dealers. According to the Expert of Horticulture and Parks Authority Development, “The customers and market dealers are well informed about the results of promising technologies and usually collaborate with those farmers who have adopted or a considering adopting the new technology.” The technologies effects are perceived to be promising – with greater understanding of the use of these technologies it provides the users a greater insight into new modes of thinking and processes in agricultural reform. In Pakistan, the farmers who use technology perceived it to be more valuable than the other farmers who lack in it, but were vaguely aware of it, According to the farmers, “latest technologies make the life easier, save time and make easy and quick approach to other person / organization & departments.” The accurate information, at precise times, at the exact place is important for the farmers. However in Pakistan mostly there exists no complete set of mobility information sources that travel with farmers. While they are in a field visit or in markets for agriculture buying and selling, they use mobile phone for communications. According to the Expert of Agriculture Research Institute “Phone calls are not made for agriculture purposes. They are just made for normal gossips.” Majority of farmers informed that farmers “use information from TV, radio and newspapers.” One of the farmers who was using internet in field responded as “internet made us aware of what is going around the world.” However, Agriculture Research Officer (Expert) pointed out that farmers who are using this facility are very small in number. According to a farmer, well-informed farmers consider them more confident in discussing those issues which they learnt from media. The media has created positive and negative impacts on farmers. The negative impact is, the farmers are most of the time unknowingly mislead about the 199 �Muhammad Rehan Shaukat, Iqtidar Ali Shah information and most of time they use partial information which put adverse effects on their productivity. The information is needed for agriculture - physical infrastructure, agriculture inputs and market information which make the farmer rethink to look for sources of information rather than personal use. Their ambition shows their future is connected through mobile phones that will provide them in hand information to proactively manage their crops and trading. According to a farmer “we can harvest our crops before the weather changes… rain or heavy storms.” Some farmer doubt that this system may not be successful in Pakistan, because of farmer illiteracy and middlemen influences. Farmers were found not happy with existing extension services offered by government and private organizations. Farmer concerns about extension services that “these services are very limited and old fashioned and they are ready to adopt new technology which reduces their time of information searching.” Most farmers are looking for more choices if available so they are interested to know about mobile phone affects and its progression in most of the fields of other sectors. According to a farmer: “Simple! This is very helpful for us. From weather update (information) we can plan our sowing, irrigation, spray of pesticides and use of fertilizers… "We can compare our old varieties of crops with new one if mobile company provide authentic yield of new variety… From market updates I can manage the selling of my agriculture commodities.” It is common behavior to know about people more familiar with new technologies who have more information. They are the ones who are interested in latest technology information and can especially handle high-tech products and services without any further help. As they know a lot about working of technology and face fewer problems as compared to those people who are not innovators. For evaluation of farmer readiness it is necessary for farmers to have an innovative mind. The farmer who intends to take risks is the only one able to use new proposed mobile information systems. In Pakistan, Innovator type farmers prepare other fellow farmers for new technologies. The prior type of farmers observes their surroundings carefully in expectation to get latest ideas. They discover new ways of approaching the technology and try them fitting to their exact situation or to see if that is relevant to solve their specific problems - readiness state. All the way through this procedure, many farmers during the interviews for the technology benefits made up their minds to adopt latest ideas and latest methods of the systems. The similar response from the farmer to urge for new information and their readiness level to act on it can identify “man to man information… we go to different farmers and ask them that what 200 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan should we plant and how?… On their provided information we act on the information what they have told us to do.” Farmer readiness to use technology is activated by causes or problems like pesticide spray prices. Currently, the cost of fertilizer has increased to the level that some farmers may not be able to afford to buy this. Thus, the use of information is productive in different ways, a farmer responded as "the use of information has equipped us with many skills… I would say farmers do not broaden their exposure… otherwise there are lot of opportunities here… from which farmer can easily increase the yield… for example there are some insects… if you use those insects in your crops they kill the insects which are destroyer of the crops… now this technology is available and at free cost… many farmers do not know about this.” In similar case of mobile phones, these trends are proving farmers readiness to use mobile phone in place of old and existing systems due to innovativeness. Farmers think that when they are connected with agriculture world through mobile phones, it will increase their knowledge about agriculture business and will impact on other regions. The interviews data shows that the farmers want to learn new ways in agriculture. Indeed, most of information transferred to them is only one sided. Until the farmers do not put their wisdoms through innovativeness, the adoption of mobile phone services will not occur. A farmer who was active participant of different agriculture forums argued that “until we have a better communication with other farmers, trainers, experts and organizations… then only we will be able to understand about any new information… what presently is going on?... information is one sided delivered and nobody encourages the discussions… we perceive discussions facilities should be as far provided to us because we need sometimes to clarify and rectify some terms… which we are unable to understand easily in one go.” Farmers have shown their issues regarding traditional agriculture systems as a weak dispersal mechanism with a long search time, and incomplete levels of information retrieval. There is no certainty of information be delivered on time. During interviews farmers were found complaining about the current agriculture system lacking especially about the technologies in government sector which are not fully supporting them and how uncomfortable they were feeling in obtaining information. Even use of technology by others brings discomfort to them. 201 �Muhammad Rehan Shaukat, Iqtidar Ali Shah According to a farmer, “I go to them for soil test... they give me two weeks time… and after that the results were recommended for the color land… they have interchanged results with other farmer mistakenly.” One farmer felt uncomfortable because as he stated he does not know exactly whom to call in the case of emergency; who is the best person to get them the relevant information? When farmers tried to call the consultants or advisors, they usually end up with busy calls. Farmers suggest that there must be built in recording facility so that their calls are recorded automatically on the consultant cell phones. According to a farmer, “mostly when we are in field … we missed some information and not able to completely understand what we missed or even convey concerns to the relevant authorities.” Farmer does not know exactly to whom to call in case of emergency. Who is the best person to get them the relevant information? According to a farmer, “my crops were attacked by… insects… the climate condition was helping to grow those insects in no time but in this emergency state I was not able to get any help from anywhere. Eventually as a last step I burned my crops. This was a big loss for me” Most of farmers consider human involvements are too crucial in some farm activities. They are reluctant to give information on mobile phones. Farmers are skeptical in providing information, indeed if it actually gets to the right person in the right location. One farmer said that “they do have to trust middlemen” and not see any secure option to do any type of financial transactions via mobile. Some farmers have put this as their deep concern that any deals, they do by machine should be authenticated afterward in writing, “before this it was done by the middlemen.” Farmers feel insecure shifting from traditional agriculture system to mobile phones, while the limitations are the payment and lack of contact in the market. Farmers perceive that they cannot rely on only mobile information systems; they have doubts on the technology like the technology is too complex that how are we going to get out our payments. According to a farmer, “we get immediate payments from middleman, we do not know how mobile phone will give us this facility, we cannot trust the services for buying and selling purpose but we can trust in case if it's backed by the government… banks. 202 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan The proper information and standards should meet in any case. A number of organizations from the government sectors provide the free information, but most of farmers do not have access to this information sources. There must be some centers which also check the communication flow and how these systems can respond effectively. According to a farmer “most time when we are in the field… we know when we have missed some information and are therefore not able to completely convey the complete information or query… to the concerned authorities.” Farmers hire people and do not use the technology by themselves in sensitive matters where chances for damage are greater than the chances for enhanced productivity. Few farmers responded as “to get rid of weeds there are special skills required, you have to treat without damaging the main crop… sometime technology is dangerous like you need unique skills to spray… same deficits are in mobile phone… how you can be save from radiation effects.” In traditional agriculture farmers face middlemen who charge the higher money from them. According to a farmer, “the role of middle man is very dominant in our market system. Sometime middle man earns more than farmers. It will be a great change if we are able to get rid of these intermediaries. Surely the more profit I will get from my produce…”.When farmers were asked about whether they like to minimize or eliminate the role of middleman, few farmers responded as “this will be miracle. The middle man provide us low market rate, take its percentage also. The only creditability is the payment… He paid money within weak. If mobile company opens its own purchase centre, payment guarantee, provide fair market rates, which ultimately increase our profits more than the middleman… we appreciate the elimination of the middleman.” Farmers only go or reach to the middleman when they do not have investment to grow their crops, under hard pack circumstances. Farmers are force to take loans from the middleman on their terms. Most of the farmers have shown their willingness that if the mobile phone technology or the MAITS system is associated with some banks or government department which give them loans on the light terms and conditions they like to have it. According to the expert opinion from the Agriculture Development Bank, “… for farmers who are excited to use this new facility the service should be personalized and superior. The mobile Agriculture should provide the access to farmer consistent, reliable, updated information that is tailored for his use.” 203 �Muhammad Rehan Shaukat, Iqtidar Ali Shah Technology Readiness Indicators (TRI) The farmer’s decisions making factor has to be decided within time while it has been noted through the interviews that farmers were indeed had the greatest concerned about information timing. For, instance, deciding which mobile phone function is important; a farmer says “time is critical factor… we perceive that instead of SMS services… bear just little cost and just makes the phone call.” The decision support system in current situation is working around information from government, private companies and middlemen. Due to time factors and other information sources tendency towards media habits are changing. According to a farmer “…there are many agriculture programs aired on TV, radio… but due to our presence in field… we do not have time to see it… now these programs are available on CDs…which we purchase and watch according to our own available time slots… The recording systems are expensive and complicated … so we just bring CDs and watch it” Few agriculture experts responded, "time factor varies from region to region, every region has its own set of conditions... The timing of crops is different in each region so mobile services must emphasize these implications on ground realities… depending on region to region requirements.” Most of the farmers which are connected to old modes of information technology have information and time advantages. From the total interview sample, five farmers responded that they through online sources identified the markets which were selling commodities in the offseason “We get it in cheap rates”, a farmer stated. The majority of farmers are showing the lack of trust in the new system suggesting that both systems should run on parallel basis. According to a farmer, “…among choosing old and new systems… I think MAITS should run parallel to traditional systems... We cannot leave the tradition system in very beginning of the technology diffusion… I think the system will be chosen on our goals basis... we can adopt any system we like to facilitate our goals.” Farmer’s attitude towards technology acceptance shows that trust plays a vital role in the farmer’s decision making process. As stated above farmers trust the media including TV, radio, newspapers but the amount of information provided is not good enough to meet their requirements. Some complaint that they are able to get 204 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan only basic information from old media – TV shows them the rate slides, radio inform about specific advertisements and newspapers publish advertisements and incomplete messages. Even personal source contacts fail to get complete information in the name of business secrets, one farmer said “we collect the information from different places but if it is available from a single source … we will be effectively proceeding to crop planning… sowing to trading… easily.” Most of the farmers do not agree that mobile phones would give complete information. According to a farmer “…we do not know how a tiny device can cover these all information needs.” According to experts the mobile phone can just provide the immediate information and rest of information will be linked to other technology sources like internet. According to the Expert of Associate Agriculture Chemist, “even they get the information on mobile phone, they will not take the risks and will opt for the other information sources… like as laboratory tests, rates.. ” Detail explanation is required to change the understanding level of farmers. In current traditional system farmers are informed about new varieties of crops through seminars arranged by the mill owners. Thus, the information provided is according to their research and requirements to which they can get crops from the farmers. According to a farmer, “we are invited by various sugar making factory owners… They provide us with the information about new varieties and ways for sugarcane productions.” Farmers know about the mobile phone uses to the extent of making phone calls and some of them use SMS. Majority of them are using it for their personal uses only. There were number of farmers who were using the mobile functions (MMS, internet) more than calling and writing SMS. Farmers take the mobile phone as a convenient technology device that is easy to use, easy to carry and from using it can call any time with little effort as they already know its basic functionality. There are some difficulties while using mobile phone such as many farmers get confused during calls in which they are asked to press several buttons to talk to a customer service representative. Instead of convenience, it becomes a time taking device. According to some farmers “mobile phone technology is more convenient to talk from any place and could get the information as well as pass on the information… the demerits of mobile phones we cannot see the faces on the other side… some time it is a time taking process to call companies and interact with automated message systems… she ask us to press too many buttons… it just waste our too much time.” 205 �Muhammad Rehan Shaukat, Iqtidar Ali Shah Decision Support System (DSS) Farmers are willing to interact with technology. According to them “we need interaction with the technology experts… they provide us information about agriculture-related technologies and detailed information of different market access… sometimes over internet… for example.” Sometimes the infrastructure is available from a different funding agency which aids the agricultural sector free of charge (Siraj, 2011), but farmers unfortunately cannot get any information about these agencies because of lack of awareness of these types of organizations. As one of the farmer responded that “recently, solar cell tube wells (water production unit) were introduced in Pakistan and most of farmers do not know about it or came to know late… it was already installed in other places with other farmers.” Farmers also stated that access to the technological experts will make them more knowledgeable to use the technology in agriculture sector and the linkages with the industry will benefit all stakeholders in one go. Farmers perceive that due to technological support they will be able to produce crops according to the new innovations. A farmer from Khanewal responded as “I like to do the research… I am planning to install a unit (factory) for energy drinks… yes these energy drinks would be produced by natural ways… It contains lot of vitamins and calcium… I need its formula to add flavor… I need the technology to produce it in canned form…. I do not know where from I can take help about these, the mobile phone services you are telling about if help I will adopt it.” A farmer also pointed out that "the farmers have to go to different agents… the worse of them is middlemen role… they give the loans on this promise made by farmers... they will buy farm inputs form them… they will sell their crops to them on fix rate… middleman is taking more advantages than the farmers… they are getting profits out of farm inputs, standing crops… and where they sell forward… from end buyers they charge this.” It is sometime difficult to get loans from Agriculture Development Bank as there is long queue of farmers standing in the waiting lists. Farmers have complaint that they have not able to get loans on time According to them “they are biased in giving the debt money… they give big loans to big land farmers… we have to always wait… mostly time mobile credit officers are out for recovery in field.” The bank officials argued on this problem differently, according to them they are always at the disposal of the farmer. Expert from Agriculture Development Bank pointed out that “when the farmer come to us they try to give them maximum leverage… sometime problem is face by us that the next 206 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan sanction of loans are depended on the previous records of farmer… Farmers with higher recoveries paid get more quickly and the farmers who are still not clear from previous recorded loans have to give the justification to sanction new loans for them… we have the databases but here staff more work manually as they do not have access directly to databases… meanwhile after weeks of fieldwork they come and enter their records through IT experts… which is also time taking factor… if farmers are connected to the bank customer databases… they will be able to request before coming to bank… By then we will check their records.” Farmers encounter scarcity of labor and technical equipment at times crops are ready for harvesting and sowing. According to some farmers “time management is very important… the weather is not predictable… so the market… we need immediate number of labor and technical assistance at the time of planting and harvesting the crop…”. However, experts from Agriculture Research Institute and Agriculture University informed that “the technical assets and labors are available from scattered places. Farmer has to run after the individual need. This is the big waste of time. Even they are not sure that they will be able to get them.” Expert from Mobile Operator Company, farmers and expert from Agriculture Development Bank informed that agriculture technical equipment being expensive is not affordable by farmers and they have to rent that from either government bodies or private sector. Farmers desired that there should be a database about renting equipments for them. For better connectivity farmer should remain well-connected through mobile phones with these networks to check the availability of related resources. Farmers keep changing patterns of producing crops, seeds buying and harvesting as per the market conditions. For example, in case of high demand of sugar cane, maximum number of farmers will produce the sugar cane in next year without predicting the market demands. According to some farmers, ''we change our product sales… naturally according to the rate variations. We delay products if prices are not suitable… but in some case we are force to sell it… some grains are perishable which are out of control… so we need other sources… which give us options to decide”. Thus, farmers need different type of knowledge about the new technology innovations needed in particular agricultural environment. Most of the farmers in interview have recommended that the knowledge can be provided through different sources like mobile social communities network and information mobile centers. 