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Revista Tinerilor EconomiºtiJournal indexed, from 2009, in the B+ category by THE NATIONAL UNIVERSITY RESEARCH COUNCIL from ROMANIA, with the code 731.(The Young Economists Journal)Year VII No. 13, November 2009SELECTION FROM CONTENTManagement of banking risksRomanian banks versus European banks 29Joining euro very rapidly – a step forwardfor non-euro eu members ? 46A comparative approach on themotivational dominants and professionalperformance of the employees belongingto public and private organizations 61Labor productivity and wages in theRepublic of Macedonia 103Considering the inefficiencies in labormarket for an explanation of migrationfact from rural to urban areas in Turkey 113Central andEastern EuropeanOnline Library

YEAR VII – NO. 13, NOVEMBER 2009

REVISTA TINERILOR ECONOMIŞTIISSN 1583-9982http://stat257.central.ucv.ro/rteEditor in ChiefAssoc. Prof. Ph.D. Costel IonaşcuUniversity of Craiova, Faculty of Economics and Business Administration, RomaniaVice EditorAssoc. Prof. Ph.D Laura Giurcă VasilescuUniversity of Craiova, Faculty of Economics and Business Administration, RomaniaEditorial BoardProf. Burlea Adriana Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Ciora Liviu Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssist. Prof. Jasmina Gržinić Ph.DJuraj Dobrila University, CroatiaLect. Buligiu Ion Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaLect. Ciobanu Andreea Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaLect. Cîrciumaru Daniel Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaProf. Olivier BACHELARD Ph.DEcole Superieure de Commerce Saint EtienneSaint Etienne, FranceAssoc Prof. George BLANAS Ph.DDepartment of Business AdministrationTechnological Educational Institutions, GreeceProf. Dumitru Dan BURDESCU Ph.DUniversity of Craiova, Faculty of Automatics,Computers and Electronics, RomaniaProf. Lucian BUSE Ph.DUniversity of Craiova, Faculty of Economics andBusiness Administration, RomaniaAssoc. Prof. Denisa Artemisa CALU Ph.DAcademy of Economic Studies, Bucharest, RomaniaProf. Paddy GRAY Ph.DDirector of Housing Management Programmes,University of Ulster, Northern IrelandProf. Jacques IGALENS Ph.DResponsable Département GRHUniversité 1 Toulouse Sciences Sociales, FranceProf. Himayatullah KHAN Ph.DAgricultural University, Peshawar,Institute of Development Studiesand COMSATS Institute of Information Technology,Abbottabad, PakistanProf. Pîrvu Cerasela Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Băndoi Anca Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Berceanu Dorel Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Cristea Mirela Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Murăriţa Ilie Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc Prof. Sitnikov Cătălina Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAcademic Review BoardAssoc. Prof. Crăciun Liviu Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Siminică Marian Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssoc. Prof. Spulbăr Cristi Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaLect. Stanciu Cristian Ph.DUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaAssist. Bălan AdinaUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaPh.D Student Lolescu RaduUniversity of Craiova, Faculty of Economicsand Business Administration, RomaniaProf. Mehmet KOCAKÜLÂH Ph.DUniversity of Southern Indiana,College of Business, Evansville, Indiana, USAProf. Conway LACKMAN Ph.DDuquesne University, Pittsburg, USAAssist. Prof. Goran PETREVSKI Ph.DSS Cyril and Methodius University, Faculty ofEconomics, Skopje, MacedoniaProf. François SILVA Ph.DEcole Supérieure de Commerce et de ManagementTours-Poitiers, FranceAssist. Prof. Daniel STAVÁREK Ph.DSilesian University, School of BusinessAdministration, Karviná, Czech RepublicAssist. Prof. Ekrem TUFAN Ph.DAnadolu University,Yunusemre Kampusu, ESKISEHIR TurkeyProf. Nicolae VASILESCU Ph.DUniversity of Craiova, Faculty of Economics andBusiness Administration, RomaniaAssoc. Prof. Timothy A. WOODS Ph.DUniversity of Kentucky, Lexington, USAThe authors have the entire responsibility for the content of the articles and onlythey will support all legal consequences generated by violation of the copyright.

EDITORIALThere has been lost an opportunity?!Even though, as it has been proved, Romania wasextremely vulnerable in front of the international crisis, itwas still having the great advantage that on its financialmarket there were not developing speculative operations ofthe kind of those that gave rise to the crisis in the USA andin other western countries. Therefore the crisis could beconsidered both a “catastrophe” and an “opportunity”. Inthis type of situations the direction towards which you“navigate” is very important. It is a known fact foreverybody that before the crisis there were many things outof control that had the role of creating the favorable premisesfor the crisis. So that, in the context of the exhilarationconcerning the emergent countries, we went off the trackthrough all kinds of extremely harmful weirdness: excessiveloans related with the deposits; an inconceivable growth ofthe consuming on the basis of the credit, much morepronounced than the production growth, and, implicitly,serious dislocation of the economy; the artificial appreciationof the national currency etc. All these have proven that “theliving was a lot over one’s own blanket”. Otherwise, wecould not explain the fact that 25% of those who got a loanare in the situation of not being able to pay their debts andwe are talking here about 25% out of four millions, and thatis one million people.What does this mean? “The non-payment” of the creditmeans for the bank a non-performing credit which leads tothe bank’s forced acquisition of a fixed mean whichrepresented the guarantee and the impossibility of attractingnew liquid assets for further loan of other clients. By thenon-existence of the loan, the investments do not exist, theeconomy cannot develop and the leu is depreciating. “Thenon-payment of the leasing” leads to creating car parks that,not so long ago, were queuing to enter the country.In this situation it was a known fact that a “coldshower” was needed. In this way, it is not wrong to say thatthis “cold shower” could have been represented by theinternational financial crisis which would have brought usdown on the earth. Cleaning the banking system by gettingrid of the banks that do not properly do their job, it means3

that it starts its activity from “healthier positions”. Cleaningthe economy by getting rid of the “frivolous” companies willlead to a harder economy.Anyway, it seems that the opportunity Romania had, inthe context of the international financial crisis that of beingagain down on the earth without any severe cost was lost.So that, because of the political situation and the foolishbehavior of the political parties on the horizon of theelections (it is also true the fact that we had “the badfortune” of having all kinds of elections during this period ofcrisis) it has been reached to “navigate” mostly against theflow and to see how other countries, maybe more seriouslyaffected than us, get clear of this period.Even though, according to a study ordered by ERSTEand realized by IMAS Vienna, it seems that “Romanians arethe most optimistic from the region concerning the impact ofthe crisis on business”.A sure thing is the fact that we will be down on the earthagain. It depends when!!!Assoc. Prof. Dorel BERCEANU, Ph.D4

TABLE OF CONTENTEDITORIAL 3BANKING ACTIVITY’S FUNDAMENTALFORCES OF CHANGE IN ECONOMICACTUAL CONDITIONSProf. Ph.D Popescu JenicaUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaTHE NECESITY FOR AUDITING THEFINANCIAL-ACCOUNTING ACTIVITYPh.D Student Calotă GeorgeAssist. Ph.D Student Vînătoru Sorin-SanduUniversity of CraiovaFaculty of Economics and BusinessAdministration,Craiova, RomaniaMANAGEMENT OF BANKING RISKS:ROMANIAN BANKS VERSUSEUROPEAN BANKSAssist. Ph.D Manta Alina GeorgianaUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaENTRY OF BANK FOREIGN CAPITAL INDEVELOPING ECONOMIES:MEASURING PROFIT & COSTEFFICIENCYAssist. Ph.D c. Marjan PetreskiUniversity American CollegeFaculty of EconomicsSkopje, MacedoniaJOINING EURO VERY RAPIDLY – ASTEP FORWARD FOR NON-EURO EUMEMBERS ?Prof. Ph.D Spulbar CristiLect. Ph.D Rizescu SabinLect. Ph.D Stanciu Cristian ValeriuUniversity from CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaDEMANDS AND CONTROVERSIESREGARDING THE SPHERE OFINTERNAL AUDIT ACTIVITIESAssoc. Prof. Drăgan Cristian Ph.DAssoc. Prof. Brabete Valeriu Ph.DUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, Romania72029394650TOURISM IN ROMANIA AND EUROPEANUNIONLect. Ph.D Constantin SandaLect. Ph.D. Lupşa-Tătaru Dana AdrianaTransilvania University of BraşovFaculty of Economic ScienceBraşov, RomâniaA COMPARATIVE APPROACH ON THEMOTIVATIONAL DOMINANTS ANDPROFESSIONAL PERFORMANCE OFTHE EMPLOYEES BELONGING TOPUBLIC AND PRIVATE ORGANIZATIONSAssoc. Prof. Ph.D Mitrache MariusPh.D Student Ciorbagiu-Naon RaduUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaCURRENT ISSUES ON CHANGEMANAGEMENT IN PUBLICORGANIZATIONSPh.D Student Laurenţiu BarcanUniversity of CraiovaFaculty of Economy and BusinessAdministration, Craiova, RomaniaEVOLUTIONS IN THE WORLDCOMPETITIVENESS CLASSIFICATION –THE CASE OF ROMANIAAssoc. Prof. Ph.D Dragomir LaurentiuConstantinUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaINCENTIVES AND CONSTRAINTS INTHE PUBLIC SECTOR: THE BEHAVIOROF THE RENT-SEEKING BUREAUCRATAssist. PhD Student Radu ŞimandanPolytechnic University of BucharestDepartment of ManagementRomania57617175815

FED’S “QUANTITAVE EASINGACTION”– MORE THAN A MOVE FORUS ECONOMY REVITALIZATION?Lect. Ph.D Rizescu SabinLect. Ph.D Stanciu Cristian ValeriuProf. Ph.D Spulbar CristiUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaCONCISE CHARACTERIZATION OF THEEVOLUTION AND BEARINGS OFWORLD-WIDE ECONOMY AND THEIRINFLUENCE OVER THE MOBILITY OFTRADING COMPANIESPh.D Student Demetra Lupu-VişănescuUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaLABOR PRODUCTIVITY AND WAGES INTHE REPUBLIC OF MACEDONIAAssist. Ph.D Student Predrag TrpeskiJunior Teaching Assist. Biljana TashevskaUniversity ―Ss Cyril and Methodius‖Faculty of EconomicsSkopje, Republic of MacedoniaCONSIDERING THE INEFFICIENCIES INLABOR MARKET FOR ANEXPLANATION OF MIGRATION FACTFROM RURAL TO URBAN AREAS INTURKEYAssist. Prof. Sibel CENGIZAssoc. Prof. Cem Mehmet BAYDURMugla UniversityFaculty of Economics and AdministrativeSciencesDepartment of Economics, Mugla, Turkey8589103113UNEMPLOYMENT ISSUES IN BARAOLTREGION 130Assist. Ph.D Kulcsár ErikaUniversity ―Babeş-Bolyai‖Faculty of Economics and BusinessAdministrations, Cluj Napoca, RomaniaEconomist Sütő GáborA MODEL OF ANALYSIS OF THE E-LEARNING SYSTEM QUALITYAssoc. Prof. Ph.D Costel IonaşcuAssoc. Prof. Ph.D Berceanu DorelUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaMARKETING EVOLUTION: E-MARKETING - QUALITATIVE ANDQUANTITATIVE RESEARCHTECHNIQUESAssoc. Prof. Ph.D Ciora Liviu IonAssoc. Prof. Ph.D Popa SorinLect. Ph.D. Buligiu IonUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, Romania1301361446

Finances - AccountingBANKING ACTIVITY’S FUNDAMENTAL FORCES OF CHANGE IN ECONOMIC ACTUALCONDITIONSProf. Ph.D Popescu JenicaUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: Five fundamental forces have transformed the structure offinancial markets and institutions and reflect the intense competitionfinancial firms face today: deregulation/reregulation, financial innovation,securitization, globalization, and advances in technology. Marketparticipants can choose from a larger number of suppliers which places apremium on customer service. To remain competitive, banks shouldidentify the products with which they have a market advantage and providepersonal service. The basic theme is that increased competition, broughtabout not only by continued deregulation but also as financial firms findways around regulation, has encouraged banks to assume increasedportfolio risks in order to earn acceptable returns.JEL classification: G01, G38Key words: deregulation/reregulation, financial innovation, securitization,globalization, advances in technologyIntroductionFive fundamental forces have transformed the structure of financial marketsand institutions and reflect the intense competition financial firms face today:deregulation/reregulation, financial innovation, securitization, globalization, andadvances in technology. The latter factors actually represent responses to deregulationand reregulation. Thin combined forces have altered corporate balance-sheets byinducing firms to compete in new product and geographic markets and use newfinancial instruments to facilitate transactions and adjust their risk profile. Althoughconsumers have benefited from these changes, the long term trend for financialinstitutions entails consolidation, realignment of corporate objectives, anddiversifications of products offered as firms attempt to develop a market niche. Firmscan expect regulators to closely monitor changes in risk and continually increase capitalrequirements, particularly against new lines of business.Many analysts attribute much of the change in the financial services industry toderegulation. Actually, deregulation was a natural response to increased competitionbetween depository institutions and non depository financial firms, and between thesame type of competitors across world markets rather than the catalyst of competition.Deregulation sped up the process, but did not necessarily start. New regulations broughtabout the development of new products and increased competition with firms notregulated like banks, such as investment banks. Regulation also contributed to the7

Revista Tinerilor Economişti (The Young Economists Journal)problems of savings and loans in the early 1980‟s as savings and loans portfolios wererestricted to loan term mortgage securities financed by short term savings accounts.Today we consider this to be a very high interest rate risk position, enough to bringmajor regulatory sanctions!The basic theme is that increased competition brought about not only bycontinued deregulation, but also as financial firms find ways around regulation, hasencouraged banks to assume increased portfolios risks in order to earn acceptablereturns. As bank regulators have tried to reduce overall risk by raising capitalrequirements, banks have moved assets off their balance sheet and tried to replaceinterest income with fee income. In these efforts, banks attempt to be more likeinsurance brokers, realtors, and investment bankers – competing with a broader rangeof firms in more product markets. As capital becomes increasingly costly or impossibleto obtain, individual firms are forced to merge to continue operations.The Role of RegulationHistorically, commercial banks have been one of the most heavily regulatedcompanies in the United States – and thus among the safest and most conservativebusinesses around. Regulations took many forms, including maximum interest rates thatcould be paid on deposits or charged on loans, minimum capital-to-asset ratios,minimum legal reserve requirements, limited geographic markets for full-servicebanking, constraints on the type of investments permitted, and restrictions on the rangeof activities, products, and services offered. Although regulation limited opportunitiesand risks, the virtually guaranteed a profit if management did not perpetrate fraud.Since World War II, banks and other market participants have consistentlyrestructured their operations to circumvent regulation and meet perceived customerneeds. In response, regulators and lawmakers imposed new restrictions, which marketparticipants circumvented again. This process of regulation and market response(financial innovation) and imposition of new regulations is the regulatory dialectic. Oneaspect of regulatory response is financial innovation. Securitization, globalization, andnew technologies are extensions of this response in the development of new productsand international competition. The fear is that competitive forces have influencedfinancial markets and institutions so rapidly that the aggregate risk of the U.S. financialsystem has increased.The changing nature of banking can be examined in two distinct areas: thetraditional role of banks as financial intermediaries; and the evolution of banking intonontraditional roles as a result of changing regulation, technology, and financialinnovation. Banks traditional role as intermediary has declined as new products such ascash management accounts, mutual funds, commercial paper, and junk bonds havebecome more prevalent. Banks have responded by accepting lower spreads, taking onmore risk, and expanding their customer and product base. Banks have also expandedinto nontraditional areas and products, especially investment banking activities, offbalancesheet activities, such as standby letters of credit, mortgage servicing, and creditenhancement products, to generate more fee income. Finally, the Gramm-Leach-BlileyAct effectively eliminates most of the remaining restrictions that have separatedcommercial banking, investment banking and insurance for more than 70 years.Banking organizations will continue to expand their operations by identifying specificproducts and services to offer and will subsequently compete against a broader array offirms.8

Finances - AccountingIncreased CompetitionFollowing the enactment of the Glass-Steagall Act and through the early 1980s,the commercial banking industry was quite stable. Individuals who wanted to start anew bank found it difficult to get a charter from either federal or state regulators. TheFederal Reserve System, in turn, limited interest rates that banks could pay depositors,effectively subsidizing banks by mandating low-cost sources of funds. Depositors hadfew substitutes for saving unless they held more than $100.000. As a result bankdeposits grew systematically with economic conditions. Regulations also specifiedmaximum rates that banks could charge on certain types of loans.During this period, banks could not compete on price because the price of theirinputs (deposits) was regulated and the price of their outputs (loans) was regulated. Forall practical purposes, all banks had the same price and had to find other ways tocompete. Today, banks are free to set the price for their services as well as the type ofservices they offer, as are other companies free to offer banking-type services atcompetitive prices. Bankers now compete directly on price, product offerings, andservice.Competition for DepositsThe free ride of a guaranteed spread between asset yields and liability costsabruptly ended during the late 1970‟s. The primary catalyst was high inflation due inpart to foreign control of oil market and the doubling of oil costs. Although ceiling rateson bank deposits limited interest to 5,25 percent on savings accounts ant nothing onchecking accounts, 8 to 12 percent of inflation rates guaranteed that consumers lostpurchasing power. In 1973, several investment banks created money market mutualfunds (MMMFs), which accepted deposits from individuals and invested the proceedsin Treasury bills, large certificates of deposits (CDs), and other securities that paidmarket yields. Not surprisingly, the attractiveness and growth of MMMFs tracked thespread between money market interest rates and Regulation Q ceilings. Withoutcompeting instruments, MMMFs increased from $10, 8 billion in 1978 to $2 trillion atthe end of 2004. During this interval, three months Treasury bill rates exceeded the rateon bank savings accounts by as much as 9 percent.In today environment, deposit competition takes many forms. First, institutionsare virtually unconstrained in the terms they can offer. Thus, customers can negotiateany minimum denomination, market interest rate, and maturity. Firms cannotdiscriminate, so they make the same deposit available to all qualified customers. Assuch, the range of deposits and offer checking accounts. Almost every investmentcompany that offers mutual funds also offers a cash management account for highbalancecustomers to use as part of their investment activity. Individuals can haveproceeds from all financial transactions automatically invested at market rates until theymake new investment decisions. Customers can transfer money from a core moneymarket account to thousands of mutual funds with many investment companies. Finally,the combination of advances in technology and elimination of branching restrictions,most individuals were limited in choice to the local bank information about rates andprices that customers can quickly and easily obtain rate quotes from financialinstitutions all over the world. The elimination of branching restrictions means that justabout any financial institutions can open a branch in any community. Not surprisingly,the competition for deposits is fierce.9

Revista Tinerilor Economişti (The Young Economists Journal)Competition for LoansAs bank funding costs increased, competition for loans put downward pressureon loan yields and interest spreads over the cost of bank funds. High quality corporateborrowers have always had the option to issue commercial paper or long-term bondsrather than borrow from banks. Commercial paper is an unsecured ranging from 5 to270 days. The growth in MMMFs accelerated the development and growth of thecommercial paper market and improved investment banks relations with nonfinancialcorporations. Investment banks continued to underwrite commercial paper and usemoney market funds to purchase paper. Because the Glass-Steagall Act preventedcommercial banks from underwriting commercial paper, banks lost corporate barrowerswho bypassed them by issuing commercial paper at lower cost. Today, commercialbanks can underwrite and deal in securities.The development of the junk market extended loan competition to medium-sizecompanies representing lower-quality barrowers. Junk bonds are corporate securitiesthat are unrated or rated Ba (BB) and lower and thus are not investment grade.Historically, firms with debt ratings below Baa (BBB) were precluded from issuingsignificant amounts of new debt and had to rely instead on bank loans. During the early1980s, several investment banks convinced investors that many Ba and lower-ratedbonds were sound investment and that historical default rates were so low that 3,5 to 5percent yield premium offered on the bonds more than compensated for default risk.Investment banks were soon able to help companies that could not issue prime-gradecommercial paper sell junk bonds in the new issue market. These bonds had severaladvantages over bank loans, including access to larger amounts of funds, longer-termfinancing, and fewer restrictions covenants. In many cases, the interest costs were wellbelow loan rates quoted by a bank.Today, the junk bond market is quite active. FED policymakers actually look atthe interest spread between junk bond yields on low-default-risk Treasury securities asan indicator of the appropriate monetary policy. When the spread are extremely high,lower quality barrowers have more difficulty obtaining financing ant the FederalReserve System often provides additional liquidity to the market.These developments permanently altered the commercial banking industry. Thegrowth in junk bond reduced the pool of good-quality loans and lowered risk adjustedyields spreads over bank barrowing costs. Banks generally responded by increasing theriskiness of their loan portfolios or trying to move into investment banking and otherareas that generate fee income. Banks choosing the first path sacrificed long-termprofitability and solvency for short-term gains. They maintained yield spreadstemporarily, but increased default risk on the loans, which ultimately eroded earningsthrough higher loan charge-offs. Banks choosing the second path, generating greater feeincome, had limited options. They would like to underwrite securities, sell new types todiversify their asset base and revenue stream and lower the risk of failure. Only recentlyhave commercial banks been able to engage in many of these activities.Today, different-sized bans pursue different strategies. Small to medium-sizebanks continue to concentrate on loans but seek to strengthen customer relationships byoffering personal service. They now measure their costs better and price loans anddeposits to cover their costs plus meet profit targets. The best evidence is that mostbanks now calculate their own costs of funds and price loans off this index rather thanoff a money center bank‟s prime rate. Many of these same banks have rediscovered theconsumer loan. The proportion of consumer loans increased for some banks during the10

Finances - Accounting1980s and early 1990s but slowed somewhat since 1995, due primarily to the rapidincrease in default rates and personal bankruptcy rates. Rates charged on consumerloans generally far exceed their respective default rates and the cost of financing suchthat consumer deposits are much less rate sensitive than large certificates of deposit antother barrowed funds. The biggest losers are low-balance depositors who have seenservice charges increase to cover the banks costs of providing transactions services.Off-balance Sheet Activities and AssetsThe largest banks move assets off the balance sheet as part of their normalbusiness because commercial and consumer loans are risky relative to the availablereturns. Regulatory capital requirements raise the cost of holding loans on balancesheets, and pricing pressures on new loans make owning loans too expensive and risky,given the available yield spreads. Thus some institutions consciously originate loansand securitize them, or issue securities using the loans as collateral, and effectivelymove the loans off the bank‟s balance sheet. Off balance sheet activity of the largestU.S. commercial banks has increased dramatically since 1980s. Meanwhile, noninterestincome, as percentage of total operating income, has increased.The trend is not without risk. Commitments and guaranties take the form ofloan commitments, standby letters of credit, commitments related to interest to interestrate swaps, currency exchange, leases, insurance on securities, and third partyguaranties, all of which generate excellent fee income and do not require large capitalsupport. How-ever, because unfunded commitments and guaranties do not appearexplicitly on published financial statements, banks continue to assume the risk that theymight need to fund the commitments and make good on a defaulted obligation. Thiswas dramatically demonstrated in late 2001 and 2002 with the bankruptcies of Enronand Kmart ant the problems of Tyco and other distressed firms. As these nonfinancialcompanies approached bankruptcy, the money and capital markets closed down to themso they drew down their credit lines at banks.The Impact of Nonbank CompetitionCompetition for the bank‟s product line comes in many forms. Merrill Lynchbegan to offer its Cash Management Account (CMA) during the late 1970s in whichsmaller depositors could earn “market” rates. During this same time, banks wererestricted from paying more than 5,25 percent on savings accounts and could not payinterest on checking accounts. It did not take long for Merrill Lynch‟s CMA was payinga short-term rate of almost 15 percent as compared with a bank‟s restricted 5,25percent. It is no wonder the average investor began to look beyond the bank for a placeto put investment dollars. In was not until the early 1980s that banks were allowed tooffer interest on checking accounts and money market deposit accounts and moneymarket deposit accounts to compete the CMA.The 1980s and 1990s represented a period of intense competition wherenonblank competitors aggressively entered traditional banking business line.Commercial banks competed fiercely with nonbank institutions, finance companies,captive automobile finance companies, high-growth thrifts and technology firms forloans and deposits. Once-loyal customers moved their business for better terms.Unfortunately, the increased competition coincided with many regulatory restrictionson the type of products banks could offer, as well as loan problems in energy, real11