207 �Muhammad Rehan Shaukat, Iqtidar Ali Shah One of the farmers said that “the training of mobile uses should be imparted in schools adjacent to the villages. The children are quick with technology especially new emerging technologies. They will pick the information quickly and educate their elders about its significant uses.” Overall, farmers have shown willingness to have greater knowledge than before. As one of the farmer state “every day we are learning from our society… the knowledge we retrieve is in raw form… we are unable to process it… if we can get systemized knowledge… we will perform in more better way”. An educated farmer responded to a question on leadership role in following manner: “I have not faced any kind of problems, I am the member of different committees… we represent farmers and gave suggestions about the current agriculture needs and they consider our valuable suggestions… I have not experienced any kind of problems in respect of technology and other agricultural innovations accessibility.” Other farmers who do not have access to such networks stated: “they are biased and they just provided the agriculture facilities to those with whom they have contacts”. The day to day processes are long and farmers feel uncomfortable using those. One of the farmers said: “they are such lengthy and time taking processes… irrigation system is one of them, we have to wait for the water and due to non availability of water sometime our crops growth gets affected… same effects come out from fake fertilizers and insect killing sprays available in markets”. Farmers also see agriculture processes of dealings, transactions, selling, seeding as very complicated as one of the farmer responded: “If information is of the worth which reduces cost and travelling then this will be appraised by the farmers". Expert from Horticulture informed that farmers can go into more new processes of farming like “tunnel farming is one of the skills related to agriculture technology which farmers need to adopt this process should handle with very careful analysis of land condition that best fit with the seeds this can only be done if the farmer has obtained useful information to how to launch these processes”. Mobile phone should have some packages that support the farmer more in detail to understand the information more specifically. Thus, another farmer reflect like the process can be handle with “…communities involvement in information and knowledge sharing will put better impact” on our day to day engagements and procedures. 208 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Support for farmers for enhanced execution of processes that could give better productivity or access to new emerging markets is very necessary to help them achieve their goals because far too many bureaucratic blocks prevent some farmers from operating in a free market enterprise like system. A farmer showing his disappointment in information and other processes connectivity says that “we can get information of international market but we are not able to get licenses and fulfill the other requirements which are mostly time consuming, expensive and complicated”. It is noted with concern that majority of the farmers in Pakistan do not have the potential to use mobile phones services. It is because of their disillusionment about the technology that they have already presumed that is only for personal purposes. In future they expect to change their attitude in adopting those technologies. As expert from agriculture bank reflected that “we are seeing lot of changing pattern of farmers… today farmer is having… of difference than they use to be in 5-6 years ago… today farmer is willing to adopt the technology for their crops production… most of farmers come to us and ask about new innovations of agriculture… we have declared the model villages in all areas and urge farmer to go there… they get the information and apply in their fields… They are now very successful in it”. The overall readinesses of farmers for technology adoption are surmised in the following table 1. Table 1. Results of Farmers Readiness for Technology Adoption Farmers Readiness Technology Adoption Model (TAM) Technology Readiness Indicators (TRI) Decision Support System (DSS) Farmers Willingness Discomfort Farmer see lack in current information system: Farmer feel information is not delivered on time: Farmer could not call anyone in case of emergency: Farmer when try to call experience busy calls on Technological readiness Farmer like to use MAITS if it connects with technical experts: Farmer like to use other networks through MAITS: Farmer want to know more feasible technologies available: Farmers want someone Timeliness Farmer see in time information is crucial for decision making, use phone calls service instead of doing SMS, presume time factor is changing their media habits, time varies region to region basis, get cheaper 209 �Muhammad Rehan Shaukat, Iqtidar Ali Shah other side: Farmer touring in field missed a lot of information: Farmers cannot read messages: Farmers do not have record facility to store their messages: Farmer retrieval information is not economical: Farmer got general information which is not of any use: Farmer experience absence of social amenities. Insecurity Farmers doubt and distrust MAITS: Farmers like to interact with humans rather than MAITS: Farmer believe payment methods are not ensure on mobile phones: Farmers feel transactions on MAITS should be authenticate after in writing also: Farmers feels MAITS model is too complex: Farmer feel human presentation skills are more valuable than MAITS: Farmer feel MAITS will not be successful for longer period. 210 to tell them about new Agri-related technologies. commodities in offseason. Resource Readiness Farmers like to acquire loans from financial institutions: Farmer feel more feasible sending loan request before they visit the source: Farmer like to have easy access to labor: Farmer have to search labor and technical assets from different places: Farmer require to communicate government bodies or public sector companies for necessary assistance in resources Knowledge Readiness Farmer have the knowledge of current mobile phones working: Farmer do changes in their patterns according to known values: Farmer like to know about different available options in using technology innovations in their field work: Farmer desire to know about the market rates: Farmer can access the basic knowledge of MAITS uses in their nearly training centers Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Farmers Potential Farmers Preparedness Innovativeness Farmer want to be a first user of MAITS: Farmer desire more Agri-information than others: Farmer can handle MAITs functions: Farmer creative ability to apply information differently: Farmers are ready to take risk to adopt MAITS: Farmers expect latest ideas: Farmer interact in community: Farmer give advices to other farmers: Farmer are ready for change Leadership Readiness Farmer have a key role in policy making of Agriculture: Farmer contact different higher management officials in order to register their suggestions and feedback: Farmers feel the officer decisions are biased: Farmer perceive strategy makers must do decisions on the basis of root cause situation Optimism Farmer knows mobile phone benefits: Farmer feel MAITS convenience in use: Farmer can use it in flexible timings: Farmer End-user readiness Farmer support MAITS system as thinking change is positive: Farmer feel MAITS model is source of relieve to them: Process Readiness Farmer think mobile phone services must be relevant to agricultural processes: Farmer opt for new processes in agriculture sector: Farmer understand processes can be improved through communities involvement: Farmer cannot access international markets due to strict process for licenses and other government approvals Information Richness Farmers think incomplete information mislead them, believe MAITS system will not convey complete message, Farmer would not like to get immediate information form MAITS: Farmer need a detail explanation to understand information: Farmer like information in form of video, audio and graphic wise Ease of Use Farmer perceive technology will be free of effort, understand MAITS System is easy to carry, experience sometime mobile phone complexities, feel difficulty to talk sometime without face interactions Trust Farmer is resistant to change due to MAITS newness: Farmer do not share relevant knowledge in name of business secret: Farmer 211 �Muhammad Rehan Shaukat, Iqtidar Ali Shah desire to have a new agriculture technology: Farmer can improve their skills: Farmer’s source of knowledge and information: Farmer can mold it easily according to their use: Farmer realize other uses of mobile phones than their personal use: Farmer understand demerits of partial information: Farmer well understand the MAITS proposed model: Farmers can manage their crops using this technology: Farmer can sell and purchase commodities, farm inputs: Farmers are not happy with existing agriculture system. Farmer do not have potential to use technology due to illiteracy and other factors: Farmer are frequent user of mobile so be for MAITS do trust in case they got decision choices Values and Goals Farmer believe MAITS will provide ways for profit maximization: Farmer through MAITS will able to sell and purchase their commodities to different markets Findings Mobile phone device perception to connect the other information enables farmer’s efficient accessibility to new data and information sources not available easily. The real-time option along with highly tailored information reflected Pakistani farmer readiness to adopt the same system, as they are optimistic to real benefits of mobile phone and well aware of implications these mobile phone will put in agriculture sectors. As a result of the interviews, the views of the farmers tend to suggest use of mobile phones in new ways for advancement in agricultural productivity increases mobile-enabled information services. Pakistani farmers have mobile phones but without agricultural information systems to take full advantage of information sources required in their working life. The farmers want to access the technology which they need the most. The farmers seem to be ready for the technology through 212 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan innovation readiness for change. They do not have control over the technology. Extensions services do not give details knowledge to understand by farmers. Sometime Extension Service Provider believes that technology uses are not for use by common farmer due to illiteracy factor. Farmers like to have less complex devices and feel discomfort with extra functions. The farmers are unhappy from these extension services as information provided to them is general and it is country or provincial level information but not relevant to their specific local requirements. Even though the farmers would like to get rid of middlemen and may be biased information providing by companies. They still believe that this is a double ended sword, adhering to a view from buyers' perspective that it is not possible to buy crops or products for the whole year whilst farmers can only provide products on a seasonal basis. The timely available current and appropriate information helped farmers to make decisions at specific times and locations. Furthermore, source and media trustworthiness guide a farmer’s trust in information sources. The information richness will convince farmers to trust the new sources of information. Farmers perceive that information could be more understandable through mobile phones if supported with audio, video or graphical explanations. Ease of use is important to evaluate farmers’ perception towards usefulness of the technology. In agriculture systems there is lack of technical support, physical infrastructure and agricultural technologies related information. Farmer connectivity through mobile phones would be feasible if existing and related networks were well established and interconnected. The agriculture technical equipment being expensive is not affordable by farmers and they have to rent that from either Government bodies or private sector. Farmers desire that a data base be maintained for renting that equipment on merit. For better connectivity farmer should remain well-connected through mobile phones with these networks to check the availability of related resources. Like other sectors, farmers dealing on mobile phone require to get help from financial, human and technical assets providing networks. Due to the lack of connectivity with financial institutions networks and other aiding agencies, farmers some time face severe shortage of money which effects their crop production. Currently farmers are taking loans either from Agriculture Development Bank in Pakistan or they approach to the middlemen. The lack in financial resources is too severe or is on such terms and conditions which is not convenient to farmers’ pocket. 213 �Muhammad Rehan Shaukat, Iqtidar Ali Shah Thus, farmers need different type of knowledge about the new technology innovations needed in particular agricultural environment. Most of the farmers in interview have recommended that the knowledge can be provided through different sources like mobile social communities network and information mobile centers. Farmers take the leadership role while they represent farmers in different networks. Most of farmers state their good relationship and identify their role as policy maker in Organizational level decision making for agricultural purpose. Expert says it is necessary to take farmers on board for framing stable policies in agriculture sector. The management support in decisions of technology adoption is important. Farmers see the mobile phone information system success only if that fit to agricultural processes. Farmers face long waiting processes like as crop planning, seeding, purchasing of farm inputs, transporting, trading and loaning during connecting different fellow farmers, middlemen or market dealers and sometime mobile credit officers from Agriculture banks. The farmers perceive that in time information helps in sorting out problems faced by them .Farmers consider technology as a source of relieve, farmer will be in very clear position to plan for crops variety, seeding to harvesting and transporting produce for selling. In the farmer interviews, farmers show their ambition to get access to different markets and mobile agriculture information system to (i) minimize the middle men role and(ii) take maximum part and gain profits. To achieve their specific but different values and goals they are expecting some breakthroughs. The crop insurance facility, technical assets, sustaining competitive advantage, profit maximization, time and cost savings in crop production are the key values for the farmers to develop. Research Implication Farmer’s readiness to adopt mobile agriculture system revolves around mobile decision making support and accessibility to different networks. Any factor missing is prone to deviation from use of this technology. The analysis of the data retrieved from the interviews has suggested, the evaluation of readiness is not only the final place to decide whether farmers will adopt the new mobile information system or not. It is associated with the attitude which comes from innovativeness, optimism or inhibitor like discomfort which either helps farmers’ preparedness or unpreparedness before replacing the existing system with the mobile information system. Thus, 214 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan further analysis shows that potential to decide is related to farmers’ interaction because of some problem or cause. In particular situation Pakistani farmers have shown their unhappiness about the existing system. So, to adopt the mobile phone is greatest reason for discontinuing use of the existing system. Although farmers have a primary ability to assess the basic information, but access in depth; the farmers need more prominent information sources which give them the potential to properly assess the value of the new system. Thus, preparedness, potential and generating value are the key factors which lead farmers acquainted with other factors in readiness. Pre training involving demonstration, seminars and other related activities are important to convince farmers for new innovations in the field. Research limitations The research is limited to the primary data which has been collected from rural areas adjacent to four cities of Pakistan. The research describes the opinion of different farmers and experts from these four cities only. More suggestions could have been gathered and added for Mobile phones Agriculture and Information systems (MAITS) acceptance by including more farmers and retailers from other cities of Pakistan as well. This research has evaluated the Pakistani farmer readiness for adopting mobile phone information and trade system on the basis of different dimensions quoted in literature. The method used is qualitative in nature. However, a quantitative approach can be carried out using various quantitative methodologies. It would be intriguing to establish a global model for the whole agriculture world with all databases in technologies interconnected. Conclusion Pakistani farmers very well perceive the merits/demerits of mobile phone usages. They have begun to realize other usages of mobile phones rather than restricting only to personal uses. Thus, majority of the farmers are ready to manage crops, purchase farm inputs and sell commodities through MAITS. The innovative farmers are recognized because of their outward role advising other farmers. The current amenities and informal communication structures have led the farmers to rethink and opt for alternatives systems which could give value addition. 215 �Muhammad Rehan Shaukat, Iqtidar Ali Shah The overall conclusion is that farmers are ready to embrace new mobile phone information systems. However, it requires maximum level of optimism and innovativeness along with removal of the inhibiting factors which affect the readiness state. The inhibiting factors in MAITS adoption comprised of uncertainty factors and current faulty existing system services. There has been a complete consensus among the farmers to practice MAITS along with mobile decision support system because it can help them in crop planning, farm inputs (seeds, fertilizers, spray etc), harvesting, transporting and trading. The findings of this study will provide guidance to the relevant organizations when considering readiness and barriers towards implementing of MAITS. The results of the study will give insight to many extension service and policy makers to understand what farmers actually desire. References Agarwal, R., Mohan, T., & Wilemon, D. (1997). Assimilating information technology innovations: Strategies and moderating influences. IEEE Transactions on Engineering Management, 44(4), 347-358. Alsop, S. (1999). Have I told you lately that I hate windows? Fortune, July 5, Pp 177-78. Akhtar, D. S. (2007). Expanding microfinance outreach in Pakistan. State Bank of Pakistan. 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Innovation characteristics and innovation adoption implementation: A meta-analysis. IEEE Transactions on Engineering Management, 29 No. February, (1982), 28-45. Telenor (2009). E-Mandi grading booklet. Retrieved August 11, 2012, from http://www.emandi.mobi/blog/?cat=6 Thomas, B. (2011). Pakistan's agri-sector registers significant growth in three years. Retrieved June 8, 2011, from http://carbon-basedghg.blogspot.com/2011/04/pakistans-agri-sector-registers.html 218 Journal of Economic and Social Studies �Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Interview Guide 1. 2. 3. How the latest technologies of communication affect your life. At present what type of communication technologies are you using? Do you use mobile phone, what type of merit and demerit of cell phone do you experienced? 4. Do you use mobile phone for only making calls or you also use it for SMS or any other services. 5. From where you get the latest information about new technologies for crop production. Is it easily available or you experiences difficulties? 6. Do you want to adopt new technology by which you can get all latest information about crop production at your door step? How can u compare this new method of getting the information with the old traditional one? 7. Do you like that a mobile company provide you all information starting from sowing to selling, weather forecast, cost of fertilizers and pesticides, new varieties at your door step. How much you will be benefited from this new intervention. 8. Is the way of Government for the dispersal of agricultural related information hinders or favors the adoption of Mobile phone information systems? Do you agree with the government policy about agricultural like supporting price of different crops? Whether you like to take this information on your mobile phones? 9. If a mobile phone company eliminate/minimize the role of middle man and it will increase you profit do you ready to adopt this system. 10. If Mobile phone information system increases the number of buyers of your product and gives your information about, how to increase your profit by going to various markets, what will be your degree of willingness to use the above mentioned Mobile Phone information system? 11. If a mobile company provide you the information of the latest rate of crops of different markets of the country, will it increase your profit and can you able to sell your commodities there. 12. If a mobile company provide you all information at a nominal cost which save your traveling cost to enquire information from different sources do you adopt this, if no why. (Follow up Questions) 219 �Muhammad Rehan Shaukat, Iqtidar Ali Shah Progressive farmers: The farmer who run his form mechanically i.e. mechanized forming by adopting latest agriculture technologies. i 220 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. 2411 Title A name given to the resource Farmers Inclination to Adoption of Mobile Phone Agriculture Information and Trade Systems in Pakistan Author Author Shaukat, Muhammad Rehan Shah, Iqtidar Ali Abstract A summary of the resource. This research studies three aspects relating to farmers readiness for the proposed mobile phone information and trade system (MAITS) namely (a) farmer readiness to adopt newly proposed mobile information and trade system (b) key factors that affect farmers mobile decision support systems (c) farmers readiness to connect with mobile enterprise networks. These were investigated using a qualitative research method. After a careful selection of a set of questions, interviews were conducted with selected farmers from four cities of Pakistan including Lahore, Faisalabad, Vehari and Khanewal. The analysis revealed that farmers readiness to embrace new mobile phone information systems requires maximum level of optimism and innovativeness along with deal of the inhibiting factors which affect the readiness state; inhibiting factors in MAITS adoption comprised of uncertainty factors and current faulty existing system services; and there has been a complete consensus among the farmers to practice MAITS along with mobile decision support system because it can help them in crop planning, farm inputs (seeds, fertilizer, sprays etc), harvesting, transporting and trading. The findings of this study will provide guidance to the relevant organizations when considering readiness and barriers towards implementing of MAITS. The results of the study will give insight to many extension service and policy makers to understand what farmers actually need. 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 2014-07-15 Keywords Keywords. Article PeerReviewed H Social Sciences (General) https://omeka.ibu.edu.ba/files/original/553ce794e37bbbac64a96c8ce8b1c43e.pdf 8190aa1dfb06e8922bfe2e6bb788694c PDF Text Text Journal of Economic and Social Studies Technological Progress as a Generator of Economic Growth and Development Mladen Rebić, University of East Sarajevo Bosnia and Herzegovina rebicmladen@yahoo.co.uk Nemanja Šarenac University of East Sarajevo Bosnia and Herzegovina nemanja.sarenac@gmail.com Abstract: Bosnia and Herzegovina (B&H), as well as many other countries in transition, was faced with inadequate and insufficient technological progress, which is the result of years of neglect of investment in science, research, and new technology. This paper attempts to present the actual situation in B&H in terms of technological progress, innovation and investment in scientific research, as well as to offer basic guidelines for getting out of this difficult situation. B&H is located at the bottom of the all European countries when it comes to innovation, research and new technologies, and consequently it is not surprising that the B&H economy consistently recorded poor results. Investment in research and development and employee education is the primary goal of any successful company, whether it is a small, medium-sized enterprise or oligopoly. Therefore, the aim of this paper is to determine the guidelines i.e. strategic objectives, which will constitute the basis for future progress of B&H in the field of technological progress. Empirical research, which was conducted in order to determine the strategic objectives, has been carried out by using a questionnaire built on a sample of the leading experts in this field in B&H. Keywords: Technological Progress, Innovation, Research and Development, Patents, ICT Index. JEL Classification: L10, L13 Article History Submitted: 16 April 2013 Resubmitted: 1 July 2013 Accepted: 20 November 2013 http://dx.doi.org/10.14706/JEC OSS11424 73 �Mladen Rebić, Nemanja Šarenac Introduction For decades, technological progress has been considered the key pillar of economic development in the world. Consequently, investment in research and development should be the primary goal of every company in B&H, and also the state. The progress and success of one country largely depends on science and technology, research and innovation, but if one wants to talk about the existence of high-quality research and technological competitiveness it is necessary to have sufficiently good educational system, i.e. educated workforce, young scientists, researchers, and so on. However, a good educational system implies the existence of active support and protection by the state! B&H cannot boast with high quality education and with much care to invest in scientific research activities, new technologies, inventions and inventors. The reason why the educational system, research, and thus technological progress in Bosnia and Herzegovina, is in such a desperate position is the lack of adequate support from the state. Finland can be mentioned as a good example of success and taking care of human capital, education, investing in innovation. In the period 1991 – 1995, Finland increased investment in science and education for incredible 82%! The results were impressive. In 1991, Finland was a country with serious problems i, but in 2000 it realized a budget surplus of 7% and an unemployment rate of 10%. Thanks to investment in education and new technologies, Finland regenerated and significantly increased its technological competitiveness, which was driven by rising exports and industrial production. Here, we speak about industry based on information technology (IT industry), innovation and education, i.e. knowledge economy ii. Position of the EU, in this field is not very good, compared to the rest of the world. For many years, the EU has been trying, by size of funds for investment in research and development, to catch up with the U.S. and Asian countries especially iii. It suffices to say that in the top twenty companies in the world, by number of innovations, EU has only two firms - German Siemens and Finnish Nokia. It should be mentioned that the lead story on this topic belongs to companies from the U.S., followed by Japan and South Korea. Consequently, EU decision to establish "Innovation Union" is no surprise. The main task of “Innovation Union” will be to raise competitive readiness of the EU compared to the rest of the world in the field of technological progress, i.e. investment in research and development. 74 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development Therefore, it is necessary for B&H to begin to follow the path already headed by Finland, Turkey, China, India and so on. It is necessary to pay more attention to education, scientific research, new technologies, as well as to prevent the outflow of "brains" from Bosnia and Herzegovina. The fact is that progress in the field of new technologies and technological progress in B&H is not possible without adequate help and support from the state. Bosnia and Herzegovina has a very small investment in science, research and development, and therefore it is very important that the already meager funding available is not put into the wrong hands. Help from the state should primarily be directed towards firms (entrepreneurs) who are willing to invest their capital in research and development, employment, local and regional development, in order to stimulate economic growth and technological progress. What are these companies? Which market structures do they belong to? The first part of this paper will try to provide an answer to these questions, in order to give guidance in which direction the government support should be directed when it comes to research, innovation and technological progress. In fact, all major research and analyses carried out in this area are based on the hypothesis of Schumpeter (1928, 1942), which is based on the fact that most of the innovations are implemented by large companies (monopolies). Attention will be based on Schumpeter hypothesis, and the paper will try to come to the knowledge what size of the company (the market structure) is most prepared for serious investment in research and development, i.e. implementation of innovative activities. On the one hand, there is the attitude of Schumpeter that favors highly concentrated markets, i.e. large firms and on the other hand, especially in recent times, there are more and more supporters of the opposite position involving that the greatest willingness to invest in research and development is shown in the small and medium-sized companies - competitive market structures. It is known that the EU is on its way to increase technological competitiveness, giving special attention and support to small and medium enterprises. In fact, there are serious indications that the oligopoly is the most appropriate and best market structure, and also the fastest market structure to implement certain innovative activities. Due to the loose connection of scientific and business sector, universities and the private sector, the constant neglect of the importance of technological progress, B&H is very low positioned in the field of technological readiness and innovation, which is discussed in the second part of this paper. 75 �Mladen Rebić, Nemanja Šarenac In the end, the paper will talk about ICT index, as one of many indices that will enable us to study the competitor readiness and B&H position, relative to other countries in the region and the world, in the field of technological readiness and progress. Market Concentration and Innovation Schumpeter's hypothesis ‘’The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new products, new methods of production or transportation, the new markets, new forms of industrial organization that capitalist enterprise creates.’’ (Schumpeter, 1942) As it has been already announced in the introduction of this paper, the starting point of its analysis is Schumpeter's hypothesis, from his work "Capitalism, Socialism, and Democracy" (Schumpeter 1942), that larger firms invest more in research and development. Schumpeter’s view was based on the fact that the existence of large firms and their market power are the basis for the implementation of large-scale plans. According to Schumpeter large firms represent "the engine of economic progress." However, the main problem of this approach to the problem might be the fact that Schumpeter never explicitly explained why the big companies are better innovators. On the other hand, Schumpeter has provided two complex arguments - hypotheses (Hutschenreiter, Leo, 1994: 52): • Innovations increase more than proportionally with the size of the company, • Innovations increase along with the increase of concentration. During the past few decades, many experts in this field have tested these arguments. The results to which most of them came are that they could not fully confirm the claims of Schumpeter. The small company also may have a relative advantage in innovation in terms of highly innovative industries, in which highly educated workers are essential components. Also, small firms have a relative advantage in innovation when it comes to radical innovation, and also where production is more labor-intensive than 76 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development capital-intensive. Under these conditions, and if there are no significant barriers to market entry, a small company can access particular industry with more competitive and flexible ideas, products and manufacturing processes, challenging the domicile companies and continuously disrupting the existing patterns of production in a given industry. The advantage of small businesses rely on the idea that firms with high market power usually become "lethargic" in an effort to adapt to certain changes in technology, and that they are more concerned about maintaining the current technological development rather than initiating new investments in process innovation iv. On the other hand, large firms have an advantage in innovation in industries that are capital-intensive, and concentrated, and have the production of differentiated products. Large companies have also advantages in innovation when the environment is stable, where the tastes are not changing fast, and where the product is standardized. Under these circumstances, specialization provides cumulative advantage to current leaders, which allows large companies to achieve abnormal profit, which they will be able to use later for the enormous investment in research and development, and also for the hiring of professional managers and engineers. Large firms possess more assets compared with small firms. Consequently, large firms more easily access loans with more favorable interest rate, they are also capable to quickly reduce their operating costs and invest more in innovation - that finally would lead to the reduction of production costs. All mentioned advantages that large firms can achieve are usually converted to barriers for entry of small firms (Mazzucato, 2000: 33-34). It is certain that Schumpeter's arguments are not entirely acceptable. On of the reasons to be noted here is the diversity and specificity of certain industries. Of course, there are industries in which large firms are the leading innovators (aluminum, computer equipment - software), and on the other hand, there are industries in which the size of the company means greater investment in research and development (steel). It should be noted, that the well-known experts in this field such as Mason, Galbraith, even Schumpeter, did not provide an empirical study with which they could provide answer to the aforementioned dilemma. Yet we can conclude that large firms can be considered as engines of economic growth and development of a country, although they are not exclusively and only the greatest innovators. In the end, it is necessary to mention the term "creative destruction", originating from Schumpeter, where he tried to describe the economic impact of technological 77 �Mladen Rebić, Nemanja Šarenac change. The term creative meant the introduction of new technologies in manufacturing processes that would lead to the reduction of production costs, as well as provide new services and products. However, on the other hand, there is the destructive aspect of technological change. The introduction of new technologies inevitably leads to the question of domicile market power of firms that remained faithful to the old, less efficient, technologies. Creative destruction, therefore, rewards successful innovators and at the same time punishes those firms whose technology is obsolete (Lipczynski, 2005: 496). Firm size and innovation Readiness for the implementation of the research project, the timing of innovation and the nature of patent competition are determined by the market structure in manufacturing and research industries. There are two links between market structure (firm size) and innovation. First, the patent allows the innovator to exercise some market power on the basis of innovation - competitive (small) firms. Second, firms with some market power can prevent the entry of new firms into the market and potential mimicking by defensive patents, or retain their power through the introduction of new products - monopoly (Carlton, Perloff, 2005: 560). When it concerns the size of the company, there are usually two extreme cases meant: small firms (competitive market) and large companies (monopolies). The largest number of executed analyzes take the competitive and monopoly market structure as a base for establishing the importance of the interaction between firm size and innovation. However, this mater should seriously include oligopolistic market structures. Why? It is due to the irrefutable arguments that oligopolies are the very market structure - the size of the company which is facing the most innovation. The oligopolies have adequate market power, and thus can have abnormal, i.e. extra profit. Given the market structure to which they belong, they are very prone to innovation, because it is one of the fundamental aspects of their fight against close competitors, and so on. No one can deny these arguments! But in order to better "understand" the very core of the problem, we will start from the beginning. Monopolies have the best position for innovative activities. The key question that arises here is: Do monopolists need and want to invest in research and development? The answer to this question would be: It depends on the possible competition! Monopolies have a great market power, abnormal profits, low investment risk, low 78 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development degree of diffusion v, the lack of competitive pressure, etc. In other words, monopolies have the money, time and space, which may enable certain technological progress. However, in most cases, monopolies’ decision is not to invest in new technologies, except when faced with potential competitive pressure. Monopolies are usually, due to absence of competition, "put to sleep" - safe market, profit - simply they have no desire to change anything. One of the problems that monopolists often face is a growing bureaucracy, which usually leads to their technical inefficiency. In addition, if the monopolist achieved its current market position based on an earlier successful innovation usually there appears the so-called attachment to existing technology and the shift to another - a new technology is usually considered by the monopoly as a too expensive move. In accordance with the foregoing, it can be concluded that monopolies are not a market structure that most invests in research and development (Lipczynski, 2005: 498). On the contrary, monopolies are often prone to quite opposite strategy. Monopolies decide not to engage in innovative race with the other participants, waiting for the competitors to carry a serious and compelling innovation. After confirmation of innovation as very successful and profitable, monopolies step into action. Thanks to their market and financial power, and already established “brand” - consumer confidence - monopolies easily copy given innovation and take most (almost all) of the profits from the initial innovators. Companies in competitive markets (small companies) have a strong desire to invest in new technologies, because the provision of a new product or production process with lower costs is one of the most effective ways to cope with the extremely tough competition in the market. However, unfortunately, firms in competitive markets are faced with the fact that they can earn only normal profits, leaving them little room to invest in high risk investments. Small firms are also faced with a large degree of diffusion, which further negatively affects their willingness to invest in new technologies. Monopolist usually has only a few research teams, while in a competitive market there exist a lot more of research teams, which compete with each other – who will first succeed to get innovation. Consequently, the conclusion can be drawn that successful innovation could be provided by a competitive market structure rather than by monopolies. Therefore, between monopolies and competitive market, we prefer a competitive market (small businesses). 79 �Mladen Rebić, Nemanja Šarenac Regardless of the strong desire for innovation, competitive market structure is not an ideal solution for innovative activities. Why? It is due to the fact that a large number of competitors operate within a given market structure and they are ready to quickly copy the successful innovation, and therefore, for a short period of time substantially reduce the profit of the company which had originally introduced innovation to the market. After consideration of two basic market structures, attention is going to be paid to the third oligopolistic market structure. Of course, the inclusion of an oligopoly into the consideration further complicates the situation, because oligopolies are just somewhere between the monopoly and competitive market. Two things are important in terms of investing in research and development: the ability of investment (financial, infrastructure) and willingness - mood to invest. So far, it can be concluded that: • monopolies have great opportunities (capital) for investment, but weak – moderate willingness to invest; • perfectly competitive firms have great desire and willingness to invest, but they have little opportunity for it (low - normal profits); • oligopolies possess moderate vi - large investment opportunities, as well as the greatest desire and willingness to invest in new technologies. Based on the above arguments, it can be concluded that oligopolies have the advantage over the monopoly and perfectly competitive firms. The proofs of the previous claim are the industries in which the biggest global oligopolies rule: computer equipment, cars, tires, electronics, cigarettes, beer, power turbines, aircraft, etc. We can claim with high confidence that the large profits achieved in this industry can be used to invest in new technologies. It is known that oligopolies are constantly faced with competitive pressure, and that is why they see investment in new technology as the only successful solution of this competitive struggle. It should be noted that the oligopolies face less degree of diffusion than it is the case with competing firms. Thus, oligopolies have market power, high profits, and great willingness to invest in new technologies because of the constant competitive pressure, the strong interdependence between competitors and the moderate degree of diffusion - as opposed to a competitive market, and so on. The conclusion simply suggests itself: oligopolies are the size of the firm that has the best conditions and the reasons for investing in new technologies. It should also be noted that companies 80 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development that have a market share between 20 – 30% achieve the best results in the field of innovation and patent record, and they are oligopolistic firms. The following table shows the top ten firms in the United States, which achieved the highest number of patents in 2006 along with their ranking in 2005 and 2004. It is important for this study that all ten companies are big companies, of whom the vast majority operate in an oligopolistic market with only a few large firms. Looking at this table, we can draw the conclusion that large firms (oligopoly) in concentrated markets are more innovative (Pepall, Richards and Norman, 2008: 573-574). Table 1. Top ten companies in the largest number of U.S. patents in 2006, and their ranking in 2005 and 2004 Firm International Business Machines Samsung Electronics Canon Kabushiki Kaisha Matsushita Electric Industrial Hewlett – Packard Intel Corporation Sony Corporation Hitachi Toshiba Corporation Micron Technology Number of patents in 2006 3,621 Rang in 2005 1 Rang in 2004 1 2,451 2,366 2,229 2,099 1,959 1,771 1,732 1,672 1,610 5 2 4 3 7 12 8 9 6 3 4 2 6 5 7 8 9 11 Source: Lynne Pepall, Dan Richards and George Norman, 2008. The link between market structure, time and innovation Finally, in addition to the possibility and willingness to invest, it is necessary to take into consideration another important factor - the time of implementation of research programs. When it concerns oligopoly, where there exists a strong interdependence between competitors, the speed has a big impact on the possible success or failure of a particular research project. If the research process is going too slowly, competitors can implement a similar idea before, and take over the patent. However, if the research process is carried out too quickly, it usually leads to some errors, higher costs, but also to less worry about protecting the very idea of imitation - all of these events will inevitably lead to failure in achieving the benefits of their own 81 �Mladen Rebić, Nemanja Šarenac investments (Lipczynski, 2005: 503). Given that consideration includes the cost and time, the time - costs analysis represents ideal solution for eliminating concerns when making investment decisions. This analysis usually takes into consideration the present value of the costs and the present value of benefits. Therefore, it is necessary to find the optimal time for technological development and market structure that is closest to meeting given optimum time for the successful realization of the research project, based on the time - costs analysis. Figure 1. The optimal time for technological development Source: Waldman, Jensen, 2007: 477 The analysis of the previous graph shows that the present value of the costs of developing an innovation is labeled as a curve Cpv (Cost Present Value), where costs are reduced as the development time increases. The present value of benefits from the development of the innovation is labeled as a curve Bpv (Benefit Present Value), which is used to reduce the time required for development increases. Socially optimal time is achieved when the value of the marginal benefits equals the value of marginal costs, for the time To. On this point (To), vertical distance between the two listed curves (profit) is maximized (Waldman, Jensen, 2007: 477). 