Revista Tinerilor Economişti (The Young Economists Journal)estate, and agriculture, which made it even more difficult to maintain quality assets andmarket share.Much like other companies, the largest automobile manufacturers haveaggressively expanded in the financial services as part of their long-term strategic plan.These companies provided a steady stream of financing for automobile buyers. Theyalso provide dealer financing for inventories, capital improvements, and leaseprograms.General-purpose finance companies cover the spectrum of lending activities.Most specialize in lending to individuals for durable goods purchases. Theytraditionally emphasize automobile loans, home improvement loans, and secondmortgage loans, which are secured by real estate. Others specialize in lending business,either directly or through factoring a firm‟s accounts receivable, or equipment leasing.Finance companies fund their investments by issuing commercial paper andlong-term bonds and by barrowing directly from banks. Historically, their loans havebeen to relatively high credit risks. Even though their default experience exceeds that ofbanks, finance companies have generally earned greater returns because they price theirloans at a premium, which compensates for the greater charge-offs. The returns to thelargest finance companies have been as good as if not better than those of banks.Competition for Payment ServicesOnce become the exclusive domain of banks and other depository institutions,the nation‟s payment system has become highly competitive. Even Fed`s role inprocessing and clearing checks could be replaced by new technology. This, of course,would not come without risks. Only the Fed can prevent default by one large institutionfrom causing the system to collapse. The real challenge for the Fed and banks in thedelivery of payment processing services is emerging electronic payment systems, suchas smart and stored value cards, automatic bill payment, and bill presentmentprocessing. Many private companies offer the products but the Fed still settles theaccounts.With recent electronic innovations, the role of paper check is diminishing.Finally, plastic is overtaking checks. A recent study concluded that credit cards anddebit cards accounted for 52 percent of transactions in 2003, up from just 10 percent in1995. Checks accounted for 15 percent in 2003 – one half its contribution in 1995 -while cash transactions represented 32 percent (down from 60 percent in 1995). In2004, a new law enables banks to process checks faster by allowing electronic checks tomeet check clearing requirements. A bank simply need to capture the front and back ofa paper in picture form which is then transfers electronically.Although cash remains the dominant form of payment, it has the smallestpayment size, averaging about $4 per transactions. Large wholesale transactions, usingFed Wire and the Clearing House Interbank Payment System (CHIPS) are fewer innumber but much larger in average transaction size. The Fed Wire is used to settleinterbank transactions, while CHIPS is a private alternative operated by New YorkClearing House Association and user principally to settle foreign exchange transactions.Checks are the second most active payment method in the United States withjust over 10 percent of transaction volume handled by check writing. Electronic checkpresentment, including point-of-sale (POS) check truncation, has been especially wellreceived and 40 to 50 million paper checks are converted into electronic ACH(Automated Clearing House) debits each year at retail locations.12

13Finances - AccountingCredit cards remain the principal retail or small value electronic paymentmethod. Ignoring cash, credit cards are used in almost 20 percent of the volume oftransactions. Debit cards, on the other hand, are clearly the fastest growing paymentmethod; more than a quarter of a million debit card are in circulation and more than 80percent of banks offer debit cards. Similar to credit cards, debit cards are used for POStransactions but are not linked to credit. Instead, they are directly linked to the user‟saccount. The growth in debit cards is also a result of electronic benefits transfer (EBT)programs. The vast majority of states and various governmental agencies offer EBTprograms to deliver entitlement and food assistance benefits to those with or without abank account. In these programs EBT cards can be used like debit or ATM cards.Factors other than changes in electronic payments systems are also erodingbanks traditional market. The growth and acceptance of electronic payment systemmeans that there is less of a need to physically go to a bank or any other financialservices company. Anyone with appropriate account can obtain cash at an ATMmachine or make payment at the POS anywhere in the world, eliminating the need to goto the bank to obtain cash. Anyone can open a checking account, apply for a loan, makedeposits, or receive a loan electronically. Direct deposit of paychecks, the use of creditcards, electronic bill payment, electronic check presentment, and smart cards allindicate that competition for the financial services goes well beyond the traditionalmechanisms we think of from the recent past. Many analysts argue that the futuredelivery of banking services will not take place in the brick and mortar branches of abank building but rather through smart cards.Competition for Other Bank ServicesBanks and their affiliates offer many products and services in addition todeposits and loans. A partial list includes trust services, brokerage, data processing,securities, underwriting, real estate appraisal, credit life insurance, and personalfinancial consulting. Although a bank cannot directly underwrite securitiesdomestically, there are generally two methods by which banks can enter this line ofbusiness. One is to form a financial investment subsidiary. The investment subsidiary ofa financial holding company is not restricted in the amount of investment underwritingengaged in. A second method is to form a subsidiary of a national bank using Glass-Steagall Act. Securities powers are basically unrestricted however, if underwriting isdone through a financial holding company.Another method of combining nonbanking companies and banking is to useexemptions in the Bank Holding Company Act, which allows a nonbank to own acertain types of banks or savings banks.Investment BankingCommercial banking consider investment banking attractive because mostinvestment banks already offer many banking services to prime commercial customersand high net worth individuals and sell range of products not available through banks.They can operate in any geographic market without the heavy regulation of the FED,FDIC and OCC. They can earn extraordinarily high fees for certain types oftransactions and can put their own capital at risk in selected investments. Of course,some risks are great such that there is the potential highly volatile profit.The Securities and Exchange Commission, which regulates investment banks,classifies firms in terms of their primary trading activity and head office location. Two

Revista Tinerilor Economişti (The Young Economists Journal)categories of firms dominate the investment banking industry. National full-line firmsoffer a complete set of service, including and extensive network of branch officeslocated throughout the United States to handle the retail business. Large investmentbanking firms do not have extensive branch networks and instead focus on large-scaletrading, underwriting, and mergers and acquisitions. Both types of firms generateearnings from fee-based services, trading, and brokerage services. One attractive sourceof fees is securities underwriting in which investment banks help firms issue new equityand debt. The top investment banking houses manage the bulk of new issuesinvestment-grade securities and thus are referred to as special bracket firms. Eventhough fewer than 20 firms qualify as national full-line or large investment banks, theycontrol more than one third of all assets held by investment banks. An underwritertypically buys the new securities from the issuer at an agreed-dealer in assuming therisk that it can resell the securities at higher prices. For this reason, an underwriternormally pre-sells the issue by obtaining commitments from investors. Underwritersmay also act as agents and help issuers place new securities directly with the finalinvestor. As such, they earn fees without taking ownership of the underlying securities.Because risk increases with issue size, investment banks frequently form underwritingsyndicates, or groups of investment banks, to diversify the risk and increase the numberof selling firms.Investment banks also serve as brokers or dealers in secondary markettransactions. Through trading departments, the make decisions in previously issuedsecurities by executing trades for selected customers or for their own account. Manytrades, especially those involving retail customers, are simply brokered; that is, thetrader marches prospective buyers and sellers. The investment bank assumes noinventory risk and earns a straight commission on the exchange. Traders may also act asdealers, setting bid and ask prices for every security traded. Dealers incur inventory riskand adjust the size of the bid-ask spread to vary the size of their inventory. If necessary,a dealer may hedge inventory risk by trading futures, swaps, and options.Investment banks also generate substantial fees from facilitating corporatemergers and acquisitions and asset management. In the first case, an investment bankhelps in the valuation and offers advice ad assistance in negotiating deal terms.Corporate takeover specialists and junk bond financing spur this activity. Targetcompanies are often those with stock market values far below the value of corporateassets. Acquiring firms issue large volumes of common stock or junk bond debt and usethe proceeds to buy controlling interest in a target company‟s stock. After purchase,they sell some of the acquired firm‟s assets to refund the initial debt or generate cashflow that covers the service. Companies pursuing these leveraged buyouts often earnextraordinary profits when the market values of the firm‟s stocks later increase. In thesecond case, investment banks serve as agents and manage investment funds for clientsearning a management fee. This generally represents a stable, low-risk source ofrevenue as long as the funds perform adequately.Securities trading and brokerage represent the other sources of profit. The firstinvolves either making a market in securities or trading for the firm‟s own account.When making a market, a bank serves as a ready buyer and/or seller of the underlyingsecurity or commodity. For example, in foreign exchange trading, a bank may operateas a dealer by posting bid and ask quotes for which it is willing to buy and sell specificcurrencies. It makes a profit from the difference between the asked and bit prices. Someinvestment banks allow employees to trade for the bank‟s own accounts. In this14

Finances - Accountingsituation, the trader takes speculative positions in an effort to buy the underlying assetat prices below the sale prices. Obviously, speculative trading embodies greater risk. Inthe brokerage business, investment banks serve as customer representatives helpingindividuals, pension funds, and business buy and sell securities. As agent, the bankmakes the bulk of its profit from sales commissions.1. Deregulation and ReregulationCommercial bank regulatory agencies have always tried to control theindividuals and activities associated with financial intermediation. Their fundamentalpurpose is to protect the public‟s resources and confidence in the financial system.Banking is a public trust that, if left to industry whims, might assume too much risk,ultimately leading to extensive losses and widespread lack of confidence in thesoundness and integrity underlying financial intermediation. Deregulation is the processof eliminating existing regulations, such the elimination of Regulation Q interest rateceilings imposed on time and demand deposits offered by depository institutions or therepeal of sections of the Glass-Steagall Act removing restrictions on investmentbanking activities. Deregulation is often confused with reregulation, witch is theprocess of implementing new restrictions or modifying existing controls on individualsand activities associated with banking. Reregulation arises in response to marketparticipant‟s efforts to circumvent existing regulations.An issue related to FED membership arose during 1970s and serve as anexcellent example of the regulator-bank relationship. Banks that are members of theFED are required to hold reserves in the form of nonearning cash assets equal topercentage of qualifying liabilities. These reserves represent an implicit tax on bankingoperations because banks do not earn explicit interest on the assets. During the 1970s,this tax increased dramatically as short-term market interest rates increased. Banks thatwere not Fed members were required to hold fewer reserves and could typically holdinterest-bearing securities to meet requirements. As such, their lost interest income wasmuch smaller. To circumvent regulation, many member banks gave up Fed membershiprather than absorb the loss. The FED and Congress, concerned about losing control ofthe money supply, passed the Depository Institutions Monetary Control Act in 1980,which allowed interest-bearing checking accounts but forced all financial institutionsthat offered them to hold reserves set by the Fed. This reregulation was an attempt toreimpose regulatory control over all depository institutions.Efforts at deregulation and reregulation generally address pricing issues,allowable geographic market penetration, or the ability to offer new products andservices. Recent pricing regulation have focused on removing price controls, such asthe maximum interest rates paid to depositors and the rate charged to borrowers.Deregulation, addressing geographic markets, has expanded the locations wherecompeting firms can conduct business. Finally, deregulation of the restrictions thatseparated commercial banking, investment banking, and insurance, brokerage service,and securities underwriting. These changes, combined with new technology, haveexpanded opportunities across geographic markets and produced a greater number ofcompetitors offering banking services and intense price competition. Greatercompetition has, in turn, lowered aggregate returns as firms attempt to establish apermanent market presence.15