82 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development After getting acquainted with the manner of determining the optimal time for the development of an innovation, we will first conduct an analysis of a dominant firm and a competitive small firm, and then include oligopoly in consideration as well. Figure 2. Time, costs and benefits of innovators: Monopoly versus small firms Source: Shepherd, 2004: 115 In the Graph 2, it is assumed that there is a base curve that will represent the ratio of the time-cost (TCi) for a given innovation in a given industry. Let's say that this is a radical innovation, new models of mobile phones. This innovation can be implemented quickly with considerably higher research costs or slower and therefore make less research costs. Now, we are going to concentrate on our case, monopolies and small businesses. Monopoly will expect the highest profits from innovation only at some future period. This position is represented by the graph 2, the total revenue curve TRm, 83 �Mladen Rebić, Nemanja Šarenac which is the total revenue that a monopoly could exercise on the basis of a given innovation. It can be noted that the curve is high, reflecting the size of the revenues. It can also be noticed that the given curve is almost a horizontal line, due to the fact that the monopoly has no fear of a possible takeover of innovation and the related future profits from foreign competition. The advantage of monopoly actually lies in the given fact, the dominant firm can realize innovation slowly, and again "grab" a bigger share of profit. However, this is not the case with a small firm. At the start, a small company can expect less revenue from the same innovation, simply because they start as a firm with lower market share. Small firms are now faced with the fear of the fact that other small firms can realize first a given innovation, or copy it very quickly and so grab profits for themselves. For these reasons, the curve of the total income of a small firm is designated as TRc, and it is much steeper and lower than the monopoly one, barely above TCi in a short period of time. Each firm will maximize its profit when the marginal costs are equal to the marginal revenue. When MC = MR, the vertical distance between the curves is maximized. As for the monopoly, it is time Tm, presented as 15 years. For a small business, time is much shorter Tc, and it is represented as 5 years. Small company is also faced with significantly higher costs in the amount of KM 100 million, as opposed to monopoly in which the cost was KM 50 million. Consequently, and due to the fact that it possesses more market power, monopoly has been able to appropriate much more revenue than KM 200 million, and therefore much higher profit of KM 150 million. Small company generated revenue of KM 120 million, and a smaller profit of KM 20 million (Shepherd 2004: 114). If the consumer surplus is taken as a criterion, small innovator imposes as a faster and better solution vii. In these circumstances, the innovation will be implemented by small firms. However, monopolies usually prefer to deliberately "drag" the research process, to make room for the small firms to face the investment risks and the risk of implementation of new ideas. If monopoly notices that some of the ideas implemented by small businesses are successful and profitable, it will react quickly copy a given innovation in order to catch up and to achieve complete ejection of small innovators from the market. This move of monopolies is commonly called "fast - the second" strategy viii (Shepherd 2004: 115). In the former case, the study has analyzed the behavior of monopoly and small competitive firms, assuming that the investment costs are eligible for both participants. It has been found that the small company will carry a given innovation 84 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development for several reasons ix. However, the harsh reality says otherwise. Usually high costs of investing in the development of new innovations represent a stumbling block for small competitive firms. That is why they are out of the race compared to oligopolies x. Thus, oligopolies emerge as a market structure, which is able to implement research projects in the optimal time possible. Now let us attempt to introduce next graphics. Figure 3. The link between the market structure and the time required for technological progress Source: Waldman, Jensen, 2007: 479 This analysis needs the curve of the present value of costs (Cpv), development of given innovation, as well as three curves of the present value of the benefits provided by the development of innovation (Bm, Bc, Bol). The three curves for three different market structures: monopoly (Bm), a small competitive firms (Bc), and oligopolies (Bol). The assumption that the cost function is independent of changes in market structure is understandable, because it is primarily a function of technological 85 �Mladen Rebić, Nemanja Šarenac knowledge and input. On the other hand, the curve varies with the change in market structure. As it can be seen in the graph number 3, the optimal time for the development of innovations in the monopoly is (Tm), and it is higher than in the case of oligopoly (Tol). For small competitive firms, total costs exceed total benefits of given innovation, so there will be no investment (Waldman, 2007: 479). The curve of the present value of the benefits of monopoly Bm is presented as the tallest and straightest. As it has already been said, regardless of the timing of actual innovation, monopolies achieve the greatest benefit because of their largest market share and the minimum degree of diffusion xi. As for the competitive firm, its present value curve is the lowest and steepest. The reason for this is a very small market share of small firms, as well as the highest degree of diffusion. Small firms typically generate smallest benefits of innovation, and the reason for that is the rapid implementation of the innovation process (short time frame). Curve Bc is very vertical, and the reason for this lies in the fact that any delay in presenting new innovations in the market increases the likelihood that another company will imitate a given innovation. Finally, let us analyze the participation of oligopoly. Its curve Bol - present value of the benefits, lies between the previous two curves, because the oligopoly has a larger market share than the competitive companies - but less than monopoly, and because it confronts a moderate degree of diffusion (Waldman, 2007: 478). So, after analyzing all of the above, it can be noticed that the oligopoly allows for the fastest level of technological progress in most cases. Of course, it is possible that the oligopoly gives up the race if the investment costs are much higher. Then only a monopoly can be the bearer of innovation. The fact is that some innovations do not require large investment, so in that case the small competitive firms emerge as carriers of innovation. However, it is the fact that investment costs are usually higher (in many cases) than small firms can bear, and yet they are not abnormally large that only monopolies can bear it. So, an oligopolistic firm represents market structure that usually provides the fastest level of technological progress. What does it mean to Bosnia and Herzegovina? Given the very difficult situation in the country in terms of investment in research and development, and innovation, it is logical that B&H needs a quick solution to this important problem. Companies that can provide the fastest progress in the field 86 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development of technological progress are oligopolistic firms. Thus, in addition to small and medium-sized enterprises that have been already in the focus of the state, any oligopolistic firm in B&H, which is ready to seriously invest in research and development, should be supported and assisted by the government. However, the fact is that in B&H operates a small number of oligopolistic firms, which in turn shifts the focus of the development of technological competitiveness to small and medium-sized enterprises. Technological Progress and Innovation in Bosnia and Herzegovina Bosnia and Herzegovina has made some progress in the field of research and innovation policies. The participation in the Seventh Framework Program for Research (FP7) increased, and teamed with COST and EUREKA. The government has provided funding for entities that prepare projects for FP7, COST and EUREKA. However, administrative and research capacity for taking full advantage of the opportunities offered by European programs and resources to actively stimulate the scientific community is still weak. Efforts have been made to integrate into the European Research Area and the EU contribution to innovation. Bosnia and Herzegovina joined the EURAXESS network aimed at ensuring the mobility of researchers, and the umbrella organization that coordinates the domestic network EURAXESS was established at the Banja Luka University. There is a slightly increased allocation of funding for research, modernization of infrastructure, equipment and publishing, particularly accessing COBISS library information system. The Republic of Srpska and other entities have increased investment in research and development. However, the level of investment in research remains low in general, particularly in private sector investment. As the entities and cantonal policies are financed from their budgets, it is difficult to direct research policy and avoid fragmentation, which is one of the key objectives of the ERA. There are no reliable statistics of scientific and technological progress. The economic recovery of Bosnia and Herzegovina is slow and under the influence of long years of continuous unfavorable economic and political conditions and unstable economic environment, problems and difficulties caused by the global economic crisis, with the decline in industrial production, high unemployment and the trade deficit being some of the main difficulties in faster recovery and development. Technological readiness and innovation of B&H in comparison with 87 �Mladen Rebić, Nemanja Šarenac other countries in the world can be indirectly drawn from data from the World Economic Forum's Global Competitiveness Report for 2013. According to the "GCI 2012-2013" B&H occupies 88th place out of 144 countries (Sierra Leone and Burundi were the last ones), which is an improvement compared to 2012 when B&H was at the 100th place out of 142 countries. It should be noted that the progress of the 12 places is equivalent to an increase of 0.1 rating points, which in any case would not be considered as a success. Progress on this year's list has not been achieved through implemented reforms and qualitative improvements, but it is largely determined by the lower results of other countries. B&H ranking viewed by items of interest for technological development is shown in Table 1. Table 2. Position of B&H in the field of technological readiness and innovation according to the Global Competitiveness Report for the period 2009-2012 GCI Indicator for Bosnia and Hertzegovinia Technological readiness Availability of latest technologies Firm-level technology absorption FDI and technology transfer Internet users Broadband Internet subscriptions Internet bandwidth Mobile broadband Innovation Capacity for innovation Quality of scientific research institutions Company spending on R&D University-industry collaboration in R&D Gov’t procurement of advanced tech products Availability of scientists and engineers Utility patents per million population GCI 2010 (of 134) GCI 2011 (of 139) GCI 2012 (of 142) GCI 2013 (of 142) 95 122 131 115 50 56 131 121 126 122 130 129 122 71 85 116 119 102 59 56 71 120 116 104 104 117 116 115 69 73 105 107 117 44 51 56 104 124 98 96 84 109 68 90 68 89 105 98 42 51 66 70 99 101 72 90 48 94 48 50 Source: WEF. (2009,2010, 2011, 2012) Indicators, primarily, indicate a weak association of scientific and economic sectors. Positive developments have been observed over the past three years in technological readiness and innovation. In general, the current situation in B&H is not even close to satisfactory, and in some ways it is the reflection of the overall socio-economic 88 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development status, and also a very low awareness of the importance of technological progress in the development of the society. Regarding The Networked Readiness Index - NRI that measures the propensity of the country to seize the opportunities offered by information technology, Bosnia and Herzegovina is at the 84th position. This position is not due to lack of development of infrastructure and skills of their populations, but is a result of poor political and business environment, the lack of adoption of new technologies (by the public and private sector) and low socio-economic impact of ICT (Figure 4). In addition, there is a serious weakness in its Innovation System, which needs to be restructured and expanded, because it interferes with its ability to use ICT for deeper economic and social changes. Figure 4. Network readiness index of B&H for 2012. Source: WEF, (2012b.) 89 �Mladen Rebić, Nemanja Šarenac The Lisbon review rates Bosnia and Herzegovina as the lowest ranked country. Out of the eight areas to be evaluated, B&H has the worst rating in six. Only in the areas of innovation and network industries, Albania occupies the lower position than B&H. Application of ICT Development Index Unique ICT development (ICT Development Index - IDI) compares developments in the field of ICT in 155 countries. The index is produced in response to calls from ITU Member States to consolidate previous ITU indices into one index, in order to follow the development of the information society. The main index objectives are to survey: • Levels and the evolution of ICT development over time; • Progress in ICT development in both developed and developing countries; • Digital gap, i.e. the difference between countries with different levels of ICT Development; • Development potential of ICT and the extent to which the government can use ICT to enhance growth and development, based on the available capabilities and skills. Development ICT Index consists of 11 indicators grouped into three subgroups: ICT infrastructure and access, ICT efficiency (primarily by individuals and households and businesses) and the intensity of use of ICT and education (human capacity required for the use of ICT). Table 3. Indicators Index ICT development ICT access 1. Fixed-telephone lines per 100 inhabitants 2. Mobile-cellular telephone subscriptions per 100 inhabitants 3. International Internet bandwidth (bit/s) per Internet user 4. Percentage of households with a computer 5. Percentage of households with Internet access ICT use 6. Percentage of individuals using the Internet 7. Fixed (wired)-broadband Internet subscriptions per 100 inhab. 8. Active mobile-broadband subscriptions per 100 inhab. 90 40% 40% Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development ICT skills 9. Adult literacy rate 10. Secondary gross enrolment ratio 11. Tertiary gross enrolment ratio 20% Source: ITU, (2011.) Globally speaking, most progress has been made in the area of ICT access, which includes indicators relating to the fixed (wired) and mobile telephony, Internet bandwidth and volume of households with computers and Internet. Slower progress is achieved regarding the use of information and communication technology, which includes a number of indicators of Internet users, the number of fixed and mobile telephony, and so on. There is still very little progress in most countries in broadband access as the latest technology. The results show that the most developed countries in the top ten come from Europe, except for the Republic of Korea and Japan. Differences between countries are small, but it can be seen that Korea, Sweden and Denmark stand out from the rest. Opportunities for the development of ICT in these countries are truly remarkable. Looking at the first thirty countries, except the U.S. and Canada, all countries come from Europe or East Asia. The index is linked to a high-income countries and the strong correlation between the level of development of ICT and the gross domestic product. Countries with the most dynamic development in ICT Development Index, in the past period, include: Kazakhstan, Brazil, Rwanda (7 places), Bahrain (5 places or 0.66 points), Saudi Arabia (6 places or 0.62 points), Ghana (4 places - with IDI change for 23%). Table 4. ICT Development Index for 2008, 2010 and 2011 Country Republic of Korea Sweden Denmark Iceland Finland Netherland Luxembourg Japan United Kingdom Switzerland Rank 1 2 3 7 12 5 4 11 10 9 IDI 2008 7.80 7.53 7.46 7.12 6.92 7.30 7.34 7.01 7.03 7.06 Rank 1 2 4 3 5 9 7 13 10 8 IDI 2010 8.40 8.23 7.97 8.06 7.87 7.61 7.78 7.42 7.60 7.67 Rank 1 2 3 4 5 6 7 8 9 10 IDI 2011 8.56 8.34 8.29 8.17 8.04 7.82 7.76 7.76 7.75 7.68 91 �Mladen Rebić, Nemanja Šarenac Hong Kong (China) Singapore Norway United States Germany New Zealand France Austria Ireland Australia Canada Belgium Estonia Slovenia Spain Italy Poland Czech Republic Greece Lithuania Latvia Portugal Russian Federation Slovakia Hungary Croatia Cyprus Belarus Serbia Bulgaria Romania TFYR Macedonia Bosna and Herzegovina Ukraine Turkey Albania Niger 6 15 8 17 13 16 18 21 19 14 20 22 28 24 25 26 38 37 30 35 39 29 49 40 34 36 43 58 47 45 46 52 63 59 60 81 152 7.14 6.71 7.12 6.55 6.87 6.65 6.48 6.41 6.43 6.78 6.42 6.31 5.81 6.19 6.18 6.10 5.95 5.97 5.70 5.44 5.31 5.70 4.42 5.30 5.47 5.43 5.02 3.93 4.51 4.75 4.67 4.20 3.58 3.83 3.81 2.99 0.79 6 19 11 17 15 12 18 16 23 14 26 22 33 24 25 28 41 37 30 35 40 28 47 39 34 31 36 52 50 49 48 53 63 62 59 78 151 7.79 7.08 7.60 7.09 7.27 7.43 7.09 7.17 6.78 7.36 6.69 6.83 6.16 6.75 6.73 6.57 5.29 5.42 6.28 6.04 5.90 6.57 5.38 5.94 6.04 6.21 5.98 5.01 5.11 5.19 5.20 4.98 4.31 4.31 4.42 3.61 0.92 11 12 13 15 16 17 18 19 20 21 22 23 24 25 28 29 31 32 33 35 36 37 38 39 41 42 44 46 48 51 52 54 63 67 69 80 155 7.68 7.66 7.52 7.48 7.39 7.34 7.30 7.10 7.09 7.05 7.04 6.89 6.81 6.70 6.62 6.28 6.19 6.17 6.14 6.06 6.06 6.05 6.00 5.86 5.77 5.75 4.73 5.57 5.40 5.20 5.13 5.05 4.53 4.40 4.38 3.78 0.88 Source: ITU, (2012.) (Adapted) 92 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development Bosnia and Herzegovina is still at the bottom of all countries in the region, although according to a new report B&H has moved from middle group to a more advanced group of IDI countries. Otherwise, in the report there are four groups: highly advanced, advanced, intermediate and groups with lower levels of the index. Bosnia and Herzegovina has successfully improved its level of ICT, more than countries with similar previous values. It has achieved an improvement by 0.95 points in 2011, compared to 2008, but it stays at the same place (63rd position). B&H has achieved the greatest progress in the second sub-index use of ICT. ICT skills remained at the same level, and access to ICT recorded the worst result. Out of the neighboring countries, only Albania has worse result than Bosnia and Herzegovina. Empirical Research The prime objective of this paper is to determine what are the strategic guidelines, according to the opinion of relevant experts, which represent the key to the improvement of technological progress in B&H. The main goal of this research is to contribute to the development of knowledge about the importance of the set guidelines, which can significantly improve the competitive position of B&H in relation to the region - in terms of technological progress. The empirical research was conducted through a survey of a sample of relevant specific experts in B&H. Interviewed experts were asked to assess the extent to which the following strategic guidelines are relevant to the improvement of technological progress B&H. There were 20 respondents (experts) to the given questionnaire xii, of which 75% were employed in the public sector and 25% in private sector. The following table shows the analysis of the importance of the proposed objectives. 93 �Mladen Rebić, Nemanja Šarenac Table 5. Analysis of the importance of the strategic guidelines for the improvement of technological progress in B&H Questions 1. 2. 3. 4. The importance of technological progress and adoption of new technologies for economic growth and development B&H The importance of active state support to education system, human capital and research The importance of oligopoly firms in research and development activity and investment in new technologies The importance of cooperation between Universities and business sector Not at all important Not important No opinion Is important The most important l 0% 0% 10% 20% 70% 100% 0% 0% 0% 20% 80% 100% 0% 0% 25% 20% 55% 100% 0% 0% 20% 30% 50% 100% Source: Research by author 94 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development Analyzing the table above, it can be concluded that none of the guidelines got a response is not at all important and not important, and the small number of respondents had no opinion. This fact shows the significance of the above mentioned guidelines for the technological development of B&H. When we look at answer very important, it can be noticed that all guidelines were assessed at 50% or more, of which the guideline the importance of active state support to education system, human capital and research achieved the best result. When the final results of the survey on a sample of relevant experts are analyzed, almost the same conclusions can be made as the ones previously mentioned in this study. Conclusion Investment in research and development of new technologies by the state - firm, provides them a technological advantage and superiority over those states - firms that do not take action in that field. If looked at all of the most developed countries in the world, it can be noticed that they are precisely characterized by heavy investment in the development of new technologies and ideas in general. Any country that provides decent and constant investing in research and development will provide continuous annual technological progress, which implies further strengthening of the standard of living of the population and the country's competitive position in the world. Which market structure efficiently implements innovative activities and adopts new technologies? After considering all the facts, the conclusion is that it is oligopoly market structure (oligopolistic firms). On the one hand, monopolies do not have enough interest to include themselves into such a risky investment, but on the other hand, firms in competitive markets (small and medium enterprises) have plenty of interest, but they have little market power, they are moneyless, they have high risk, high possibility of a quick imitation etc. For these reasons it is necessary to pay more attention to oligopolies, because that market structure has sufficient market power, a sufficient amount of money needed for investment, high willingness to innovate, and eventually, a moderate risk of imitation. It can be said that the situation is very bad for B&H and its position in the field of technological progress, investment in research and development. According to all the relevant parameters, B&H is at the very bottom of the rankings related to innovation, technological progress, patents and so on. Of course, this result is not 95 �Mladen Rebić, Nemanja Šarenac surprising, because this country makes "miserable" investments in research and development, and science in general. To move forward, it is necessary to change the approach that B&H has to science, research and technological progress, but also awareness of companies in B&H. The largest number of firms in B&H looks at investment in research and development as one big expense and risk, rather than as an opportunity for future benefits and increase of the competitive position in the European and world markets. It is noted that B&H companies will never be competitive on the world market if they allow obsolescence of their production technology and if they continue to offer products with poor quality on the European and world markets. The results of the ICT Development Index for Bosnia and Herzegovina are not satisfactory. B&H is at the 63rd place, although it recorded a growth of ICT index. Taking into consideration the neighboring countries, Bosnia and Herzegovina has improved a result only in relation to Albania. Furthermore, the results show that out of 155 observed countries, the Scandinavian countries achieved best results. The top ten countries in 2011 come from Europe, with the exception of the Republic of Korea and Japan. The survey shows that most experts share the same opinion on the relevance of the strategic guidelines for the improvement of technological progress in B&H. Interviewed experts awarded the top mark to the guideline which is entitled the importance of active state support to education system, human capital, and research. In order to remedy this bad situation, B&H must take measures