Revista Tinerilor Economişti (The Young Economists Journal)2. Financial InnovationFinancial innovation is the catalyst behind the evolving financial servicesindustry and the restructuring of financial markets. It represents the systematic processof change in instruments, institutions, and operating policies that determine thestructure of our financial system. Innovations take the form of new securities andfinancial markets, new products and services, new organizational forms, and newdelivery system. Financial institutions change the characteristics of financialinstruments traded by the public and create new financial markets, which provideliquidity. Bank managers change the composition of their banks balance sheets byaltering the mix of products or services offered and by competing in extendedgeographic markets. Financial institutions from holding companies and reserve holdingcompanies, acquire subsidiaries, and merge with other entities. Finally, institutions maymodify the means by which the offer products and services. Recent trends incorporatetechnological advances with the development of cash management accounts, includingthe use of ATMs, home banking via computer and Internet, and shared national andinternational electronic funds transfer systems.Innovations have many causes. Firms may need to stop the loss of deposits,enter new geographic or product markets, deliver services with cheaper and bettertechnology, increase their capital base, alter their tax position, reduce their risk profile,or cut operating costs. In virtually every case, the intent is to improve their competitiveposition. The external environment, evidenced by volatile economic conditions, newregulations, and technological developments, creates the opportunity for innovation.More recent innovations with securities take the form of new futures, swaps,options, and options-on-futures contracts, or the development of markets for a widerange of securitized assets. Banks use financial futures to hedge interest rate and foreignexchange risk in their portfolios as well as offset mismatches in maturities of assets andliabilities or different amounts of assts and liabilities denominated in differentcurrencies, to price fixed-rate loans to create synthetic deposits. Several large banksalso earn fee income commissions by serving as futures merchants and advisers.Of course, innovations are not restricted to banks. Major retailers acquiredbanks, savings and loans, insurance companies, and real estate companies, enablingthem to offer banking products. These nonbank firms operate offices nationwidewithout regulatory interference. Investment banks have similarly linked up withconsumer banks to provide a vehicle for offering credit card and transactions servicesnationally.Innovation in delivery systems normally takes the form of new technologicaldevelopments to facilitate funds transfers. During the 1980s, banks popularized ATMsand POS terminals in retail outlets. More recent innovations include the development ofthe smart cards, debit cards, home banking networks, and internet banking. Althoughcustomer acceptance has been slower than expected, these systems are growing at anincreasing rate.3. SecuritizationBecause loans offer the highest gross yields, many banks try to compensate fordeclining margins (a direct result of increased competition) by increasing loan-to-assetratio. This fundamentally means that there is an increasing demand for a decreasingpool of quality credits. In many cases, this eventually leads to greater loan losses andlong-term earnings problems. High loan growth also increases bank capital16

17Finances - Accountingrequirements. Regulators consider most loans to be risky assets and require banks toadd to their loan loss reserves and capital base, the more loans they put on the books.Higher provisions for loan loss reduced net income. Because equity capital is moreexpensive than debt, higher capital requirements, in turn, increase the marginal cost offinancing operations.One competitive response to asset-quality problems and earnings pressure hasbeen to substitute fee income for interest income by offering more fee-based services.Banks also lower their capital requirements and reduce credit risk by selling assets andservicing their payments between barrower and lender, rather than holding the sameasset to earn interest.This process of converting assets into marketable securities is calledsecuritization. A bank originates assets, typically loans, combines them in pools withsimilar features, and sells pass-through certificates, which are secured by the interestand principal payments on the original assets. Residential mortgages and mortgagebackedpass-through certificates served as prototype. The originating bank changes feesfor making the loans. If it services the loans, it collects interest and principal paymentson the loans, which it passes through to certificate holders minus a servicing fee. If thebank sells the certificates without recourse, regulators permit it to take the originalassets of its books. The bank does not have to allocate loan-loss reserves against theassets, and its capital requirements decline proportionally. Securitization also eliminatesinterest rate risk associated with financing the underlying assets. In essence, the bankserves as an investment banker generating fee income from servicing the loansassuming additional credit risk.4. GlobalizationFinancial markets and institutions are becoming increasingly international inscope. U.S. corporations, for example, can barrow from domestic or foreign institutions.They can issue securities denominated in U.S. dollars or foreign currencies issued indifferent countries as substitutes. Large firms thus participate in both domestic andforeign markets such that interest rates on domestic instruments closely track foreigninterest rates.Globalization is the gradual evolution of markets and institutions such thatgeographic boundaries do not restrict financial transactions. One country‟s economicpolicies affect the economies of other countries. Funds flow freely between countriesbecause of efficient policies affect the economies of other countries. The establishmentof the European Community (EC) in 1992 represents a prime example. Under theoriginal formal agreement, 12 industrialized nations in Western Europe eliminated mosttrade restrictions, standardized basic product designs, reduced taxes and fees, andlinked monetary control in order to facilitate trade. Today, there are now 16 countries inEC. The original intent was to have a common currency and fully integrated market thatoperates as one without borders. Monetary policy for the single currency is set by theEuropean Central Bank. One presumed benefit of the euro is that it should sharplylower inflation rates and enhance opportunities for all member countries.Although product innovation and the acquisition of domestic firms by foreignfirms has led to a removal of the physical borders that separate firms internationally,technology has clearly had one of the most dramatic impacts on the globalizationmarkets. Technological innovations, such as the commercialization of the internet,mean that the distance is no longer a limiting force. One can search for and purchase

Revista Tinerilor Economişti (The Young Economists Journal)products and services from anywhere in the world. Large, as well as small, companiesnow have global markets for their products and services. Consumers and business nowsearch beyond their traditional local market in pursuit of price, quality, and availability.5. Advances in TechnologyIt took more than 80 years until 50 percent of U.S. households owned anautomobile. It only took about 70 years for the telephone, 50 years for the electricity, 35years for the VCR, 27 years for television, and 15 years for the cell phone. But theinternet reached 50 percent of U.S. households in only seven years. Clearly, the impactof technology on business over the past decade has been even greater than in otherindustries. Technology has had the biggest impact on efficiency and productivity.Technology allows one person to do more or handle more people and transactions,thereby dramatically reducing the cost of delivering products and services. In additionto gains in productivity, advances in technology – especially in areas oftelecommunications – have expanded the banks marketplace from around the block toaround the world. Banks can now offer banking services to anyone with a computer –but so can just about any other firm.While advances in technology have dramatically increased the efficiency ofbanks providing services, they have also simultaneously increased competition. As anintermediary, banks add value in the economy by providing and processing softinformation about those they provide services for. The internet makes obtaininginformation on smaller business customers less costly and easier to do, therebyincreasing competition for the banks primary business of lending to small to mediumsizebusiness. Technology also makes it less costly to offer banking services andexpands a company‟s market geographically with little cost. This all leads to increasedcompetition for banking services. Technological advances allow firms to compete forcustomers electronically without branch facilities on every street corner.ConclusionsIncreased competition has arisen from financial innovation, deregulation,securitizations, globalization of financial institutions and markets and technologicaldevelopments. Deregulation is the removal of regulations that limit financial institutionsactivities. Financial innovation is the continual development of new products andchange in markets structure to circumvent regulation and meet customer needs.Securitization is the process of converting assets to marketable securities. Globalizationinvolves the de facto elimination of geographic barriers to trade and financial marketactivity. Finally, technology has opened the door to competition from many more areasincluding the once sacred payments system.Customers and business benefit from lower interest rates and increased capitalavailability. Market participants can choose from a larger number of suppliers whichplaces a premium on customer service. To remain competitive, banks should identifythe products with which they have a market advantage and provide personal service thatdistinguishes them from their competitors.REFERENCES1. Chorafas, D. N. “Reliable Financial reporting and Internal Control: AGlobal Implementation Guide”, Wiley, New York, 200018

Finances - Accounting2. Chorafas, D. N. “Financial Boom and Gloom: the Credit and BankingCrisis of 2007-2009 and Beyond”, Palgrave Macmillan,Basingstoke, 20093. Cooper, G. “The origin of Financial Crises: Central banks, creditbubbles and the efficient market fallacy”, Harriman HouseLtd, Petersfield, 20084. Cohan, W. “The Last Tycoons, Doubleday”, New York, 20075. Friedman, B. “The Moral Consequences of Economic Growth”, Knopf,New York, 20056. European “Monthly Bulletin”, February 2008Central Bank7. Merrill Lynch “European Banks”, October 20078. Merrill Lynch “Investment Strategy”, March 20089. Moss, D. “When All Else Fails: Government as the ultimate risk”,Harvard University Press, 200210. Soros, G. “Soros on Soros: Staying Ahead of the Curve”, Wiley,New York, 199519

Revista Tinerilor Economişti (The Young Economists Journal)THE NECESITY FOR AUDITING THE FINANCIAL-ACCOUNTING ACTIVITYPh.D Student Calotă GeorgeAssist. Ph.D Student Vînătoru Sorin-SanduUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: Many financial-accounting information users mistake internalaudit and accounting. These confusion has, at is basis, the fact that mostinternal audit activities regard financial-accounting information and the factthat most internal auditors have a significant background in fieldsregarding accounting. Although the origins of accounting and audit are notclearly defined they have different application domains. The practice hasimposed the abandonment of the entity’s internal audit correlated with thefinancial-accounting function significance and the growth of its importanceby including the internal audit function in the direct subordination of thegeneral management.JEL classification: M00, M41, M42Key words: audit, system, value for money, performance, financial-accountinginformationMany financial-accounting information users mistake internal audit andaccounting. These confusion has, at is basis, on one side the fact that most internal auditactivities regard financial-accounting information and, on the other side, the fact thatmost internal auditors have a significant background in fields regarding accounting.Although the origins of accounting and audit are not clearly defined they havedifferent application domains.Thus, accounting represents the logical process through which we register,classify and synthesize economical events with a purpose in providing financialinformation for the decision making while internal audit check and analyses theaccuracy and compliance of transactions, the functionality of systems and evaluates theefficiency and efficacy of methods and operational procedures within an entity.The practice has imposed the abandonment of the entity‟s internal auditcorrelated with the financial-accounting function significance and the growth of itsimportance by including the internal audit function in the direct subordination of thegeneral management thus, becoming an instrument in identifying, analyzing andmonitoring risks.Generally, the management it is responsible with the entity‟s continuingregarding its shareholders and any other parties interested in its activity and, thus, it isthe management‟s responsibility for informing with regards to the entity‟s actions,administration and results.Precisely, the main objective of the management process consists in obtaining:20