to improve technological and business infrastructure. Modern scientific and technological innovation and business improvement cannot be ensured without adequate human resources, scientific research institutions, ICT equipment and systems, the relevant databases, incubation centers and technology parks, networking of all stakeholders in the country, and last but not least, all this cannot exist without adequate financial investments. It is necessary to encourage the use of modern ICT and accelerate development of information society in B&H. In order to increase innovation and competitiveness of its economy, B&H needs to strengthen technological innovation activities and link them with firms, and in that way speed up necessary changes. It should also encourage the employment of highly educated people in the economy and increased cooperation with research and educational institutions. Inclusion in the world of scientific research trends, international cooperation, as well as better 96 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development integration into the European Research Area is a key aspect of further development. To improve the design and monitoring of adopted policies to increase competitiveness and innovation it is needed to build effective institutions, following the European model, which monitor and direct the business sector. Managing of these processes means planning, organizing and directing the human and capital resources to new knowledge and ideas that create a successful production, new products and services and therefore a more competitive position of B&H in the world. Therefore, if it wants to move away from the bottom of the list and become competitive with other countries in the region, it is necessary to: provide greater investment in science and research in general by the state, provide constant encouragement and stimulating of scientific research, increase investment in research and training of companies’ personnel, promote extensively through seminars the importance of investing in research and development, etc. References Pepall, Lynne; Richards,Dan and Norman, George. (2008) Industrial Organization: Contemporary Theory and Empirical Applications. Oxford: Blackwell Publishing. Shepherd, William G. and Shepherd, Joanna M.. (2004) The Economics of Industrial Organization – Fifth Edition. Long Grove: Waveland Press, Inc. Waldman, Don E. and Jensen, Elizabeth J. (2007) Industrial Organization: theory and practice – 3rd ed. Boston: Addison Wesley. Davies, Stephen and Lyons, Bruce. (1996) Industrial Organization in the European Union: Structure, Strategy, and the Competitive Mechanism. New York: Oxford University Prec Inc. Casson, Mark and Creedy, John. (1993) Industrial Concentration and Economic Inequality. Hants: Edward Elgar Publishing Limited. Mansfield, Edwin. (1964) Monopoly Power and Economic Performance: An Introduction to a Current Issue of Public Policy. New York: Norton and Company. Reinganum, Jennifer F. (2000) Uncertain Innovation and the Persistence of Monopoly. Readings in Industrial Organization. Oxford: Blackwell Publishers Ltd. 97 �Mladen Rebić, Nemanja Šarenac Rebic, Mladen. (2010) The Importance and Speed of Technological Changes and Investment in Research and Development. Tehnološke inovacije generator privrednog razvoja - Zbornik radova Međunarodnog naučno-stručnog skupa. Banja Luka: Privredna komora RS. Hutschenreiter, Gernot and Hannes, Leo. (1994) Empirical Evidence on Schumpeterian Hypothesis in Austria. Dordrecht: Kluwer Academic Publishers. Mazzucato, Mariana. (2000) Firm Size, Innovation and Market Structure: The Evolution of Industry Concentration and Instability. Cheltenham: Edward Elgar. Carlton, Dennis W. & Perloff, Jeffrey M. (2005) Modern Industrial Organization Fourth Edition. Boston: Addison Wesley. Lipczynski, John; Wilson, John and Goddard, John. (2005) Industrial Organization: Competition, Strategy, Policy – 2nd Edition. Harlow: Prentice Hall. Utton, M. A. (2003) Market Dominance and Antitrust Policy – Second Edition. Cheltenham: Edward Elgar. European Commission. (2011) Bosnia and Herzegovina 2011 progress Report. Brussels ITU. (2012) Measuring the Information Society. Geneva WEF. (2009) The Global Competitiveness Report 2009–2010. Geneva WEF. (2010) The Global Competitiveness Report 2010–2011. Geneva WEF. (2011) The Global Competitiveness Report 2011–2012. Geneva WEF. (2012a) The Global Competitiveness Report 2012–2013. Geneva WEF. (2012b) The Global Information Technology Report 2012. Geneva Vijeće ministara, DEI. (2010) Strategija razvoja Bosne i Hercegovine. Sarajevo. In 1991, Finland’s GDP has declined by as much as 13%, unemployment rate was 17%, which is a clear signal that the country was faced with difficult problems. i 98 Journal of Economic and Social Studies �Technological Progress as a Generator of Economic Growth and Development Not about heavy industry. Japan, Korea, and more recently China are seriously involved in this race, with the goal of becoming the market leaders in technological progress in Asia and the world. iv Innovations that are based on the reduction of production costs through the introduction of newer and more sophisticated technologies in the production process, which will ultimately lead to lower costs. v Weak ability to copy, as opposed to a competitive market. vi Possibilities of oligopoly to invest in research and development are influenced by the size of the profit and the size of profits depends on the intensity of competition it faces within its market. vii Faced with the fact that the monopoly in relation to small business, will launch the same product in another ten years, and when we add twice the price that monopoly will determine for the same product, then it is quite logical why the offer from small firms looks more acceptable to the customer. viii We will quote the example of "fast-second" strategy: Wilkinson was first to introduce the famous razor blades with steel (1960), but the Gillette responded quickly and by using this strategy easily caught up with Wilkinson, Apple was the first innovator in the field of personal computers until the end of the seventies, but the IBM soon took the lead in the eighties of the last century, however, it did not last long. ix It concerns the following reasons: the criterion of consumer excess, fast-second strategy of monopoly and so on. x And the position of monopoly is already known in terms of the race to innovate. xi Diffusion is the time - speed for imitating new ideas - innovation. xii The questionnaire was sent to over 30 experts selected at random. Only 20 of them responded to this questionnaire. ii iii 99 � 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. 2407 Title A name given to the resource Technological Progress as a Generator of Economic Growth and Development Author Author Rebic, Mladen Sarenac, Nemanja Abstract A summary of the resource. Bosnia and Herzegovina (B&H), as well as many other countries in transition, was faced with inadequate and insufficient technological progress, which is the result of years of neglect of investment in science, research, and new technology. This paper attempts to present the actual situation in B&H in terms of technological progress, innovation and investment in scientific research, as well as to offer basic guidelines for getting out of this difficult situation. B&H is located at the bottom of the all European countries when it comes to innovation, research and new technologies, and consequently it is not surprising that the B&H economy consistently recorded poor results. Investment in research and development and employee education is the primary goal of any successful company, whether it is a small, medium-sized enterprise or oligopoly. Therefore, the aim of this paper is to determine the guidelines i.e. strategic objectives, which will constitute the basis for future progress of B&H in the field of technological progress. Empirical research, which was conducted in order to determine the strategic objectives, has been carried out by using a questionnaire built on a sample of the leading experts in this field in B&H. 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 2014-07-15 Keywords Keywords. Article PeerReviewed HB Economic Theory https://omeka.ibu.edu.ba/files/original/dbb05b53cd88fed26dc5fe38f7040e60.pdf 370d2b83de3ed2e2cd477971bcad12b1 PDF Text Text Journal of Economic and Social Studies Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina Jasmina Okičić University of Tuzla Bosnia-Herzegovina jasmina.okicic@untz.ba Sonja Remetić-Horvath University of Vienna Wien, Östereich Baris Büyükdemir Ceros Holding AG Ceros Menkul Değerler AS İstanbul, Turkey Abstract: The main goal of this paper is to scientifically Keywords: discriminant analysis, examine and propose new approach of stock selection and stock selection, stock return, analysis based on multivariate technique, i.e. discriminant capital market of Bosnia and analysis, in order to help investors, individual and Herzegovina institutional, in their decision making process, especially in case of underdeveloped capital markets. Therefore, in this paper we investigate the cross—sectional relation between the independent variables of the model, comprised of beta coefficient and some fundamental variables as well as the average stock returns on the underdeveloped capital market of Bosnia and Herzegovina. We concluded that discriminant analysis is a useful quantitative tool that can help investors in shaping their investment strategies. We also found that the beta coefficient, market capitalization and realized historical return have discriminatory capabilities in case of the capital market of Bosnia and Herzegovina. The real implications of this research can be seen in the shaping of investment strategies of potential investors looking to diversify their portfolios. The main limitations of this study are to be found in the shorter available financial time series in newly formed capitalistic economy, missing data due to the lack of collective records on levels of securities offerings issues. JEL Classification: G11, C38 Article History Submitted: 06 June 2013 Resubmitted: 17 October 2013 Accepted: 11 December 2013 http://dx.doi.org/10.14706/JEC OSS11421 5 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Introduction The stock selection is one of the most important decisions an equity investor has to make. The use of quantitative models and methods of stock selection has many advantages in the portfolio construction. For underdeveloped capital markets, however, quantitative stock selection models are still rarely used. Therefore, and based on theoretical inferences and empirical evidence on stock selection process, the main goal of this paper is to scientifically examine and propose new approach of stock selection and analysis based on multivariate technique, i.e. discriminant analysis, in order to help investors, individual and institutional, in their decision making process, especially in case of underdeveloped capital markets. These markets are generally characterized by low market capitalization, poor liquidity and turnover, weak legal protection for minority shareholders, low correlation with developed and emerging capital markets, etc. All of this directly determines investment decision making process on one hand and on the other may have crucial impact on portfolio performance as well. Therefore, in this paper we investigate the cross – sectional relation between the independent variables of the model, comprised of beta coefficient and some fundamental variables as well as the average stock returns on the capital market of Bosnia and Herzegovina. Since the goal defines objectives of any research, the main objective of this paper is stock selection process based on discriminant analysis. Having in mind the above said, the central research hypothesis shall be as follows: Discriminant analysis is a useful quantitative tool that can help investors in shaping their investment strategies. The paper is organized as follows. After introduction, the first section gives a short overview of the recent literature that is relevant to the main objective of the paper. The second section brings description of our research methodology. In the third section we explain the data and finally the fourth section, that is the centre of the paper, contains analysis of the result of the stock selection process based on discriminant analysis. In the end, we give some final remarks and conclusions. Literature Review So far, a significant number of scientific researches have been conducted on the use of quantitative models and methods of stock selection. Siqueira, Otuki and Da Costa (2012) used discriminant analysis in order to analyze nexus between stock return and some selected fundamental variables. They examined stocks traded on Sao Paulo Stock Exchange and found out that the beta coefficient has discriminatory capabilities. 6 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina Şenol, Dinçer and Timor (2012) proposed stock selection model based on fundamental and technical analysis by using artificial neural networks and support vector machines. Schadler and Eakins (2001) examined a stock selection model using Morningstar’s style box. Basing on the Gordon model perspective and applying multiple criteria decision making (MCDM), Lee, Tzeng, Guan, Chien and Huang (2009) explore the influential factors and relative weight of dividend, discount rate, and dividend growth rate. Among the eight evaluation criteria, market beta was the most important factor influencing investment decisions, followed by dividend growth rate and risk-free rate. In their research, Shiuh-Nan, Chin-Tsai and Wang-Ching (2007) chose relative operating performance and stock price evaluation as stock classification criteria, and applied them to divide the sample stocks into four types, i.e.: value, monitor, speculative and avoidance. Kuang Yu and Chuen-Jiuan (2009) combined the moving average autoregressive exogenous (ARX) prediction model with grey systems theory and rough set (RS) theory to create an automatic stock market forecasting and portfolio selection mechanism. Chunhachinda, Dandapani, Hamid and Prakash (1997) investigated portfolio selection and skewness. The empirical findings suggested that the incorporation of skewness into an investor's portfolio decision causes a major change in the construction of the optimal portfolio. Sorensen, Miller and Ooi (2000) introduced an alternative approach to traditional methods of stock screening based on a statistical technique known as classification and regression tree (CART). In their paper, Achour, Harvey, Hopkins and Lang (1998) examined stock selection in emerging markets of Malaysia, Mexico and South Africa, where they presented a comprehensive, market – by – market analysis of the information in firm attributes for portfolio strategies. Van der Hart, Slagter and Van Dijk (2002) concluded that within emerging markets, value, momentum and earnings revisions strategies are successful in selecting well performing stocks. The excess returns of these strategies are strongly significant. Combining the factors into one model enhances the performance. 7 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Theoretical Background According to Huberty and Olejnik (2006) some of the ideas associated with discriminant analysis (DA) go back to around 1920 when the English statistician Karl Pearson (1857–1936) proposed what was called the coefficient of racial likeness (CRL), a type of intergroup distance index. The idea of multivariable intergroup distance was translated to that of a linear composite of variables derived for the purpose of two – group classification by R. A. Fisher (1890–1962) in the 1930s. The distance and variable composite ideas appeared in print prior to Fisher’s seminal discriminant analysis article in 1936. Discriminant Analysis: A Methodological Overview Basically, discriminant analysis is a multivariate statistical method designed to set up a model to predict group memberships. The model consists of discriminant functions that appear based on a linear combination of predictive variables that provide the best discrimination between groups. This analysis is the appropriate statistical technique when the dependent variable is categorical and the independent variables are metric. Brown and Wicker (2000, p. 209) claim that discriminant analysis is a powerful descriptive and classificatory technique developed to: (1) describe characteristics that are specific to distinct groups; and (2) classify cases (i.e., individuals, subjects, participants) into preexisting groups based on similarities between that case and the other cases belonging to the groups. Discriminant analysis results with the discriminant function (or variate), i.e. linear combination of the independent variables that are capable to discriminate between a priori defined groups. Discrimination is achieved by setting the variate’s weights for each variable to maximize the between – group variance relative to the within group variance (Hair, Anderson, Tatham and Black, 1998, p. 244). Each discriminant function has the general form (Brown and Wicker, 2000, p. 219): D = a + b1 x1 + b2 x2 +  + b p x p , (1) where D is the discriminant score, a is the y - intercept of the regression line, b is the discriminant function coefficient, x is the discriminator variable raw score, and p is the number of discriminator variables. Discriminant analysis multiplies each 8 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina independent variable by its weight and adds these products together. As a result, discriminant score for each independent variable in the analysis is calculated. By averaging these scores for all the independent variables within a particular group, we get the group mean. This mean is referred to as centroid that indicate the most typical location of any independent variable from a particular group, and comparison of the group centroids shows how far apart groups are along the dimension being tested (Hair, Anderson, Tatham and Black, 1998, p. 245). Data The capital market of Bosnia and Herzegovina is characterized by territorial division, the incompatibility of entity institutions and of legal regulations; which negatively affect the investment climate and the liquidity of securities. According to the MSCI Global Market Accessibility Review (2012), capital market of Bosnia and Herzegovina is included in the so called standalone markets. These markets include all country markets covered by MSCI but not included in the MSCI International Indices. This category includes potential candidates for the MSCI Frontier Markets Indices that currently do not meet the minimum liquidity requirements as well as markets that are currently partially or fully closed to foreign investor. Furthermore, stocks lending and short selling are activities that are either not developed or completely prohibited in all standalone market countries and the summary does not highlight these issues on a country-by-country basis. Basically, the MSCI Global Market Accessibility Review (2012) provides an evaluation of the four market accessibility criteria, which are: (1) openness to foreign ownership; (2) ease of capital inflows/outflows; (3) efficiency of the operational framework and (4) stability of the institutional framework. In case of capital market of Bosnia and Herzegovina, the evaluation of the above mentioned criteria is given in Table 1. 9 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Table 1. Assessment results for the capital market of Bosnia and Herzegovina Criteria Openness to foreign ownership Investor qualification requirement Foreign ownership limit (FOL) level Foreign room level Equal rights to foreign investors Ease of capital inflows / outflows Capital flow restriction level Foreign exchange market liberalization level (there is no offshore currency market ) Efficiency of the operational framework Market entry Investor registration and account set up Market organization Market regulations (not all regulations can be found in English) Competitive landscape Information flow i Market infrastructure Clearing and Settlement (there is an absence of a real DVP system and the prefunding of trades is required in Republic of Srpska) Custody ii Registry / Depository (there are two central depositories, each of them acting as central registry) Trading (there is a very limited level of competition among brokers which can lead to high trading costs) Transferability (in-kind transfers and off-exchange transactions are prohibited) Stock lending Short selling Stability of institutional framework Evaluation ++ ++ ++ ++ ++ + ++ + -/? -/? ++ ++ -/? -/? + -/? + Source: The MSCI Global Market Accessibility Review (2012), p. 45 Note: ++: no issues; +: no major issues, improvements possible; -/?: improvements needed / extent to be assessed The capital market of Bosnia and Herzegovina consists of two independent regions that have separate stock exchanges, i.e. The Sarajevo Stock Exchange or SASE which operates in Federation of Bosnia and Herzegovina and The Banja Luka Stock Exchange or BLSE which operates in Republic of Srpska. Each of the above mentioned stock exchanges has its own regulation and indices calculated on daily 10 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina basis. SASE, for example, has three indices, i.e.: (1) Bosnian Investment Fund Index - BIFX which is the first index published by the SASE. It consists of the stocks of the 11 investment funds registered in the Federation of Bosnia and Herzegovina (formerly Privatization Investment Funds - PIFs). By its purpose, it is considered a benchmark index, whose main goal is to provide investors a general view and evaluation of the current market trends in the segment of investment funds listed at the SASE. iii (2) The Sarajevo Stock Exchange Index 10 – SASX-10 is the main index on the SASE. It depicts the price movement of the top 10 issuers on the SASE (excluding investment funds) ranked by market capitalization and frequency of trading. iv (3) The Sarajevo Stock Exchange Index 30 – SASX-30 is the index of the Primary Free Market of the SASE. It depicts the price movement of the issuers on the Primary Free market, which is reserved for the most liquid issuers from the free market. Its main goal is to serve as a general benchmark index. v On the other hand, BLSE has six indices, but only three are active. These indices are: (1) The Investment Funds Index of the Republic of Srpska – FIRS which consists of the stocks of investment funds that fulfill selection criteria vi. (2) The Stock Exchange Index of the Republic of Srpska – BIRS which consists of the socks of from 5 to 30 issuers. Number of issuers whose stocks may be included in the BIRS depends on the number of the issuers listed on the BLSE Official Market and the number of stocks that fulfill criteria for the BIRS composition. vii (3) The Index of Electric Energy Sector of the Republic of Srpska – ERS10 which consists of the stocks of the 10 companies from the power utility sector which are listed on the BLSE. viii The only index that represents stocks traded both at SASE and BLSE is the Bosnian Traded Index or BATX ix. It is a capitalization-weighted price index x which is made up of the most actively traded and highest capitalized stocks traded at the SASE and BLSE. The index is calculated and disseminated on a real-time basis in EUR, USD and BAM. BATX is designed as a tradable index to be used as an underlying instrument for structured products and for standardized derivatives (futures and options). xi Sample Given the large number of available, but not actively traded securities, in this paper we will use subset of the most actively and highest capitalized stocks traded on SASE and BLSE. Since BATX incorporates the most liquid securities from the capital market of Bosnia and Herzegovina (BH Telecom – BHTSR, Bosnalijek - BSNLR, 11 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Fabrika duhana Sarajevo - FDSSR, JP Elektroprivreda BiH - JPESR, Nova banka ad Banja Luka - NOVB-R-E, Telekom Srpske - TLKM-R-A) xii, we will use them as a sample xiii in the further process of stock selection as well as some of the top 10 issuers in 2012 (Tvornica cementa Kakanj d.d. Kakanj - TCMKR, Elektro grupa d.d. Jajce - ELGJR, ZIF BIG Investiciona grupa d.d. Sarajevo - BIGFRK3, ZIF Bosfin d.d. Sarajevo - BSNFRK2, ZIF MI Group d.d. Sarajevo - MIGFRK2, IK Banka d.d. Zenica - IKBZRK2, ZIF Zepter fond ad Banja Luka - ZPTP-R-A, ZIF Jahorina Koin ad Pale – JHKP-R-A). Our observed period of time is December 2009 - December 2012. Top 10 issuers by turnover both on BLSE and SASE in 2012 are presented in Table 2. Table 2. Top 10 issuers by turnover in 2012 Rank Issuer (SASE) Turnover (in BAM) 1. Bosnalijek d.d. Sarajevo 35.762.756,14 2. 