Finances - Accounting• a pertinent and reliable financial-accounting information obtained byreflecting in accounting all patrimonial operations in accordance with legal andcontractual stipulations and also with good practice in the field;• an efficient and effective usage of the organization‟s resources;• the safeguard of the organization‟s assets;• the identification of all existent risks and the usage of effective strategies forcontrolling them;• the established objectives for operations or projects.1. Internal audit’s role in obtaining relevant and reliable financial-accountinginformationBecause of the fact that the financial-accounting activity represents the mainsource of information for the management it emerges the necessity for the internalauditor to evaluate if, at the financial-accounting department‟s level, there areprocedures, rules or specific regulations that are regarded. The objective of thecompliance programs consists in preventing the production of errors by the personnel,identifying illegal acts and to discourage any malpractice committed voluntarily by theemployed personnel. The importance of these programs has risen following themanifestation of a new trend in the evolution of accounting – the apparition of theconcept of creative accounting.In order to present the notion of creative accounting we consider as beingrelevant the opinion of K. Naser, assumed within the Romanian specialized literature 1 ,under which creative accounting represents:• “the process through which, given the break of rules, the accounting numbersare manipulated and, given its flexibility, there are chosen those measuring andinforming practices that allow the transformation of synthesis of documents from whatthey should be into what managers want to be.• the process through which transactions are structured in such a way that allowthe “realization” of the desired accounting result.”The main techniques of creative accounting can be classified as it follows:• the normative frame and the recognized good practice in the field allow theusage of alternative accounting techniques and methods that lead to the realization ofdifferent results and, implicitly, the obtaining of different images of the financialsituations. For example, in Romania, in accordance with the legal stipulations 2 , theentities absorb tangible assets by using the following depreciation regimes: lineardepreciation, digressive depreciation, accelerated depreciation.• some operations that affect the patrimony require appraisals or forecastsbefore being registered in accounting. For example, the normal use of an asset,established in order to calculate the depreciation, represents a group appraisal realizedby a group of persons (reception committee) entrusted to manage the entity. This1 Feleaga N., Malciu L. – Accounting policies and options, Economic Publishing House,Bucharest 2002, page2 Order of the Minister of Public Finance No. 1752 of 17 November 2005 for the approval of theaccounting regulations complying with the European directives, The Official Gazette ofRomania No. 1080 and 1080 bis of 30 November 2005; Law no 571 of 22 December 2003 –Fiscal Code, The Official Gazette of Romania No. 927 of 23 December 2003, Part I, modifiedand completed.21

Revista Tinerilor Economişti (The Young Economists Journal)appraisal has a subjective character, allows an “optimistic or pessimistic” approach thatcan lead to different representations for the financial situations.• there is a possibility for realizing artificial transactions in order to influencethe value of patrimonial elements within the balance and to obtain a certain result forthe financial year. For example, specifically for the entities within the transportationdomain, at the end of the N time management it is proceeded to registering within theaccounting the “remaining tank” through the cancellation of unused fuel expenses and,at the same time, to the immediate retrieval of the sum for the beginning of the N+1period, by resuming the fuel expenses. The value of the cancelled fuel usage can begreater or lower than the real value of the “remaining tank”.• the moment for realizing some transactions it is carefully chosen in order togive a certain image within the accounts. For example, an entity owns a tangible assetwith a value that hasn‟t been updated of 300 square meters, but has a fair market valueof 400 square meters. The entity‟s management will decide to sell the property in theyear in which it will increase the result.Regarding the possible malfunctions that an auditor can encounter in practicefollowing the usage of creative accounting techniques, we present, as it follows, someexamples identified initially by O. Amat and J. Blake and published in the paperwork“Contabilidad creativa” and that later have been assumed in the Romanian specializedliterature 3 :• the increase or diminish of expenses. The accounting norms leave a certainmargin of maneuver in quantifying the expenses that emerge following a financial year.For example, for certain assets we point only the maximum number of years in whichthese assets must be depreciated. O larger or smaller rate of depreciation affects the sizeof the exercise. Similarly, we can analyze the provisions and the possibility ofactivating certain expenses.• the increase or diminish of revenues. In certain cases, we can accelerate or notthe recognition of revenues by applying the prudence principle or the matchingprinciple regarding the connection of expenses and revenues.• the increase or diminish of assets. The existence of flexibility with regards tothe depreciation and provisions calculation creates the possibility for increasing ordiminishing the assets‟ net value. Also, stocks can be evaluated through differentmethods and, as follows, their value can be different with effects in the profit/lossaccount.• the increase or diminish of the owners‟ equity. The modification of revenuesand expenses affects the size of the exercise and, in consequence, the size of reserves. Itmodifies, also, the value of the owners‟ equity and all the rates calculated on it.• the increase or diminish of liabilities. In some countries, the accounting normsallow the possibility to regularize certain liabilities such as those regardingcompensatory salaries under the conditions in which employment relationship endsbefore fulfilling the retirement conditions (length of service and/or age) in a period oftime. As follows, an enterprise interested in increasing the result of the financial yearwill proceed to the distribution of liabilities within the maximum period allowed.• reclassification of assets and liabilities. In some cases, there are certain doubtsregarding the localization within a certain accounting element or another. This is the3 Feleaga N., Malciu L. – Accounting policies and options, Economic Publishing House,Bucharest 2002.22

Finances - Accountingcase, for example, for shares that, with respect to the enterprise‟s intentions, must beenlisted in current assets or non-current assets.• manipulation of information within the annexes of the financial situations.Lack of relevant information can affect the external users‟ decisions.• the presentation of information. The criteria used in presenting accountinginformation can represent a way to exhibit creativity.Often, the entities take advantage of the breaches within the existing norms andtheir flexibility in order to manipulate published information. Even if, in reality, there isa clear delimitation between creative accounting and breaking the law intentionally,both phenomena are present under the conditions in which most economic entities aredealing with financial difficulties.Analyzing the data presented above we can extract the idea that the necessityfor evaluating the financial-accounting activity by the internal auditor has, as a basis,the management‟s need to obtain a reasonable assurance with regards to the patrimonialentity‟s compliance with the following principles:• the systematic and chronological registration of the patrimonial operations;• the completion of accounting registers;• the existence of assets and liabilities and the confirmation that they belong tothe entity;• the compliance with the legal stipulations with respect to the accomplishmentof the patrimonial inventory;• the pursuit of the patrimonial entity‟s debts, obligations, revenues andexpenses;• abiding the professional codes;• preparation and publication of financial statements in accordance with theNational and International Accounting Standards.2. The necessity for evaluating the financial-accounting systemIf in the previous chapter we presented the importance of the financialaccountinginformation auditing seen in terms of final goal, respectively the relevanceand reliability of financial-accounting information, this chapter wants to be thepromoter for the aspects regarding the need to analyze the financial-accounting activityas a whole, organized and integrated by elements and sequences of events that arecombined with the purpose for obtaining the predefined objectives and to realize thenecessary results. Considering those previously found, the financial-accounting activityrepresents a system. Although in the specialized literature, the notion of a financialaccountingsystem has gained different definitions, we consider relevant the opinion bywhich it represents the overall of methods, procedures, human resources and technicalmeans of governance, registration-processing, transmitting and preserving data andinformation regarding the activity and the environment in which the system functions.At the basis of the financial-accounting system it stands a series of rules,principles that has to be known by both the persons that use the system and auditors:- the entire activity of the entity represents a system made from many systemsand one of these systems it is the financial-accounting system.- in turn, the financial-accounting system it is made up from smaller systems;- the systems don‟t function on an isolated basis, they are connected andinterfaced with other systems – it has an environment;23

Revista Tinerilor Economişti (The Young Economists Journal)- the results of a system represent inputs for other systems, a reason for whichthe other systems have interested factors;- for each level of the system there is designated a person responsible;- each system will have boundaries and coverage within these boundaries.In our opinion, the financial-accounting system must comprise the followingelements (table no. 1):• objectives and targets clearly and unitarily defined;• clear policies, regulations, standards and procedures;• its own organizational structure made up of numbers, roles, responsibilities,authorities, behaviors, abilities;• the necessary infrastructure and other resources such as offices, computers,communications, information, budget etc.;• corresponding processes, correctly controlled;• corresponding interfaces and the coordination with other systems.Table no. 1. Filing systems suppliersThe system’s objective: The correct payment of suppliers for the services provided/goodsdelivered at the given date.No. Stage The stage’s objective/objective for control1. Setting the objectives and theperformance indicators2. Setting the laws, policies,regulations, standards andprocedures3. Setting the organizational structure:personnel, infrastructure, training etc4. Identification of suppliers that mustbe paid5. Establishing the entity’s debts inaccordance with provisions of thecontract/Note order6. Setting the increases for delays andcommercial deductions7. The calculation of the total debt foreach supplier8. Estimation of the entity’s total debtand the disposal of money24Assuring the existence of a clearly defined andcommunicated objective and, also, the existenceof the corresponding performance indicators andthe fact that they assure the achievement of theentity’s objectives.Assuring the fact that there are sufficient andupdated regulations and policies, that they are inaccordance and complementary with otherregulations and policies within the entity, that thelegislation and the good practice in the field areapplied and that procedures are adequate andappropriate for the users’ needs.Assuring the fact that the personnel is correctlysized and qualified, with roles, responsibilities andlevels of clear authority, that the availableinfrastructure is adequate and functions on thebasis of economy, that there is a budget and it isavailable.Assuring the fact that payment is made to allsuppliers that have provided services and havedelivered goods to the entity.Assuring the fact that all debts are correctlyestablished.Assuring the fact that commercial deductions andincreases for delays are in accordance with thelaw, authorized and correctly completed.Assuring the fact that the total debt is correctlycalculatedAssuring the fact that the total debt it is correctlyand in good time predicted, that money are turnedto account completely and in the right accounts.

25Finances - AccountingThe system’s objective: The correct payment of suppliers for the services provided/goodsdelivered at the given date.No. Stage The stage’s objective/objective for control9. Payment The payment is complete, correct, realized ingood time and safely.10. Paying taxes and submitting thestatements.Assuring the fact that all deductions are complete,realized in good time and safely by the properauthorities together with the correspondingdocuments.11. Updating the registrations Assuring the fact that all registrations are correctlyupdated, completely, in good time and safely, withall necessary authorizations12. Monitoring and revising thecompleteness and accuracy of theprocess.Assuring the fact that the registration process forsuppliers it is monitored and revised regularly inorder to assure that the processing it is completeand correct and, also, that the suppliers’registration system functions on economy andefficiency principles and that the objectives andindicators are achieved.The ground that stood at the basis of the audit‟s orientation in time for thisapproach resides in the fact that along with the system‟s audit, the internal audit canform an opinion regarding the good establishment and proper functionality of it.Carrying out an internal audit mission involves, generally, the direct testing of a sampleof transactions in order to obtain the necessary objectives. Nevertheless, the magnitudeof the test can be diminished when it can be depended on the internal control systems,where it is possible and economic. The audit‟s approach toward the system starts with adetailed examination and with the testing of the design and functionality of the internalcontrol systems implemented by the audited structure in order to obtain the proof oftheir functionality.The internal control systems are systems implemented by the management inorder to assure:• the achievement of their objectives in an efficient and effective manner;• the adoption of external rules (laws, regulations) and governance policies;• safeguarding the patrimony and information;• preventing and detecting frauds and errors;• the corresponding quality of the accounting registers and the elaboration offinancial and management information in good time.If the testing reveals the fact that the systems are well designed and function inan effective manner, then the quantity of transactions subjected to direct testing in orderto achieve the audit‟s objectives can be diminished. After the completion of the auditmission, the audit team composes the internal audit rapport in which it presents thefindings in a detailed manner. This detailed presentation of findings it is signed by allthe members of the audit team that have a responsibility over the respective auditmission and it is, then, submitted to the audited structure. System audit it is also usedwhen auditing the soundness of the financial management systems because it presentsthe advantage when assuring detailed observations with regards to the internal controlsystems allowing, in a systematic manner, the identification of their weaknesses and theformulation of proposals for improving the situation.

Revista Tinerilor Economişti (The Young Economists Journal)3. The role of internal audit in the optimization of resources’ consumption (value formoney)Internal audit offers a special attention in giving an added value to the financialmanagement through the audit work submitted, through the simple outline ofweaknesses but mostly through the identification of ways in which entity‟s resourcescan be better administrated.Following this logic, the internal auditor within an internal audit missionregarding the financial-accounting activity must evaluate if the resources allocated tothe financial-accounting system are administrated in an economic, efficient andeffective manner, offering an added value to the economic entity. Such audits areknown under the name of performance audits or “value for money” audits (VFM).What was presented previously can entitle us to accede to those opinions thatdefine audit regarding the optimization of resources (VFM) as it follows: “anindependent appreciation for management‟s performances in its approaches for aneconomic, efficient and effective usage of available resources”. Compared to the abovewe can conclude that the objective of a performance audit for the financial-accountingactivity resides in evaluate to degree in which the principles of good financialmanagement respectively economy, efficiency and efficacy are applied inadministrating the allocated resources at the financial-accounting level. Internalauditors, when develop a performance audit mission, have two possibilities forapproaching the solidity of the financial administration systems keeping in mind thesubject that is subjected to the audit and the involved risks.The first approach regards the manner in which expenses are administrated and,in particularly, the measures taken for obtaining an optimal usage of resources. Thisthing involves the evaluation of the approach assumed by the management, the systemsused for assuring the achievement of this objective and, also, the testing of the assumeddecisions. The audit forms a conclusion over the manner in which the approachassumed by the management has the capacity to assure an optimal usage of resourcesand, if this doesn‟t happen, what are the methods for improvement. The secondapproach includes an evaluation for the achievement of the objectives for a certainprogram or project and the value obtained by it. This process involves an examinationof the achievement of the objectives and of the manner, in which this objective has beenaccomplished, the expenses involved and, also, an evaluation for the volume ofresources used in order to establish if the minimum quantity of resources has been usedto obtain a certain result. The audit forms a conclusion with regard to the optimal usageof resources within the program and, if this thing it is not realized the methodsnecessary for improving the situation.Synthesizing the above we reveal the fact that, following a performance audit,the internal auditors, on the basis of their professional reasoning, can establish if:• at the level of the financial-accounting system it is beard in mind theachievement of results and measurable objectives that will allow the achievement of theproposed objective;• at the level of the financial-accounting system there are systematicallyplanned on the short and long term the realization of objectives;• the financial-accounting compartment measures continually its performanceby monitoring and quantifying inputs from the processes, results and impact;• the financial-accounting plans are implemented in practice;26

Finances - Accounting• the management of this structure monitors periodically its performance andanalyses the motives that have determined the registered abnormalities within theprocess of realizing the planned tasks and targets;• the management of this structure identifies the possibilities for improving theperformance, establishes its priorities and elaborates a plan for implementing them.Also, on the basis of these observations, the internal auditors offerrecommendations regarding:• the improvement of the compliance with laws and regulations;• the reduction of risks based on errors and irregularities;• the improvement of the manner for organizing the entity‟s activities and itsinternal control systems;• the increase of transparency for the entity‟s actions through the improvementof methods and accounting procedures;• the achievement of the established objectives through the entity‟s policy in amore efficient and effective manner.Concluding, on the basis of the presented aspects, we emphasize the idea that atthe basis of the necessity for auditing the financial-accounting activity stands themanagement need for information, a necessity that, in time, has evolved as it follows:• initially, the entity‟s managers demanded the audit for the financialaccountingactivity in order to obtain an assurance over the reliability and accuracy ofthe financial-accounting information presented in the financial situations and theircompliance with national and international accounting standards;• subsequently, as the economic thinking evolved, managers felt the need toobtain an assurance over the fact that the financial-accounting activity it is regarded as asystem works and that at this system‟s level the internal control instruments have beenestablished and function in order to assure:a) the abidance of laws, rules and contracts;b) the reliability and integrity of the operational and financial information;c) the safeguard of patrimony and information;d) the reliability of the financial-accounting informatics system;e) the prevention and detection of fraud and errors.Nowadays, at the management level, along with the need for all the informationpresented above, there is also the need for information with regards to the economy,efficiency and effectiveness for the usage of the allocated resources for this activity inorder to obtain the proposed objectives.REFERENCES1. Arens, A.Audit – an integrated approach, 8 th edition, Arc PublishingHouse, Chişinău, 2003Loebbecke K.2. Bertin, E. Audit interne – Editions d‟Organisation, Paris, France, 20073. Ghiţă, M. Internal audit – 2 nd edition, Economic Publishing House,Bucureşti, 20094. Morariu, A.Suciu, Ghe.Stoian, F.5. Renard, J.Chaplain J.M.Internal audit and corporative governance, UniversitarăPublishing House, Bucureşti 2008.Theorie et practique de l‟audit interne, 6 eme edition, Editionsd‟Organisation, Paris, France, 2008.27

Revista Tinerilor Economişti (The Young Economists Journal)6. *** Professional norms for internal audit, published by TheMinistry of Public Finance, Bucureşti, 2002.7. *** Order of the ministry of public finances no. 38/2003 for theapproval of General Norms concerning the practice ofpublic internal audit activity, Romania's Official Gazette no.130 bis/20038. *** The Chamber of Financial Auditors of Romania‟s Decisionno. 88/19.04.2007 for the approval of the internal auditNorms, Romania's Official Gazette no. 416/21.04.200728

Finances - AccountingMANAGEMENT OF BANKING RISKS: ROMANIAN BANKS VERSUS EUROPEAN BANKSAssist. Ph.D Manta Alina GeorgianaUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: The role of the banking system as essential link the savinginvestmentprocess makes of its stability a priority on the agenda of thepublic authorities. One of the major objectives of a central bank is toprevent the risk by promoting an efficient bank monitoring, which shouldcontribute to the achievement of the stability and viability of the entirefinancial system. Thus, the central banks developed methods andprocesses for the continual supervising and evaluation of the banks –premises of the prevention of the apparition of a great variety of bank crisisor other unpleasant surprises regarding the entities of the banking system.JEL classification: G21, G24, G32Key words: model, banking risk, trend analysis, rating systemIntroductionThe bank activity involves risks which are manifested at the level of each bankentity, but which can be transmitted in the entire bank system or, in the case of theinternational/transnational banks, in more bank systems. The banks pursue the reachingof some objectives that are many times divergent, in that they use specific instrumentsboth in order to raise its quota on the market, and also to attract available capitalsnecessary to the performance of some speculative transactions.On the other hand, the changing environment the banks operate in, marked bythe increase of the volatility, the internationalization and the liberalization of thefinancial markets increased the effect of contagion, as it was proven by the propagationof the effects of the financial crisis on the entire world bank system. These eventsdetermined the supervising authorities to pay an increased attention to the financialrisks and, implicitly, to the administration of the systemic risk.The models used in the global appreciation of the banking risksIn order to prevent the systemic risk, in order to assure the stability and the viabilityof the entire bank system, the monetary authorities developed systems of monitoring theactivity and the results of the banks. All the bank systems have at least an authority ofregulation and supervising, which have responsibilities, powers of regulation andimplementation of the different assumed decisions. In most of the bank systems, theregulation and supervising authority goes to the central bank. In order to be efficient, thesupervising authorities must rejoice an appropriate implementation power and an adequate29

Revista Tinerilor Economişti (The Young Economists Journal)degree of autonomy, most of the times they having to resist the pressures exercised by thegovernment, banks, stock holders, deponents or creditors.The supervising authority normally uses a top down approach that is focused uponthe evaluation of the manner the banks identify, quantify, administrate and control the risks,and as it is the case, establish a diagnostic for the observed problems. In the practice of thebanking supervising, directed towards the evaluation of the risk and the identification of thepotential problems that can affect the bank system, the authorities use instruments andprocedures of global appreciation of the bank risks, known as warning in time systems. Themost known supervising system of the bank rating is the CAMEL model, used in USA.Thus, Federal Reserve Bank evaluates the banks thanks to a category of performancesincluded in the CAMEL system (acronym formed of the names of the composing elementsof the process of examination of the safety and solidity of the banks – solvability, thequality of the assets, the management, the incomes and the liquidity). Each element isattributed grades from 1 to 5. The banks that have received the grades 4 or 5 are consideredbanks in difficulty, their activity being considered risky and they are exposed to bankruptcy.These are strictly supervised and forced by the bank authorities to optimize their financialbehavior.In the American approach of the risk position of a bank, the bank performanceis defined by solidity, given by an appropriate adequacy of the capital. The managementof the bank and the profitableness (which is the purpose of each bank) are notobjectives of the Central Bank, being considered the most efficient means ofminimization of the risks and covering of the exposure to the risk.The analysis systems of the financial indicators based upon the prudential normssuppose the monitoring and the analysis of the main economical-financial indicators of abank institution: the adequacy of the capital, the liquidity, the exposure to a single debtoretc. and in case they exceed the established limits, the supervising authority interferesaggressively.The comprehensive methods of evaluation of the bank risks suppose anevaluation of the risk profile of the bank through the quantification of all the risks thatcorrespond to every activity treated distinctively and the attribution of certain scores forevery activity. The cores are afterwards aggregated so that the final score of the bank asa whole is obtained.The statistic models have the advantage that they identify those risks that havethe greatest possibility to generate situations adverse to the bank, based on the previsionof the probability of the future evolutions. These models remove all the disadvantagesof using the static models in an economy characterized by dynamism. The most usedmodels are the ones which estimate a probability of a decrease of the grade held by thebank, predict a supervising incapacity or estimates potential losses which can induce,under extreme conditions, banking bankruptcies. The misfit of these models stands inthe fact that they suppose the existence of some considerable historic registers, so thatthe solutions prove to be veridical. At the same time, the solutions of the models dependon the right choice of the variables upon which the provision is made.The bank rating and early warning system used by the National Bank ofRomania is CAAMPL. This was implemented in 1999 in order to promote an efficientsupervising, aligned to the international practices and standards. The fundamentalobjective of the supervising system is the identification initially of those banks that areconsidered inefficient, according to the evaluation criteria of the financial and30

Finances - Accountingoperational aspects established by the monetary authority or manifest adverse trends,requiring a special supervising.The components of analysis of the CAAMPL system are: the adequacy of thecapital (C), the quality of the assets (A), the quality of the stock holding (A), themanagement (M), the profitableness (P) and the liquidity (L). In determining the composeddegree of classification, from the five elements, four are analyzed in accordance to a seriesof indicators, each bank being attributed a composed rating and a final score, which reflectsthe total of points given to the indicators which define the CAAMPL components (thebanks are classified into five categories, the superior level being represented by the rating1). The final grade is obtained by summing the value of the rating for each indicator, towhich is added the value of the rating for the components “the quality of the stock holding”and “the quality of the management”.From 2004 BNR has modified the modality of evaluation of the management ofthe banks by using some models of evaluation of the risks of the scorecard type whichallow the calculation and the attribution of a grade for each component of themanagement system: the planning, the monitoring, the control, and the evaluation.These data-processing applications have been possible as a consequence of accessingthe PHARE financing funds and the consultancy offered within these projects. From2005 BNR has modified the approach in the evaluation of the L component, so that itwould quantify the capacity to plan, monitor and control the bank risks, to evaluate theadequacy of the internal audit systems.The rating system used by BNR is submitted to a continuum process ofperfecting, imposed by a multitude of factors, of which we mention: the evolution ofthe national economy, the evolution and the vulnerability of the bank system, thenecessity of the harmonization of the bank legislation to the international standards. Forinstance, upon the liquidity problems the Commercial Bank Unirea, Eurom Bank (e.g.Dacia Felix) or Bancorex dealt with during 1998-2000, the National Bank of Romaniaincluded two essential components (the quality of the stock holding and themanagement) and improved the liquidity component (2001) by determining theliquidity index as report between the effective liquidity and the necessary one.In order to consolidate the supervising activity which allows bnr to plan,monitor, control the bank risks and also to evaluate the quality of the informationalsystems at the level of each bank, the banks rating system caampl includes a newcomponent the market risk sensitivity (s). This one evaluates the market risk and the firstsimulation of this component was achieved on june 30th, 2004. According to the theoreticmodel, the banks were submitted to some interest rate shocks consisting in the modificationof the interest rate by four percents for the national currency and tow percents for the uniqueeuropean currency and the american dollar. The scenario was chosen so that it wouldgenerate a loss at the level of each bank. The conclusion of the simulation was that, despitethe insufficient development of the derived financial instruments meant to reduce themarket risk, most of the romanian banks registered low exposures to the interest rate risk.The weakness of this simulation was the unavailability of some data necessary to theevaluation of the sensitivity for some banks. According to the model, the weight of thequantitative analysis was of 40%, the difference being represented by an analysis ofqualitative type.31