3. 4. 5. 6. 7. 8. BH Telecom d.d. Sarajevo Tvornica cementa Kakanj d.d. Kakanj Fabrika duhana Sarajevo d.d. Sarajevo Elektro grupa d.d. Jajce ZIF BIG Investiciona grupa d.d. Sarajevo ZIF Bosfin d.d. Sarajevo ZIF MI Group d.d. Sarajevo 4.716.269,56 4.531.367,17 4.256.016,17 4.149.400,00 2.430.672,12 2.269.729,58 2.185.090,45 9. Dobrinja d.d. Ilidža 2.070.613,85 10. IK Banka d.d. Zenica 1.889.629,11 Issuer (BLSE) Republika Srpska T bills Republika Srpska izmirenje ratne štete Telekom Srpske ad Banja Luka Republika Srpska stara devizna štednja Kaldera Company d.o.o. Laktaši Republika Srpska izmirenje ratne štete Republika Srpska izmirenje ratne štete ZIF Zepter fond ad Banja Luka Republika Srpska izmirenje ratne štete ZIF Jahorina Koin ad Pale Turnover (in BAM) 14.841.884 14.175.515 12.979.869 7.616.466 6.624.484 4.525.190 4.191.977 4.161.346 2.781.926 2.564.735 Source: Annual Report 12 (2012), p. 21 and Annual Statistical Report (2012), p. 2 12 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina Dependent and independent variables Since, index BATX is made up of the most actively traded and highest capitalized stocks traded at the SASE and BLSE we coded all issuers that, at the moment when this research was done, were included in the index mentioned, with number 1 (Highest liquidity). And those issuers from our sample that, at the time this research was conducted, were not included in BATX we coded with the number 2 (Lowest liquidity). In this context, liquidity may be defined as possibility to convert stocks into cash and vice versa without affecting the price or with minimal impact on it. If we denote successive stock price xiv made at time t and t+1 as Pt and Pt+1, respectively, then continuous compounding transforms a stock price series {Pt } into a return series {rt } as: rt = ln Pt . Pt −1 (2) The independent variables of the model were comprised of following variables: beta coefficient, market capitalization, turnover and return. The beta coefficient was estimated as: β= cov(ri , rm ) , σ 2 (rm ) (3) where cov(ri , rm ) is the covariance between the asset returns and the returns on the selected indices, and σ 2 (rm ) is the variance of returns on the selected indices. Special attention was given to the variables “market capitalization” and “turnover” which are a gross value, and therefore represented in rather high monetary terms. Thus, to standardize it according to the other variables and make the analysis more meaningful its logarithm was calculated. 13 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Empirical Results and Discussion Empirical results xv will be present in the following order. First, we will give short overview of descriptive statistics and correlation analysis. After that, estimation of the beta coefficient will be presented and at the end results of estimated discriminant function will be discussed. Descriptive Statistics and Correlation Analysis By using scientific method, and in order to create a better insight into a specificity of observed financial time series, we will analyse some basic parameters of descriptive statistics for the observed period of time. Based on the Jarque-Bera test we reject the null hypothesis (H0: the data are from a normal distribution) at the 5% significance level for the following variables: BIGFRK3, BSNFRK2, FDSSR, TCMKR, ERS10 and SASX30. Only BSNFRK2, JHKP-R-A, ZPTP-R-A and TLKM-R-A had positive average return (Table 3). The same conclusion is for ERS10 and FIRS (Table 4). Based on the analysis of results given in Table 3, it can be concluded that BHTSR, BSNFRK2, ELGJR, FDSSR, JHKP-R-A, JPESR, MIGFRK2, NOVB-R-E and ZPTP-R-A had positive skewness. In the case of selected indices, positive skewness has been detected with BATX, BIRS, ERS10, FIRS, SASX10 and SASX30. Skewness and excess kurtosis, based on historical simulation, are given in Figure 1. 14 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina Figure 1. Skewness and kurtosis excess 15 Historical Simulation (Performance): Skewness Historical Simulation (Performance): Kurtosis Excess 10 5 0 SASX30 SASX10 JPESR ERS10 BIRS BIFX BATX ZPTP-R-A TLKM-R-A TCMKR NOVB-R-E MIGFRK2 JHKP-R-A IBZRK2 FDSSR ELGJR BSNLR BSNFRK2 BIGFRK3 BHTSR Cash -5 Why is this so important to analyze? Well, the skewness of a symmetric distribution, such as the normal distribution, is zero. Positive skewness means that the distribution has a long right tail and negative skewness implies that the distribution has a long left tail. In other words, negative skewness means there is a substantial probability of a big negative return. Positive skewness means that there is a greater-than-normal probability of a big positive return. Furthermore, kurtosis points out leptokurtosis for all selected variables, except for IKBZRK2, NOVB-R-E and ZPTP-R-A. 15 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir 16 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina Table 4. Descriptive statistics - indices Variables: Parameters: BATX BIFX BIRS ERS10 FIRS SASX10 SASX30 Mean -0.004267 -0.003875 -0.005721 0.000244 0.000330 -0.009035 -0.004603 Median -0.002465 -0.000760 -0.007594 -0.007388 -0.011953 -0.004061 -0.009721 Maximum 0.097816 0.079885 0.095962 0.280094 0.175007 0.146682 0.096895 Minimum -0.086516 -0.148956 -0.080724 -0.125555 -0.106946 -0.120636 -0.047559 Std. Dev. 0.042950 0.042600 0.038246 0.073986 0.062848 0.048972 0.028226 Skewness 0.162552 -0.856056 0.364747 1.782538 1.062165 0.445566 1.521780 Kurtosis 3.201353 5.147046 3.094798 7.671008 4.146038 4.796183 6.242264 Jarque-Bera 0.219352 11.31171 0.811722 51.79214 8.739272 6.030584 29.66329 Probability 0.896124 0.003497 0.666403 0.000000 0.012656 0.049032 0.000000 17 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir 18 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina 19 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Correlation matrix was presented in Table 5. Correlation between two variables indicates the level to which those variables move together. The sample correlation coefficient r is an estimate of the population correlation coefficient ρ. We also tested statistical significance of correlation coefficients where the following hypotheses were being tested (Doane, Seward, 2009, p. 501): H0: ρ = 0 , H1: ρ ≠ 0 . Shaded values in Table 5 show that the correlation coefficient is significant at the 0.01 or 0.05 level. After examining basic parameters of descriptive statistics and correlation analysis, in the next part of the paper, we give results of the beta coefficients estimation. The Beta Coefficients Estimation In the case of prime linear regression, it is significantly important to test the hypothesis if the slope coefficient (β) equals zero. This is an important question because if β = 0, than independent variable does not influence dependent variable. In that case, the following hypotheses are tested (Doane, Seward, 2009, p. 520) H0: β = 0 , H1: β ≠ 0 . Results of the beta coefficient estimation for selected dependent and independent variables are presented in the following table. 20 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina 21 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Shaded values in the previous table show that, with 5% risk, can be concluded that variable x (selected indices) influences variable y (selected issuers), and that the estimation of parameter β is statistically important, i.e. in this case we reject null hypothesis. xvi Discriminant Function Analysis The first objective of discriminant analysis is to identify a set of variables that “best” discriminates between the two groups. In our case, we had two groups, i.e. the most liquid (group 1) and the least liquid (group 2) stocks from the capital market of Bosnia and Herzegovina. As we explained earlier, the independent variables of the model were comprised of the following variables: beta coefficient, market capitalization, turnover and return. Since we have, depending on index selected, seven beta coefficients for every issuer, general form of the discriminant function can be noted as follows: D = a + b1 x1 + b2 x2 + b3 x3 + b4 x4 + b5 x5 + b6 x6 + b7 x7 + b8 x8 + b9 x9 + b10 x10 , (4) where x1, x2, x3, x4, x5, x6 and x7 represent estimated beta coefficient in accordance with indices BATX, BIFX, BIRS, ERS10, FIRS, SASX10 and SASX30, respectively; x8 represents (logarithmic) market capitalization, x9 is used as representation of (logarithmic) turnover and x10 as a representative of return. We used stepwise method that basically removes independent variables that are not significant. A variable with very low tolerance contributes little information to a model and therefore may be removed from it. In our case, out of initial ten independent variables, we are left with only five of them: x1 – BATXBETA, x4 – ERS10BETA, x6 – SASX10BETA, x8 – LOGMCAP and x10 – RETURN. Summary of the most relevant results is presented in the following tables. Table 7. Eigenvalue Function (1) Eigenvalue 210.391 % of Variance 100.0 Cumulative % 100.0 Canonical Correlation 0.998 The larger the eigenvalue, the more of the variance in the dependent variable is explained by that function. Also, the canonical correlation is the measure of association between the discriminant function and the dependent variable. The square of canonical correlation coefficient is the percentage of variance explained in 22 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina the dependent variable. In our case, that means that 99.60% (0.998 x 0.998) of variance in the dependent variable is explained by the model. Furthermore, results of the Wilk’s Lambda test are presented in Table 8. Table 8. Wilks' Lambda Test of Function(s) (1) Wilks' Lambda 0.005 Chi-square 24.092 df 5 Sig. 0.000 Wilks's lambda, is an inverse measure of the importance of the functions. Values close to 1 indicate that almost all of the variability in the discriminator variables is due to within-group differences (differences between cases in each group); values close to 0 indicate that almost all of the variability in the discriminator variables is due to group differences (Brown and Wicker, 2000, p. 223). Basically, Wilks' lambda is a measure of how well each function separates cases into groups. Smaller values of Wilks' lambda indicate greater discriminatory ability of the function. The interpretation of the discriminant coefficients (or weights) is like that in multiple regression. Table 9 provides an index of the importance of each predictor like the standardized regression coefficients did in multiple regression. The sign indicates the direction of the relationship. Table 9. Standardized canonical discriminant function coefficients Function (1) x1 8.078 x4 -6.110 x6 -3.274 x8 7.045 x10 -4.643 Summa summarum, our estimated model can be written as follows: D = 8.078 BATXBETA − 6.110 ERS10 BETA − 3.274 SASX 10 BETA + 7.045 LOGMCAP − 4.643RETURN Basically, the standardized discriminant function coefficients indicate the relative importance of the independent variables in predicting the dependent. In our case, BATXBETA score (variable x1) was the strongest predictor while LOGMCAP score (variable x8) was next in importance as a predictor. These two variables with large coefficients stand out as those that strongly predict allocation to the most liquid or the least liquid group. In general, if we rank these other coefficients by their absolute values, next to LOGMACP, as the best predictor comes ERS10BETA (variable x4), 23 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir RETURN (variable x10) and finally SASX10BETA (variable x6). Let us now examine the practical implications of these results. BATXBETA, or the beta coefficient as a measure of sensitivity of a stock price to movement in BATX, is very important tool when making an investment decision on capital market in Bosnia and Herzegovina. Why? Well, since the BATX is made up of the most liquid stocks traded on SASE and BLSE, every investor should first examine the sensitivity of the selected stock to the mentioned index. Beta coefficient has proved itself as a very useful instrument which investors can use in the process of defining an investment decision on the capital market. For example, if we look at Table 6, we see that the estimation of parameter BATXBETA was statistically important in case of the following issuers: BHTRS, BSNLR, FDSSR, NOVB-R-E and TLKM-R-A. Furthermore, when knowing the beta coefficient, an investor may classify any selected stock in one of the three possible groups, i.e.: (1) an average stock (β = 1); (2) an aggressive stock β > 1, and (3) a defensive stock (β < 1). An average stock, according to the definition, will have beta 1 value, which means that its return will proportionally follow return on the selected stock exchange index. A beta coefficient higher than 1 implies that returns for the stock move more than the market. These stocks are known as aggressive. On the other hand a beta of less than 1 means that the stock will be less volatile than the market. These stocks are known as defensive. According to the results presented in Table 6 all of the selected stocks may be classified as defensive. As second best predictor in our analysis, LOGMCAP, or the number of stocks multiplied by their current price on the stock market, is in general, very important tool in investment decision making. Since market capitalization may be used as a measure of liquidity (Von Wyss, 2008) this indicator is especially important when investing in underdeveloped capital markets. Furthermore, the modern portfolio theory predicts that if the general assumptions of the capital asset pricing model (CAPM) hold, and the markets are efficient, systematic risk is the only priced in factor. However, there is a stream of literature that spills doubt over CAPM and provide evidence that the systematic risk factor is not the only priced factor, adding firm-specific parameters such as company size (which can be seen as a proxy for marketability, large bid-ask spreads, nontransparent information, etc.) and earnings yield affect returns to the discussions. Measuring the size of a company by its market capitalization value, studies utilizing 24 Journal of Economic and Social Studies �Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina data from different stock exchanges, often find that smaller companies carry a so called “small-firm” premium and earn higher returns than their larger counterparts in a buy and hold strategy. Since 1926, the nominal returns on large cap stocks have averaged about 10% per annum, whereas small-cap stocks brought about 12% and corporate bonds about 6% gross of inflation rate and taxation (Keating, 2013). Developed markets have acknowledged this, and decision makers have placed large incentives in form of commissions and trading spreads to support small-caps with equity analysis, market makers and the like. As concerns for investor protection rise in the recent years the rule making has reversed a bit. When allocating funds to peripheral and emerging markets, investors particularly look into parameters such as market capitalization and liquidity, as well as market depth (the sensitivity of bid-ask spreads on the local stock exchange to the placement of trading volumes within a certain period of time). This liquidity risk is defined as the risk of a security not being able to trade quickly enough in the market such to prevent losses. In the modern times of high frequency trading, sophisticated systems and cash abundant investors in search of yields, liquidity provides investors with an option to exit, and induces them to take risk, growing capital formation, which in turn funds innovation and leads to constantly improving standard of living. If liquidity is eliminated or reduced, this process is reversed meaning that smaller markets will be more and more excluded in investment decisions based on these parameters and seen as unattractive for any sort of capitalization, which in turn diminishes future economic growth. The impact of liquidity can be reduced, if firms have a firm financial management in place and diversify across several liquidity providers in the region. Investing in small-cap companies is one of the most widely used passive growth strategy where discipline and diversification gains on importance. A conviction bet in a less liquid market can bring higher returns; as such markets are more volatile, rewarding their participants for the risks being taken. Understanding this relationship between company size, return potential and risk is crucial before adding any equity position to the investor portfolio. Conclusion In this paper we investigated the possibilities of stock selection and analysis on the underdeveloped capital market of Bosnia and Herzegovina. Due to its many specificities (such as low market capitalization, poor liquidity and turnover, weak 25 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir legal protection for minority shareholders, low correlation with developed and emerging capital markets, etc.), any kind of scientific research on this market can help investors in shaping their investment strategies. Therefore, the main goal of this paper was to scientifically examine and propose new approach of stock selection and analysis based on multivariate technique, i.e. discriminant analysis, in order to help investors, individual and institutional, in their decision making process, especially in case of underdeveloped capital markets. The main limitations of this study are to be found in the shorter available financial time series in newly formed capitalistic economy, missing data due to the lack of collective records on levels of securities offerings issues. However, the main advantage of this research is that we concluded that discriminant analysis is a useful quantitative tool that can help investors in shaping their investment strategies in case of capital market of Bosnia and Herzegovina. We also found that the beta coefficient, market capitalization and realized historical return have discriminatory capabilities in case of the capital market of Bosnia and Herzegovina. The real implications of this research can be seen in the shaping of investment strategies of potential investors looking to diversify their portfolios as well as financial managers of smaller listed companies looking for ways to make their financial structure more attractive to investors. 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The Decision Tree Approach to Stock Selection. The Journal of Portfolio Management, 27 (1), 42 – 52. The Bosnian Traded Index (BATX), The Wiener Börse AG, Retrieved 30 December 2012, from http://en.indices.cc/indices/cee/profiles/batx.html Van der Hart, J., Slagter, E. & Van Dijk, D., (2002). Stock Selection Strategies in Emerging Markets. Medium Econometrische Toepassingen, 10 (3), 9 – 13. Von Wyss, R., (2004). Measuring and Predicting Liquidity in the Stock Market. (Doctoral disertation, St. Gallen University). Retrieved 25 September 2013, from http://www1.unisg.ch/www/edis.nsf/SysLkpByIdentifier/2899/$FILE/dis2899.pdf Stock market information, including dividend information, is often not complete and is not always disclosed in English. There is no central source for this type of information. ii According to additional information, it has been learned that there are several active custodians available for foreign investors. iii Bosnian Investment Fund Index – BIFX, The Sarajevo Stock Exchange, Retrieved 18 April 2013, from http://195.222.43.81/sase-final/language/en-US/Market/Index/Index_BIFX.aspx iv SArajevo Stock EXchange Index 10 – SASX-10, The Sarajevo Stock Exchange, Retrieved 18 April 2013, from http://195.222.43.81/sase-final/language/en-US/Home.aspx v SArajevo Stock EXchange Index 10 – SASX-10, The Sarajevo Stock Exchange, Retrieved 19 April 2013, from http://195.222.43.81/sase-final/language/en-US/Home.aspx vi Methodology for Establishing, Calculating and Revision of Investment Funds Index of Republic of Srpska, The Banja Luka Stock Exchange, Retrieved 20, April 2013, from http://www.blberza.com/Cms2FileCache/files/cms2/docver/19709/files/FIRS%20methodolo gy.pdf i 29 �Jasmina Okičić, Sonja Remetić-Horvath, Baris Büyükdemir Methodology for Establishing, Calculating and Revision of Stock Exchange Index of Republic of Srpska, The Banja Luka Stock Exchange, Retrieved 20 April 2013, from http://www.blberza.com/Cms2FileCache/files/cms2/docver/19710/files/Methodology_BIRS _20_05_11.pdf viii Methodology for Establishing, Calculating and Revision of The Index Of Companies Of Power Utility Of The Republic Of Srpska, The Banja Luka Stock Exchange, Retrieved 20 April 2013, from http://www.blberza.com/Cms2FileCache/files/cms2/docver/19711/files /METODOLOGIJA%20ERS10%20engl.pdf ix For more information see: The Bosnian Traded Index (BATX), The Wiener Börse AG, Retrieved 30 December 2012, from http://en.indices.cc/indices/cee/profiles/batx.html x Real historical values for BATX are available at: BOSNIAN TX BAM (BXL.VI), Yahoo! Finance, Retrieved 14 December 2012, from http://finance.yahoo.com/q/hp?s=BXL.VI +Historical+Prices xi Bosnian Traded Index (BATX), The Wiener Börse AG, Retrieved 20 April 2013, from http://en.indices.cc/static/cms/sites/indices/media/en/pdf/download/profiles/en_BATX.pdf xii For more information on composition of BATX see: Bosnian Traded Index in BAM BATX BAM, The Wiener Börse AG, Retrieved 7 July 2012, from http://en.indices.cc/indices/details/bxl/composition/ xiii Dobrinja d.d. Ilidža was not used because at the time this research was done, quotes weren’t available on the official web site of the SASE. xiv For this, in this paper the stock closing prices for the first and last trading day of each month were collected. xv All results in this research were generated by: SPSS® Student Version 11.0 for Windows®, ©SPSS Inc. 2002, Quantitative Micro Software EViews 7.1 Enterprise Edition 2010 and STATISTICA 7.0 Copyright© StataSoft, Inc. 1984-2004. xvi Null hypothesis is confirmed in this case, if p – values are higher than selected significance level. vii 30 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. 