Revista Tinerilor Economişti (The Young Economists Journal)Modern Approaches Of The Global RiskThe supervising authorities, and also the theoreticians pay nowadays a specialattention to the macro prudential analysis in order to evaluate the vulnerability of the banksystems to shocks. The novelty of this recent approach, consecrated at the end of the 90‟s,of the last century consists in the fact that the systemic risk is analyzed from the perspectiveof its interaction to the real economy, the focus of the supervising activity being on thecontamination risk and the mutual exposure of the banks to macroeconomic shocks. Weassist thus, to the minimization of the factors specific to each bank that can have an adverseevolution and can amplify the exposure to risk.Practically, this approach uses aggregated macro prudential quantitative indicatorsat the level of the bank sector (liquidity, adequate capital, the quality of the assets) andmacroeconomic indicators (the GIP level and dynamics, the evolution of the inflationistprocess, the policy of the incomes, etc.) which concur to the establishment of the interactionbetween the real sector of the economy and the health of the bank system. The macroprudential analysis frame is complete when in the model are used data regarding the entirefinancial system and there are used techniques of the stress tests type.We consider that the efforts of applying are considerable and the success of thistype of analysis depends on the degree of integration of the financial system in everycountry and on the creation of some international standards so that this demarche isunitarily implemented.The decision of the Administration Council of BNR from October 2004 throughwhich the Direction of Financial Stability is created, having a role in the elaboration ofsome representative financial stability indicators for the supervision of the nationalfinancial system and to assure their international comparability, denotes the fact that themacro prudential analysis is agreeable by the monetary authority from our country too.The problem will be difficult, considering the structure of the Romanian financialsystem, and also the total liberalization of the capital account, which will impose theCentral Bank the enforcement of the supervision process for the assurance of thestability of the bank system.Usually, the authorities use more warning in time systems, precisely to assure ahigh efficiency of the supervision. The Committee from Basel through the New Basel IIAgreement set the basis of the consolidated supervision, considering the transnationalcharacter of the banks. Thus, the authority from the origin country must supervise, on aconsolidated basis, the banks form the host countries, which do not exclude thecompulsoriness of the banks from the host country in respecting the prudential normsspecific to the banking market where they operate. The banks reciprocally supplythemselves information regarding the management and the stock holding of these creditinstitutions, especially as far as the liquidity, the solvability the scheme of guarantying thedeposits, the limitation of the great exposures, the accounting procedures and the internalcontrol mechanisms are concerned.Therefore, at the same time with the exposure of our country to the EuropeanUnion, the National Bank of Romania became a member of the European System of theCentral Banks, quality in which it is represented in all the its work structures. Thisrepresentation supposes the participation to the regulation process at the level of theEuropean Union which is developed on four work levels.Among the main benefits of this process we can find the increase of the speedof adopting the decisions by delegating the components of technical regulation to theSpecialty committees and the possibility of reaching in time the convergence in the plan32

33Finances - Accountingof the supervision practices at the competent authorities from the E.U. Among theactions taken by BNR in order to reach the convergence in the plan of the practices ofsupervision of the banking activities we can find:I. The adapting of the reporting system of the credit institutions at the COREPrequirements - Common Reporting – standardized frame of prudential reporting in theEU – and FINREP - Financial Reporting – standardized frame of financial reportingused by the prudential supervision authorities from the EU – through the configurationof their reporting forms and their integration in the reporting electronic system of BNR.II. The use of the recommendations elaborated by the Committee of theEuropean Bank Supervisors (CEBS).III. The signing of ten bilateral memorandums with supervision institutionsfrom the original country of the financial groups present on the Romanian market forthe flexibility of the exchange of information necessary in the achievement of anefficient supervision.IV. The participation to the information exchange with the supervisors fromSouth-Eastern Europe by constructing a regional platform, as a consequence of thedominant role the subsidiaries of some foreign banks play in the financialintermediation of this region.V. The promotion of a mutual supervision through the participation to twinningprograms, professional training seminaries, bilateral meeting between BNR assupervision authority from the host country and those from the origin country, such asBanca d‟Italia, Austrian Financial Market Authority and Austrian National Bank,Hungarian Financial Supervisory Authority and Bank of Greece.Management of banking risks in RomaniaThis paragraph focuses on the types of banking risks for theory and practice ofbanking in Romania thus catching particular aspects worthy to note. To counteract anyadverse track of bank risk, it is underlined the importance of prudential supervision andsteps to improve procedures for risk based supervision.The analysis of risk management in the Romanian banking system reveals thefollowing aspects (as seen in the table no. 1):1. Thus by the promoted policy, the central bank has created a sectorcomposed of banks becoming more powerful, able to provide financial intermediationbased on efficiency, the private banking segment becomes predominant. Increase theshare of banks with majority foreign capital is beneficial consisting in the form ofincreased competition in the banking system, with a possible positive impact on interestrates on loans, but can occur adverse effects, whereas, by accessing external funding orgrant credit in foreign policy promoted by the central bank money are those segmentsless effective;2. Also risk exposure to the banking system may be highlighted and theevolution of the main financial indicators and caution that bank reveals the followingaspects:1. A substantial improvement of the two indicators of profitability ROA andROE, during 2004 to 2008. In 2004 and 2005 return on assets was much lower than inthe previous year, profit is generated by an exogenous factor, the intervention rate ofthe NBR. Also increase banks' profitability has been boosted by a capitalization processthat allowed the aggressive expansion of business segments (including the sheet) andtreasury products and providing solutions to modern risk management for customers;

Revista Tinerilor Economişti (The Young Economists Journal)2. Solvency experienced a slight decrease since 2004, but does not mitigatethe problem of credit, but: reduced oscillation around 20% were due to the influencethat could NBR rules determine the banks to be more careful in lending to population;3. During the period 2004 -2007, the “bad loans reported to total assets”, ismaintained at normal levels, sub unitary, specific to any banking system. But in 2008,based on the financial crisis, the recorded values were over the unit;4. Liquidity risk in Romania is high, well above minimum required levels (in2007 was 2.15). Financial institutions sector non-banking (IFN) is underdeveloped, buthas a considerable potential for growth. Systemic risks are low, given the small size ofthe sector;Table no. 1 - The evolution of risk indicators in Romania (National Bank ofRomania, Annual Reports 2004 – 2008)Indicators 12/31/ 12/31/ 12/31/ 12/31/2004 2005 2006 2007Crt.no.12/31/20081 Solvency report (>8%) 20.6 21.1 18.1 13.78 12.342 The ratio of the own capital 8.88 9.13 8.26 6.78 -3 The general risk ratio 46.83 47.61 53.01 56.94 50.744 Overdue and doubtful credits / Total credits 0.29 0.26 0.20 0.22 0.35(Net value)5 Overdue and doubtful credits / Total assets 0.18 0.15 0.14 0.17 0.31(Net value)6 Overdue and doubtful credits / Own capitals 2.05 1.34 1.54 2.28 -7 The ratio of credit risk 2.87 2.61 2.81 4.00 6.528 ROA (Net profit / Total assets) 1.98 1.6 1.28 1.3 1.669 ROE (Net profit / Own capitals ) 15.6 12.7 10.2 11.4 18.1110 Liquidity indicator 2.28 2.59 2.30 2.15 2.56Dynamic business lending and credit quality indicators - high solvency rate,manageable level of bad loans (less than 1% of loan portfolio of banks) - indicating areduced credit risk to the banking system and a considerable resistance of the shock upto 2007. In 2008, the credit risk increases under the influence mortgage crisis in theU.S.;Operational risk has always been in the attention of banks, being generated inparticular by the gaps of information system, monitoring the loss of customers, largefluctuations of personnel, information on suspicious transactions with possiblerepercussions on the image bank in question;Currency risk is relatively minor when the short-term loans are prevailing,while the medium and long term is provided with a variable interest rate. Meanwhile,interest rates charged by banks is funding risk rate in the event's production. We believethat modifying loans granted in favor of medium and long term and reduce the spreadof interest will lead to another dimension of this type of risk;Risk of contamination on the interbank placements is insignificant whereas theinterbank market were oriented central bank and the adjacent risks (currency risk, riskof interest rate and credit risk) record low. However, it can be said that Romanianbanking system vulnerability to financial risks has been tested by models of stress tests,tests that have stressed the stability of the banking system, an adequate liquidity andadequate capitalization;34

FrantaRomâniaMarea BritanieItaliaFinances - AccountingGradual improvement of prudential banking indicators is the result ofconcentration on the side of the central bank supervision quality and sustained growthsince 2000. Positive trends were sustained and increased capitalization of the bankingsystem and strengthening the position of banks with foreign capital in the bankingsector, although the profitability of assets was in 2004, 2005, 2006 and 2007 muchsmaller than previous year, profit is generated by an exogenous factor - the interest rateof BNR intervention.The degree of correlation between the European management of banking risks and theRomanian management of banking risks through the solvency indicatorWe proposed ourselves to identify any correlation between the development ofthe indicators of solvency (IS) for Great Britain, Italy, France and Romania. To thisend, we introduce sets of data recorded during 1998 - 2007 using the statistical analysisprogram MINITAB. We first determine the trend recorded by the indicator for theperiod specified and based on the deviations from trend obtained we will identify theexisting correlations. Values for the solvency are presented in the following table:Trend Analysis Plot for Marea BritanieQuadratic Trend ModelYt = 0.13812 - 0.00269*t + 0.000163*t**2Trend Analysis Plot for ItaliaQuadratic Trend ModelYt = 0.10508 + 0.00173*t - 0.000163*t**20.1400.135VariableActualFitsAccuracy MeasuresMAPE 2.09743MAD 0.00273MSD 0.000010.1160.1140.1120.110VariableActualFitsAccuracy MeasuresMAPE 3.68375MAD 0.00399MSD 0.000020.1300.1080.1060.1250.1040.1020.12012345 6Index789100.10012345 6Index78910Trend Analysis Plot for FrantaQuadratic Trend ModelYt = 0.10732 + 0.00650*t - 0.000716*t**2Trend Analysis Plot for RomâniaQuadratic Trend ModelYt = 0.0690 + 0.0666*t - 0.00611*t**20.1300.1250.120VariableActualFitsAccuracy MeasuresMAPE 2.14385MAD 0.00252MSD 0.000010.300.25VariableActualFitsAccuracy MeasuresMAPE 10.0906MAD 0.0191MSD 0.00060.1150.200.1100.150.1050.1000.1012345 6Index7891012345 6Index78910Figure no. 1 – Trend Analysis for Great Britain, Italy, France and Romania(results obtained from Minitab)Table no. 2 - The evolution of the solvency indicators (Global Financial StabilityReport, October 2008)Year Great Britain Italy France Romania1998 13.20% 11.30% 10.70% 10.25%1999 14.00% 10.60% 12.70% 17.90%2000 13.00% 10.10% 11.90% 23.80%2001 13.20% 10.40% 12.10% 28.80%35