2404 Title A name given to the resource Stock Selection Based on Discriminant Analysis: Case of Capital Market of Bosnia and Herzegovina Author Author OKIČIĆ, Jasmina REMETIC HORVATH, Sonja BUYUKDEMIR, Baris Abstract A summary of the resource. The main goal of this paper is to scientifically examine and propose new approach of stock selection and analysis based on multivariate technique, i.e. discriminant analysis, in order to help investors, individual and institutional, in their decision making process, especially in case of underdeveloped capital markets. Therefore, in this paper we investigate the cross—sectional relation between the independent variables of the model, comprised of beta coefficient and some fundamental variables as well as the average stock returns on the underdeveloped capital market of Bosnia and Herzegovina. We concluded that discriminant analysis is a useful quantitative tool that can help investors in shaping their investment strategies. We also found that the beta coefficient, market capitalization and realized historical return have discriminatory capabilities in case of the capital market of Bosnia and Herzegovina. The real implications of this research can be seen in the shaping of investment strategies of potential investors looking to diversify their portfolios. The main limitations of this study are to be found in the shorter available financial time series in newly formed capitalistic economy, missing data due to the lack of collective records on levels of securities offerings issues. 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 2014-07-15 Keywords Keywords. Article PeerReviewed HB Economic Theory https://omeka.ibu.edu.ba/files/original/c9b5a91f319eab679e10d6bfbaa5a402.pdf 5b770d0fbc9a232fe8fe8674351a5e10 PDF Text Text Journal of Economic and Social Studies Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing Tarik Kurbegović Sarajevo Stock Exchange Sarajevo, Bosnia-Herzegovina tarik.kurbegovic@sase.ba Abstract: One of the most important factors of conducting business successfully and also in achieving the interests of the owner of entity is adequate structuring of source of financing of company or institution. Debt as a source of financing has its advantages in terms of potential of increasing of wealth for the owner of capital. On the other side, debt alone as source of finance can be realized on a several ways, where plenty of factors influence that choice. In the past few years in Bosnia and Herzegovina (BiH), the possibility of finance big infrastructural projects through emission of debt securities has been often mentioned. Until now neither of these projects has been financed in this way. About this problematic can be spoken from many aspects such as: strategic decisions, limits concerning budget deficit, technical conductions, efficient managing of public debt and so further. These are the facts that we want to consider when we speak about capital market as alternative source of financing trying to reach the advantages and disadvantages of emission of debt securities including the possibilities, techniques and benefits of financing of infrastructural projects through bonds. Keywords: Capital market, Debt securities, Bond, Alternative financing, Municipal bonds JEL Classification: O16 Article History Submitted: 06 Jun 2013 Resubmitted: 02 October 2013 Accepted: 10 January 2014 http://dx.doi.org/ 10.14706/JECOSS11423 53 �Tarik Kurbegović Introduction The foundations of the capital market in the Federation of Bosnia and Herzegovina were laid down with the adoption of the Law on Securities in 1998, the Law on Business Companies from 1999 and the laws establishing the fundamental capital market institutions – The Securities Commission of the Federation of Bosnia and Herzegovina and the Registry of Securities of the Federation of Bosnia and Herzegovina. The launch of the Sarajevo Stock Exchange in 2002 marked a milestone in the development of the capital market. On September 13, the Sarajevo Stock Exchange (SASE) was founded in accordance with the Law on Securities as a joint stock company by eight brokerage houses with the share capital of 300,000 KM. Following the adoption of the SASE Statute and the Rules, meeting of all the technical and personnel preconditions and completing extensive preparations, the first trading of shares was held on April 14, 2002 at the Sarajevo Stock Exchange. The capital market development in the Federation of Bosnia and Herzegovina was linked closely with the process of (mass) privatization. The privatization receivables (“the certificates”) which were issued to all adults in the Federation of B&H were mostly invested into the Privatization Investment Funds (PIF) and companies offering state capital. Poor awareness of the certificate owners and later share owners on the rights and obligations regarding their ownership in the funds and privatized companies lead to the fact that initial trading by these issuers on the Sarajevo Stock Exchange was mostly conducted by discount rates. The total turnover in SASE’s first year equalled to 41.6 million KM which was the lowest annual turnover in the Company’s 10-year history. The market values of the listed joint stock companies at the end of 2002 (market capitalization) amounted to 321 million KM. 54 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing Table 1. Overview of turnover and the market capitalization in the last ten years Year Turnover (KM) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 41.678.465,00 118.888.794,00 201.137.333,00 555.353.931,00 654.717.252,00 1.274.340.113,98 477.076.375,47 219.048.701,00 108.554.379,41 244.787.112,11 373.577.487,70 Market capitalization on December 31 (in KM) 321.253.156,34 780.246.167,55 3.751.568.969,67 6.694.365.072,29 11.404.786.537,71 15.518.257.216,11 7.808.681.905,37 7.158.678.913,80 7.210.603.026,80 4.371.013.728,43 4.504.560.828,97 Source: www.sase.ba The initial trading on the Stock Exchange was in the auction trading format with one auction per day. The number of auctions later increased which lead to the introduction of the Multi-Fixing Trading Schedule (MFTS) in 2004 intended for stocks with higher solvency. The SASE turnover and market capitalization were constantly increasing until 2007 when the annual turnover for the year amounted to 1.274 billion KM and the total company market value equalling to 15.5 billion KM. As a consequence of the global financial and economic crisis and its notable effect on the biggest investors (Slovenia and Croatia) on the FB&H capital market, the turnover in 2008 experienced a sudden plunge. The trend of turnover and market capitalization pull-down continued until 2010 which was followed by two years of turnover surge. In the first six years of SASE, the primary market material was shares of issuers from the privatization process. After most of the companies of interest experienced ownership consolidation and considering the fact that there was a standstill in the privatization process the share of equities in the total turnover was reduced. 55 �Tarik Kurbegović Despite the fact that in August 2007, a very successful sale of state-owned capital in “Interšped plc Sarajevo” was held, the political turmoil did not allow for the process to continue. Instead of equity instruments, the attention of the market from 2009 was drawn by the debt securities. This related to the bonds of the Federation of Bosnia and Herzegovina issued on the basis of internal debt (old foreign currency savings and war receivables). However, poor awareness of the bond owners on the possibility of their sale on the secondary market and a relatively long maturity period did not lead to the use of the securities’ full potential on the market. A big change on the local capital market occurred in 2011 when the Sarajevo Stock Exchange organized for the first time the primary market auction of treasury bills in FB&H. Perceiving the advantages of borrowing from the local market through the Sarajevo Stock Exchange, the FB&H Government had multiple entries on the local market and thus fulfilled all its requirements for short-term and long-term financing. Figure 1. Comparison of trading volume on BH stock exchanges Source: www.sase.ba The development of the capital market in the other BiH entity followed the trends in the Federation of BiH. Although the Banja Luka Stock Exchange was establhed somewhat earlier than SASE, until 2010 the turnover ratio of the two BiH Stock Exchanges was 2/3 to 1/3 in favour of the Sarajevo Stock Exchange. However, in 2010 and 2011 due to a higher demand of the RS to finance its budget deficit and 56 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing the large number of municipal bond issuing, the ratio was turned in favour of the Banja Luka Stock Exchange. Ways of Financing Growth and Development One of the most important factors of conducting business successfully and also in achieving the interests of the owner of entity is adequate structuring of source of financing of company or institution. Debt as a source of financing has its advantages in terms of potential of increasing of wealth for the owner of capital. The thing that we are speaking about is optimizing relationships of debt to ownership capital. On the other side, debt alone as source of finance can be realized on a several ways, where plenty of factors influence that choice. We mean here on financing through bank credits versus financing by emission of debt securities. The sizes of a company or an institution together with the financial system are most important factors that determine not only the way of financing through emission of debt securities but also considering it as an option or a possibility. In the past few years in BiH the possibility of financing big infrastructural projects through emission of debt securities has been often mentioned. Until now neither of these projects has been financed this way. About this problem can be spoken from many aspects such as: strategic decisions, limits concerning budget deficit, technical conductions, efficient managing of public debt and so further. If it is about finance of corridor 5C or about financing infrastructural projects on the local level, bank loans determine the way of financing in Bosnia. In most case these loans are offered by international finance institutions or some countries. On the other side by emission of bonds issued either by state/entity or more concrete public company „Autoceste FBH“, the state itself would become investor. Thus the state, entity, municipality and citizens instead of trading with bonds that are used with aim to cover budget deficits can be used for infrastructural projects and development. These are the facts that we want to consider when we speak about capital market as alternative source of financing trying to reach what are the advantages and disadvantages of emission of debt securities, what are the possibilities, techniques and benefits of financing of infrastructural projects through bonds. 57 �Tarik Kurbegović Debt as an Alternative Source of Financing When we talk about debt or financing through debt and its reflection on the economy, there is no single stance on the type of debt although there are the Maastricht Criteria which state that it should not exceed 60% of the GDP and that the deficit should not exceed 3% of the GDP. The experts believe that the best way of debt management is to compare it with the conditions in the countries in the region or beyond. If we take a look at the world map and the state of public debt in each individual country, we will perceive that the most developed countries are the ones most indebted. Doesn’t that lead us to a conclusion that it is justified to go into a debt? On the other hand, countries which are also considered as developed but are not indebted are either countries rich with natural resources such oil or gas or the ones whose hyper-production and export orientation generates a surplus which does not require them to borrow such as China for example. Nevertheless, if we look at the situation in certain European countries whose debt exceeds 100% of their GDP we will see that they are facing bankruptcy while countries such as Belgium whose debt amounts to 97% of their GDP has no problems with solvency and development (Denk, 2013). What is important with debt? Firstly, the rate of growth of GDP must always be higher than the rate of growth of public debt preventing the country to reach insolvency and thus fail to fulfil its obligations. Secondly, to establish the reasons for borrowing bas that will determine whether the current or the future generations are to repay the debt: if the reason is to fill budget holes, then the burden should be borne by the current generation (taxes) but if the borrowing is intended for infrastructural investments for the benefit of the future generations then there are grounds of transferring the debt onto the future generations (borrowings). The third issue is whether to borrow from the local or foreign market as the effects on the local economy are significantly different. The main arguments for local borrowing: development of the local financial market and transparent trading and less exposure to external risks (changes in interest and exchange rates). All this leads to the fact that the most important issues regarding debt are not just parameters but proper debt management - minimizing the negative and maximizing the positive effects. The expected changes in interest rates are forecasted for the issuing of securities. If the interest rates are expected to rise, long-term bonds will be issued but if they are expected to drop the short-term bonds are to be issued. In the borrowing or in the 58 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing process of creating debt, it is important to evaluate whether the local economy can bear the burden of debt repayment in the long-term. In order for the debt to have minimum negative and maximum positive effects it is important to harmonize the fiscal policy with the monetary policy. Moreover, the funds generated through borrowing should be invested into developmental projects otherwise the public debt policy is a risk factor which can endanger the future economic growth. The alternative sources of financing may be viewed as a competition to the banking sector. Namely, on the developed markets the banking sector is just one of the players in the overall financial system struggling to earn its place in the system whereas in our context the banking sector almost holds a monopoly. It goes without saying that the competition gives rise to better services provided by the players in the system and the capital market is the alternative source of financing for all target groups of citizens, municipalities, cantons, entities, states and companies. How? For example, the citizens can direct their savings in the bank, held at an interest rate of 2% to 3%, towards buying of bonds which will bring them a return of 12% to 13% on an annual level through an interest rate incurred on the bond plus the discount as they are buying before the maturity. That means that someone is selling something for 92% 10 months before the maturity when he would get 100%. The municipalities, cantons and entities may issue bonds and thus incur funds from the investors (citizens, banks, companies) to finance their projects and obtain access to financing for a much cheaper price than borrowing from banks. This means that the characteristics of bonds as the capital market instrument cannot be disputed, it is only the means of investing such funds which may be disputed for example if the state is using the bonds to cover for the budget losses in order to pay off salaries to the state administration instead of investing them into financing of projects which would generate return of investment. The fact that the banks are investing the citizens’ savings into the buying of bonds goes to prove the fact that the bonds are a safe investment. The poor awareness of citizens and the absence of capital market culture just add to the case. Should we consider safety of bonds compare with banks, claiming that bank are more sure – then it is more than questionable because if the banks run into trouble their mother banks will not be liable for the sisters on our market as the principle of solidarity is not valid in this case. Some banks are basic companies with limited liability carrying the name of their mother company while the state can always 59 �Tarik Kurbegović undertake fiscal measures such as taxes and make up for the money needed to settle the debt. Furthermore, in addition to bonds the companies also have the possibility of “going public” i.e. the IPO which means that if they need new capital to expand their prospective business they can transform themselves into a joint stock company and list their shares on the primary market and thus obtain the funds instead of borrowing from credit funds. Many people in BiH see this as a loss in the ownership structure which is a completely wrong approach. Not going beyond the borders of the former Yugoslavia, Stock Exchanges in the region have developed as a consequence of the economic transition i.e. the transformation of state capital into both state and private capital. As a result, the offers of our Stock Exchanges usually included equity securities or simply shares and stocks which were later followed by the debt securities notably bonds and treasury bills. Equity versus Debt To explain briefly, shares are equity securities which give the shareholder the right to make decisions at an assembly and to participate in the distribution of dividends while the bonds and treasury bills are debt securities which oblige the buyer to pay the bidder the annual interest in addition to the principal upon maturity during the validity of the bond. The difference between the bonds and the treasury bills is that bonds are long-term debt securities while T-bills are short-term securities with a maturity of one year. In principle, the bonds incur a regular income, less return with a low level of risk and volatility (although there are exceptions). Everyone can achieve financial profit if bonds are part of their financial portfolio. Bonds are debt securities issued by the state (state bonds), local authorities (for example: municipal bonds) and companies (corporate bonds) in order to finance different investments at a lower cost in comparison to a classic credit. As opposed to shares, the bonds do not give the owner the right to participate in decision-making and profit but they do entitle him to return of the invested principal increased by the contracted interest rate for the contracted period of time. The nominal value of the bond indicates the amount of money the bond owner will get at the time of its maturity. The nominal (coupon) interest rate on bonds is the rate used for calculating and paying interest in line with 60 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing the schedule stated in the bond. The maturity date is the date when the bond issuer must pay the principal to the bond owners. In view of the fact that the bonds are a long-term financing instrument, the maturity period is usually between 2 to 30 years after the bond issuing. Most often the short-term bonds have a maturity period less than a year, mid-term bonds have maturity period between two to ten years while long-term bonds usually last for more than 10 years. As for the bond issuers, the most common ones are state bonds, municipal bonds issued by the local authority or corporate bonds issued by large companies and corporations. Bonds are usually considered to be a less risky investment than stocks. When you buy a bond at the time of their issue and you hold on to it until its maturity you will incur regular income (interest, return) and the whole investment amount upon maturity. The risk that you undertake (together with the inflation risk) might be in the fact that the issuer will not be able to settle all its obligations, pay the interest and pay your invested principal. This is known as the credit risk. In addition there is also the market risk i.e. the risk of the bond price change. There is a constant fluctuation in the value of bonds and if you wish to sell your bond before its maturity you might get less than what you have paid for. In any case, bonds are a good option for investment diversification (Orsag, 2011). Bonds are a good form of investment for investors with low risk preferences and for reducing the overall risk of portfolio diversification. Namely, in contrast to the stocks, the bonds incur fixed return to their owners - the interest. Moreover, in the business result distribution hierarchy and its salvage value bonds hold a superior position over the share holders meaning that the companies are legally bound to pay off the outstanding debts stemming from bonds prior to any pay off to the owners of the company that has issued them. The state bonds are highly secure since the pay off of their receivables is warranted by the state. In making their decisions on using the capital market as the source of financing for the development and/or expansion of their business activities, the legal entities have to decide on the type of security which they wish to issue - the equity or the debt securities. In the case of public sector- the state, cantons, city and municipality – this dilemma does not exist as they can issue only debt securities. With companies, the issue is whether they wish to enter into contractual relations (with the issuing of bonds) or they wish to expand their ownership structure (with the issuing of shares). 61 �Tarik Kurbegović The issuing of shares changes more or less significantly the ownership structure of the company depending on the number of issued securities. That leads to changes in company management and profit distribution. The most notable transition is from the closed (equity) joint stock company into a (public) open joint stock company as this is usually the first time the ownership is separated from the management functions. This is the reason why the companies in BiH rarely opt for this move. On the other hand, this move enables the company to ensure long-term capital for their development as the issued shares do not have dates of maturity. Moreover, the dividend as one of the integral parts of the overall return to investor is not mandatory and is conditioned by the positive financial results and adequate assembly decision (Stanley, 1989). With the issuing of bonds, the company borrows from the investor. They are entitled to period interest payoff (quarterly, semi-annually or annually) but do not have the right to manage the company nor participate in profit distribution. One advantage for the company is that there is no change in the ownership structure and it creates a possibility for a later buy off of the bonds from the investor provided that it stands in accordance with the decision on bond issuing. From the investor’s point of view, the bonds as debt securities are ranked into a category of safe securities in comparison to the stocks. The primary reason for this is that the bond owners have priority in payoff in case of company’s bankruptcy while the shareholders are the last in line for the pay. Financing the Development of Local Municipalities The municipal bonds i.e. the bonds issued by the local authority are a globally popular means of financing the development of municipalities and other local selfauthority units. The reason for the instrument’s popularity lies in the advantages that it offers to both the municipality and the investors. The following sector will present according to the author's long year dealing with these issues the advantages for the municipality: Lower financing costs In addition to the presence of the so-called “humanitarian loans”, the loans from commercial banks are one of the most frequently used mechanisms of financing municipal development. One of the reasons for this is primarily due to easy 62 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing accessibility of such loans (if we are talking about a financially sound municipality) but also due to poor awareness of the municipal administration regarding alternative sources of financing notably through the capital market. In order to understand the advantage of lower financing bonds with the issuing of municipal bonds, it is important to draw your attention to the difference between the active and passive interest rates in the banking system. The passive interest rates are those incurred by the citizens or companies when they deposit or term deposit their assets in the bank while the passive interest rates are paid when the citizen or the company takes out a loan to settle its necessities. If we analyse the situation in Bosnia and Herzegovina in 2012, the difference between the active and the passive interest rates or the so-called interest spread was not less than 4%. Why is this important in our elaboration of municipal bonds? It is because this is the so-called “interest area” from where the municipalities (or other legal entities) may opt to borrow achieving significant savings on one side and motivating the population enough to buy the municipal bonds on the other. More flexible borrowing terms Looking from the aspect of flexibility and adaptability to the needs of the municipalities for the financing of infrastructural projects, the bank loans are very limited. The banks are not very willing to give long-term loans and their loans are very often placed under a floating interest rate. In bond issuing, the municipality has much more flexibility in terms of maturity which enables much longer maturity dates but also enables more precise definition of modalities and loan repayment schedule. If we add a standard fixed interest rate to this there are enough reasons to seriously start thinking about bond issuing instead of taking up loans. Of course, in setting out the terms and conditions, the municipality needs to take into account that the issuing terms are attractive enough for the investors to buy these securities. Fostering the municipal administration With bond issuing, the municipality needs to be more transparent and open in terms of their financial operations. The investors are unwilling to invest into a “black box” and the municipal administration must define clearly the channels and the action plan for their incurred investments. The more detailed and credible the action plan, the less possibility for undedicated asset spending and the bond issuing will be more successful. 63 �Tarik Kurbegović Investing into municipal bonds also has advantages for the investors. To name the few: Higher return than with fixed-deposits The municipal bonds often incur higher interest than fixed deposits and much higher return than in case of a vista deposits. Moreover, investing into municipal (and other public sector bonds) has a very positive tax treatment. For example, very often the amount of money invested into such financial instruments is deduced from the investor’s tax basis which, together with the higher interest rates in general makes the municipal bonds instruments with a relatively high rate of return in comparison with other (debt) instruments. Safety As with other public sector securities, the municipal bonds are also considered to be safe securities. The logic behind this claim is that if there is a problem in the repayment of the borrowed amount, the municipality may always introduce the final measure of local tax increase or introduce para-fiscal levies although such behaviour surely would not have a positive effect on the investors. Participation of local population in municipal development A fact which we cannot forget is the effect the municipal bonds have on “local patriotism.” in view of the fact that the municipalities are places where people live it is in everyone’s interest for the municipality to prosper and develop. This can be an additional motivational factor for the local businessmen or wealthier citizens in the municipality to buy this type of financial instrument. However, we must be aware that today’s sole reliance on patriotism will not ensure bond issuing success. The first municipal bonds were issued in 2008 in Bosnia and Herzegovina, accidentally or not in Municipality of Laktaši. The issued bonds valued at 10 million KM issued at a period of 6 years and at an interest rate of 5.75% were issued to build a sports centre. In Republika Srpska, several dozen municipalities have issued bonds and thus generated significant funds. The fact that the Investment-Development Bank of Republika Srpska ensured the success of most of the issuing and that this served as a political instrument of awarding credits to politically eligible municipalities does not diminish the importance of the mere issuing for the 64 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing development of their capital market. In the Federation of BiH, two municipalities have issued their bonds. The pioneer step was taken by Municipality Tešanj with the issuing of bonds valued at 500.000 KM for a period of 3 years and at an interest rate of 6%. Tešanj was soon followed by Cazin which issued bonds valued at 1 million KM, at an interest rate of 6% for a period of 5 years. Financing of Infrastructural Projects The infrastructural projects are among other things a driver of development of the local community and the state/entity in general. In addition to being an incentive for economic growth, such (successful) projects raise the living standard of the whole population, provide support to business activities and finally increase the level of competition of the local community/region/state where the project is being implemented. In addition to all the other factors in involved in the implementation of infrastructural projects, a very important segment is the model and means of project financing. In view of that there is a whole range of modalities and approaches to financing. In the previous section we saw some basic characteristics and advantages of project financing by means of bond issuing (in public and private sectors) and in the following section we will give a brief overview of the alternative models for financing infrastructural projects and a longer review of debt financing via bonds and financing through a mixed partnership of the public and private sector. Financing of infrastructural projects can be categorized in several ways depending on the criteria of categorization. These are (Aralica et al., 2007): • local and foreign financing depending on the asset source of origin, then • public, private, mixed types of models/categories depending on the investor’s sector of origin (public/private);, and • personal or external financing (from the current budget revenues) depending on the techniques and instruments of financing. 65 �Tarik Kurbegović Within the scope of the third category, the external financing may come from different sources and be implemented with different techniques and instruments. Thus we can differentiate the following types of financings: • donation that include for example EU funds, local funds and local development banks and agencies (state, entity…), foreign development banks and other institutions, foreign development agencies and similar institutions…, • DEBT FINANSING where we usually have the commercial bank loans from local development banks and agencies, foreign development banks (EBRD, WB, EIB...), borrowing through BOND issuing • financing by means of “own capital” (financing which includes private equity, the so-called public-private-partnership) where we can talk about concessions, joint ventures and the so-called project financing. In this paper we will not be able to give a more detailed overview of the aforementioned aspects, models and categories of financing but we will rather focus on the debt financing through bond issuing and financing which involves the profit/private sector or the public-private partnership. Recently, the public sector has been turning to the private sector more often than ever to support it in their development and provision of infrastructural services. The public administration which is faced with the ever growing service demand, significant institutional and operational deficiencies and limited financial assets, has recognized the private sector as the valuable source of new technologies, management expertise and source of investment capital. The global experiences have shown that if they are designed properly, the system of the public-private partnership can largely influence boost in quality, availability and cost efficiency of local infrastructural services. Financing through bond issuing as a realistic alternative to investment loans and the whole spectrum of possible financing sources, certainly has its advantages for both the lender and the borrower (which we mentioned in the previous sections of this paper) and leaves a positive effect on the financial market as a whole. However, the reality has shown that this system of financing was chosen by a relatively small number of municipalities and other levels of authority in the recent period. We can look for the reasons to this in the low level of awareness on the advantages of such forms of financing as it is (nevertheless) easier and (faster) to get access to the bank loan. Moreover we can add the insufficient engagement of the local and other levels of authority in choosing projects and seeking (combining) different sources of 66 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing financing. Perhaps this situation is favourable at the moment as it leaves the local authorities (and other levels) with a lot of space to borrow, however such borrowing needs to be accompanies with a strategic approach, coordination, a clear plan and aims, good budget planning and discipline. In analysing the characteristics of bonds for financing infrastructural projects we can make a clear distinction between the state- financed infrastructural projects or projects financed on the local level (Orsag, 2012). In the first case, the state can be easily indebted by using various instruments and arrangements with a standard coupon bonds (bonds with one-off depreciation) being the principal option. In this case, such bonds have significant advantages since the only thing financed until their date of maturity is the interest - this is a very important characteristic at the moment. Moreover, we need to take into consideration that it is important to plan and manage the public debt carefully. We can say that it is realistic to expect that due to an upward economic cycle, at the time of maturity the budget flow will be sufficient to settle the principal without additional borrowing which leads us to conclude that the public debt in this context may significantly be decreased in the upcoming period with the issuing of bonds at the moment. This gives us the right to claim that the current economic situation in BiH is favourable for borrowings for the financing of infrastructural projects namely the most advantageous being the bond issuing (Šimović, 2005). We will mention here that (apart from all the other classifications and characteristics) the bonds issued by the public authorities may be general obligation bonds and revenue bonds (bonds of special purpose). The general obligation bonds are characterised by the general obligation of the issuer to repay the debt and the principal and interest may be settled from any authority source of revenue. The revenue bonds are issued with the purpose in generating revenue from specific projects. The principal and the interest are paid from the revenue generated by the facility built from the previous borrowing. For example, pay toll collection may pay for the obligations incurred with the issued bonds. In principal, the state does not issue revenue bonds unless it represents a guarantor of the issuing for the local community or a state-owned company and different state agencies. 67 �Tarik Kurbegović The direct financing of state infrastructural projects should primarily take place with the issuing of general obligation bonds. This is also possible in case the state is using state-owned companies or legal entities established specifically for these purposes as project holders intended for infrastructural project implementation and management. These companies are engaged in one phase or throughout the project, either independently or in partnership with the private sector (Special Purpose Vehicle). here we can talk additionally about the public-private partnership where we can involve the private sector in the ownership structure of such companies and the combinations in that context (the contractual relations, the modalities of financing) are vast and require special attention as the adequate model may generate significant positive results both in the financial terms and other aspects of the infrastructural project (Kačer et al., 2008). We have to understand that the possible combinations of the private and public sector partnership are vast in terms of financing, implementation, ownership, management, level of risk and its distribution. In the following section we will give a brief overview of these models. All models of the PPP may be grouped into several basic forms of implementing the public-private partnership: • Management contracts and service contracts by which the private sector undertakes to provide services on behalf of the public sector. • Lease agreements by which the public sector offers the private sector the use of its property. The private partner leases/rents the property and often develops it in both technological and functional context. • Joint venture agreements by which the public and the private sector establish a joint business entity in order to implement a project where the amount and means of investing and sharing risk is defined by contract. • Build-Operate-Transfer – concession agreements by which the public sector transfer part of its rights and tasks for conducting the relevant business activity onto the private sector partner for a specific period of time. • Private finance initiative PFI– a form of PPP belonging to the Design-BuildFinance-Operate contract type. The other forms of partnership include BOOT (Build-Own-Operate-Transfer), DBFOOT (Design-Build-FinanceOwn-Operate-Transfer) and other. As part of the PFI, the public sector leases or buys a specific type of public assets or public services rendered by the private sector partner. 68 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing • BOO (Build-Own-Operate) and BBO (Buy-Build-Operate) contracts- by which the private partner is buying, building, maintaining and operating the property in its sole ownership and by managing it, the private sector partner bears all the risks but also enjoys all the benefits of providing the contracted public service (Guidelines for Successful Public-Private Partnership, 2003). In the following section we will present the different forms which appeared as models of PPP in practice (especially after the 1980’s): • FO - Finance Only: The private sector, notably banks and funds directly finance the building of public infrastructure. • DBB: Design-Bid-Build: The public sector partner sets out project terms of reference, ensures financing and project design while the private bidder is responsible for the building. The public sector partner provides the service, maintains the facility and owns the constructed building. • DBM: Design-Build-Maintain: The private sector designs, builds and maintains the infrastructure, undertakes cost, quality and maintenance risks of the building. • OM: Operate-Maintain: By means of contract, the private sector partner provides the service using public assets or public property but the ownership is still in the hands of the public sector. • DBO: Design-Build-Operate: The private sector designs and builds the public asset while the financing costs are borne by the public sector. Upon the building completion, the private partner take up a long-term lease over the facilities and uses them for service provision. • BOT: Build-Operate-Transfer: The private sector builds the public asset and uses it for service provision. The public partner as the service provider (controlled by the public sector) collects the fees for the provided services from the public sector and/or the end users. After the expiry of the long-term lease, the public asset is returned to the public sector partner. • DBFO: Design-Build-Finance-Operate: The private sector designs, builds and finances the implementation of the public asset and takes up a long-term lease. It manages the service provision and uses the public asset for a contracted number of years. • (BOOT: Build-Own-Operate-Transfer): The private sector builds the public asset upon the design of the public sector, owns it for a contracted period of time and uses it for service provision. The public partner as the service 69 �Tarik Kurbegović • • • • • • provider (controlled by the public sector) collects the fees for the provided services from the public sector and/or the end users. After the expiry of the long-term lease, the public asset is returned to the public sector partner without a fee. LDO: Lease-Develop-Operate: The private partner takes the public asset up for a lease, develops it in technical and functional terms and manages its use. BLOT: Build-Lease-Operate-Transfer: The private partner builds the public asset and takes it up for a lease. The ownership over the asset remains with the public sector while the private sector provides services using the leased public asset. With the expiry of the contracted period, the ownership over the public asset is returned to the public partner. BUYOOT: Buy-Own-Operate-Transfer): The private sector buys the public asset, uses it for a contracted number of years and provides services. With the expiry of the contracted period, the ownership over the public asset is returned to the public partner without a fee. DBFOOT: Design Build-Finance-Own-Operate-Transfer): The private sector designs, builds and finances the public project, manages the service provision and operates the public asset which is in his ownership for a contracted number of years. With the expiry of the contracted period, the ownership over the public asset is returned to the public partner without a fee. BOO: Build-Own-Operate: The private sector builds and manages the public asset in its ownership without the obligation of transferring the property to the public sector. The monitoring over the private sector service provision is most often performed and regulated by the public authorities. BBO: Buy-Build-Operate: The private sector buys the public asset, develops and manages it, provides services to the public sector or the end users. With the expiry of the contracted period, the private sector retains the ownership rights over the public asset (Robert, 2001). Conclusion The debt as the source of financing has potentially significant benefits (if adequately managed and implemented) both in the private and the public sector. If analysed in the wider context, the capital market should provide its participants multiple means and instruments for debt collection and implementation namely the long-term debt which is to be used for investment projects (both public and private). In the current practice, the most common debt was the banking debt from traditional credit agreements implemented without incurring securities. Such an arrangement has its 70 Journal of Economic and Social Studies �Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing advantages but also disadvantages as it does not have the option of debt implementation through the issuing of debt securities. The presence of a number of institutions representing the infrastructure of the modern capital market creates a basic precondition for the future segmentation of the capital market regarding the offer/generation of different forms of securities holding different characteristics (risks, maturity...etc) and it seems that at the moment there are realistic conditions for a more significant bond issuing on the local and other higher levels of authority in BiH. The bonds take up their place both with private and public issuers although in the case of the private sector, this instrument is primarily reserved for the big joint stock companies. On the other hand, bond issuing as the means of financing development and infrastructural projects in municipalities, regions, entities and states represents a potentially very important segment of functioning and purpose of the capital market. A very popular phrase in the last several decades has been the public-private partnership. There are reasons why there has been an “explosion” of this joint approach in the provision of public services/products. It is necessary to know the different models that have appeared in the current practice all with the aim of drawing on the positive experience and applying the suitable model responding to the specific project or need. References Aralica, Z., Račić, D. & Šišinački, Jelena (2007) Project financing of infrastructure, Privredna kretanja i ekonomska politika, 17/112, 52-87 Denk, O. (2013), “Italy and the Euro Area Crisis: Securing Fiscal Sustainability and Financial Stability”, OECD Economics Department Working Papers, No. 1065, OECD European Commission, Directorate-General, Regional Policy (2003) Guidelines for Successful Public-Private Partnership. Brussels Kačer, H., Kružić, D., & Perković, A. (2008) Javno - privatno partnerstvo – Atraktivnost DBFOOT Modela, Zbornik radova Pravnog fakulteta u Splitu, 45,3/2008, 603-640 71 �Tarik Kurbegović Orsag, S. (2011) Vrijednosni papiri: investicije i instrumenti financiranja, Revicon, Sarajevo Orsag, S., (2012) Emisija dužničkih vrijednosnih papira vs kreditna zaduženja i financiranje infrastrukturnih projekata emisijom, Zbornik radova , Revicon, Sarajevo Publishing Robert J., (2001) Models for the financing of regional infrastructure and development projects, with a particular attention to the countries of Central and Eastern Europe. Public – private partnerships in spatial development policy, European regional planning (CEMAT), No. 63, Council of Europe Publishing Stanley B. Block and Geoffrey A. Hirt, (1989) Foundation of Financial Management, fifth edition, Richard D. Irwin, Inc., Homewood, Illinois Šimović, H. (2005) Municipal bonds in Croatia, (Municipalne obveznice i njihova primjena u Hrvatskoj), Financije i porezi, 12(3), 8-13 www.oecd.org/belgium Sarajevo Stock Exchange. Retrieved from www.sase.ba. 72 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. 2406 Title A name given to the resource Capital Market in Bosnia and Herzegovina: Unused Potential as Alternative Source of Financing Author Author KURBEGOVIC, Tarik Abstract A summary of the resource. One of the most important factors of conducting business successfully and also in achieving the interests of the owner of entity is adequate structuring of source of financing of company or institution. Debt as a source of financing has its advantages in terms of potential of increasing of wealth for the owner of capital. On the other side, debt alone as source of finance can be realized on a several ways, where plenty of factors influence that choice. In the past few years in Bosnia and Herzegovina (BiH), the possibility of finance big infrastructural projects through emission of debt securities has been often mentioned. Until now neither of these projects has been financed in this way. About this problematic can be spoken from many aspects such as: strategic decisions, limits concerning budget deficit, technical conductions, efficient managing of public debt and so further. These are the facts that we want to consider when we speak about capital market as alternative source of financing trying to reach the advantages and disadvantages of emission of debt securities including the possibilities, techniques and benefits of financing of infrastructural projects through bonds. 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 2014-07-15 Keywords Keywords. Article PeerReviewed HG Finance