Revista Tinerilor Economişti (The Young Economists Journal)Year Great Britain Italy France Romania2002 12.20% 11.20% 12.30% 25.00%2003 13.00% 11.40% 11.90% 21.10%2004 12.70% 11.60% 11.50% 20.60%2005 12.80% 10.60% 11.40% 21.10%2006 12.90% 10.70% 10.90% 18.10%2007 12.60% 10.40% 10.10% 13.80%To estimate the trend indicator of solvency, we use the square function at theexpense of the linear function because it confers a high degree of accuracy. The resultsobtained are presented in figure no.1.Based on the results obtained, we identify correlations between deviations indicatorof solvency and trend approximated by a square function in the UK, France and Italy andRomania using Pearson correlations.Correlation coefficient varies between -1 and 1, this meaning that: When approaching -1, the modification of a variable is strongly associated withthe inverse linear change of the other variables; When the correlation coefficient is equal to 0, this means there is no associationbetween changes of the two variables; When the correlation coefficient approaching 1, this means that the modificationof a variable is very strongly associated with linear direct modification of the othervariables.Pearson correlation reveals the following results: Correlations: RESI_UK, RESI_RO: Pearson correlation of RESI3 andRESI10 = 0.098, P-Value = 0.787 Correlations: RESI_IT, RESI_RO: Pearson correlation of RESI5 and RESI10= -0.879, P-Value = 0.001 Correlations: RESI_FR, RESI_RO : Pearson correlation of RESI8 andRESI10 = 0.264, P-Value = 0.461Therefore, one can observe a high degree of inverse correlation between riskmanagement for solvency in the italian banking system and the risk management forsolvency in the Romanian banking system, and direct correlation, but low intensitybetween the risk of solvency of related systems French and British banks and that forthe Romanian banking system. However, since the value p - value

37Finances - Accountinginspection actions which aim for the specific identified aspects or are established thepriorities in the case of the general examinations which are performed on a regulated basis.Thus, the early warning systems of the deterioration of the bank performances allow theimprovement of the efficacy of the bank inspection activity and a better administration ofthe limited resources the prudential control authorities dispose of.Hence, we consider that there are some challenges in the implementation of asupervision process based upon the mechanisms of evaluation of the risk management: The thoroughness of the qualitative aspects of the supervision process,through: a greater involvement of the management of the credit institutions in theprocess of risks administration; the evaluation of the credit institutions is focused uponthe establishment of the risk profile of the institution; the supervision consolidated upona tight cooperation, both between the credit institutions members of the groups, and alsothe corresponding supervision authorities from other countries; The diminishing of the conformity and the achievement of a prudentialsupervision based upon the evaluation of the risks of the credit institutions; The focusing more on the assurance of respecting the principles of corporatistgovernance; The evaluation of the stability, the accuracy and the efficiency of the processof management of the risks of the credit institutions, especially regarding: the quality ofthe strategy of modernization of the risks management; the efficient existence and theof the specialized and managerial support committees; the efficient functioning of anadequate internal control system; a transparent and efficient system of managerialreporting.Therefore, the Basel II Agreement is the most important referential frame in themicro prudential nowadays. In the frame of the new approach, the supervision activityis oriented more and more towards the analysis of the risk profile of the creditinstitution, of the means and instruments existing at the hand of its leaders for theefficient administration of the specific risks. The rating and early warning systems, thestress tests and the ones of interbank contamination represent sophisticated techniquesthat allow the successful achievement of the previously mentioned objectives. Theseinstruments use relevant information on the characteristics of a credit institution and itscounter parties, based upon which a synthetic measure of their performances and/orvulnerability is supplied.On the other hand, the globalized economic and financial system has changedto such an extent that central banks are on their way to becoming irrelevant. We are along way from the supply-and-demand fundamentals of a merchandising economy,which characterized the multinationals in the 1960s and 1970s. As the credit crisis ofJuly/August 2007 demonstrated, rather than central bankers and regulatory authorities,it is the global financial industry that holds the upper ground.After the crisis of the subprimes started to spread to other mortgages, severalexperts expressed the opinion that the globalization of credit risk, and most particularlyof credit derivatives, holds many surprises beyond what is already known. This hasproved to be one of globalization's negatives, as money center banks and other financialentities have been making loans at any level of creditworthiness because that's simplyraw material for securitizing and selling structured products world-wide.Therefore, we agree that there is cost and benefit with global financialintegration, as with any other enterprise. Worldwide access to capital is likely to bringboth advantages and drawbacks. Seeking the benefits of financial integration while

Revista Tinerilor Economişti (The Young Economists Journal)suffering limited costs is an impossible task – because there exist plenty of tradeoffswhich make the choice of a strategy complex and uncertain.One of the ironies is that while the global market has lots of freedom, centralbanks lack the freedom to take necessary measures in a timely manner. Were the West'scentral banks to tighten monetary policy aggressively, they would bring this process ofmoney supply expansionism under control. But aggressive tightening is not feasible atthe time of a major crisis (like the actual global financial crisis of subprimes) because itcould bring the financial edifice down single-handed.Consequently, we believe that while Western central banks lose authority, otherentities are not ready to take their place. For instance, in 2006 and 2007 credit ratingagencies did not act swiftly to downgrade debt. If they had done so, they would haveconstrained households and companies from borrowing too much, as well as havingdiscouraged banks from buying the upper tranche of junk mortgages as Tier-1 Capital.REFERENCES1. Bessis, J. “Risk Management in Banking”, 2nd Edition, John Wileyand Sons, LTD, 20072. Chorafas, D. “Financial Boom and Gloom – The Credit and BankingCrisis of 2007 – 2009 and Beyond”, Palgrave Macmillan,Hampshire, 20093. GiurcaVasilescu, L.4. Opriţescu, M.coordinator5. National Bankof Romania6. InternationalMonetaryFund“Profitability and Risks of the Romanian BankingSystem”, Annual Journal, Faculty of Economics, Skopje,Macedonia, 2008,TOM 43, pp.113-125“Management of Banking Risks and Performances”,Universitaria Publishing House, Craiova, 2006Annual Reports, 2004-2008“Global Financial Stability Report”, 200838

Finances - AccountingENTRY OF BANK FOREIGN CAPITAL IN DEVELOPING ECONOMIES: MEASURING PROFIT &COST EFFICIENCYAssist. Ph.D c. Marjan PetreskiUniversity American CollegeFaculty of EconomicsSkopje, MacedoniaAbstract: The paper aims at acknowledging the efficiency effects of bankprivatization upon the entry of strategic foreign investor. Thus, a broadexperience from the developing countries is reviewed. General conclusionis that the foreign capital infusion improves the profit and cost efficiency ofthe banks. The paper also investigates the various methodologies thatacademics employ when they investigate the topic.JEL classification: G21, L33Key words: Privatization, Foreign capital, Cost and profit efficiency, MeasurementIntroductionPrivatization of state-owned banks in developing countries is an economic andpolitical issue that has being incessantly attracting the attention in the last few decades.As such, it has “grabbed” a considerable sliver of the authorities‟ energy in an attemptto attain better banking system and therefore, faster economic development for theirown country. “Privatization is a process, not an event” (Verbrugge et al, 1999, p.30)and it carries all the risks arising from the question if it has been made in a proper wayand which will be its broader implications.A great stake of the literature focuses on the bank performance onceprivatization process has been carried through. For instance, Beck et al (2005) arguesthat, no matter which method of privatization has been employed, it is expected that thebank privatization will advance bank performance and enhance financialintermediation. However, the evidence from practice is, in a mere, inconclusive.Initially futile, bank privatization in Mexico, say, was successfully completed only afterthe second round of privatization, behind the inflow of the foreign capital (Unal andNavarro, 1999). Yet, this does not apply for the Brazilian privatization route, whichconsidered being merely effective and productive (Nakane and Weintraub, 2005).Additionally, foreign capital entry captures an immense body of the bankprivatization processes in developing countries. The reason for this rests in theconclusion that almost all developing countries opened the doors for the foreign capitalin their banking systems, projecting that it is crucial for better outlook performance oftheir banking system in general. In this line of thinking, Bonin et al (2004)acknowledge the cases of Czech Republic and Poland as feebly successful due to theretention of large shareholdings by the state and dispiriting the doorway for foreigninvestors.39

Revista Tinerilor Economişti (The Young Economists Journal)It is obvious how this flow of thoughts introduces the importance of the stateownedbanks privatization and especially, the influence of foreign capital entry on bankperformance. This paper sheds light on these queries. The remainder is organized asfollows. Firstly, brief remarks are given for why to privatize the banks with foreigncapital. Than the foreign capital entry‟s impact on bank‟s profit and cost efficiency isdeeply examined. Special emphasis in this section is given to the measurementmethodologies of topic‟s study. Finally, the last one concludes the paper.Why bank privatization with foreign capital?The most significant issue when domestic state-owned banks are privatized iswhether the foreign capital entry is a good solution. Academics vastly agree that this isrelated with several positive impacts on the banking system and the economy ingeneral. In favor of these and the following contemplations is the fact that today,foreign banks own over 50% of the bank capital in CEE countries, while in many othercountries this figure exceeds 80% (Uiboupin, 2005).Literature identifies several domains where the influence of the bank foreigncapital is at hand. For instance, Weill (2003) highlights that benefits are twofold: firstly,foreign-owned banks gain benefits from better control from their private shareholders,who, in turn, gives higher operational motives to managers; and second, foreignownership is related to inflow of know-how and improved risk management. Still, thesame author broadens the areas where the foreign capital entry is favorable: strongercorporate governance, higher stock selling price, introduction of operational expertiseetc; in one word, “foreign bank entry has a salutary effect on banking sectors” (Bonin etal, 2004, p.7). Albeit such an optimistic view, Bonin and Huang (2002) warn thatforeign capital entry in developing countries “may be a two-edged sword” (p.1078), asit will augment the performance of the banking system, but will put higher competitiveheaviness on the other banks, thus driving them out of the game.However, a major part of bank privatization literature is purposely devoted toexamining the bank performance and efficiency after the foreign capital has crossed thethreshold - the former measured by relevant accounting ratios, for example, ROA, andthe latter referring to the cost efficiency, i.e. the aptitude to reduce costs at a certainoutput level (Sathye, 2005). It seems that these issues are the main concerns of theforeign investor and that‟s why many academics investigate the pros and cons related tothis topic. Their findings are presented ahead.Measuring the profit & cost efficiency: Does privatization with foreign capital matter?As mentioned above, academics were mainly focused on measuring theefficacy of foreign ownership on bank assets in terms of the bank profit and costefficiency after a large stake of foreign capital has been introduced in. Several studiesexamine this field of academic interest and their findings, as well as the methodologiesthey use are presented below. Yet, the research for the developing and transitioneconomies is limited, probably because of the lack of data concerning a longer period oftime.Besides, all of the obtainable papers follow a unique perception thatprivatization with foreign capital matters, but they trail different approaches a proposthe efficiency determinants, on top of the methodology applied. Therefore, the latter isfurther distinguished in order to accentuate the endeavor of this paper.40

41Finances - AccountingMultiple regression analysis with accounting measuresAn essential sliver of academic research measures bank efficiency past theforeign capital inflow, through a variety of accounting measures, which are furtherconsidered as a pure regression models‟ input.Claessens et al (2001), for instance, investigate the difference between theforeign-owned and domestic banks, extending the work of Demirguc-Kunt andHuizinga (1998; cited in: Claessens et al, 2001). Namely, the latter authors found thatforeign ownership boosts net interest margins and profits in developing countries, butthis does not apply for developed countries. Moreover, Claessens et al (2001) deepenthe areas where the cost and profit efficiency could be measured and for this purposethey use accounting measures, among which: interest margins, taxes paid, overheadcosts, provision for loan losses and profitability. They comprise a vast sample of 80countries‟ banking systems observed in the 1988-1995 period and develop Multipleregression models, where each of these variables is considered as dependent. In otherwords, a selection of variables, among which, the foreign ownership share is consideredto be most important, are regressed on profit and cost efficiency measures.Applying this methodology, these authors set up that in developing countries,banks that possess a major stake of foreign ownership tend to experience higher interestmargins, higher profitability and higher tax payments compared to domestic ones. Inother words, “foreign bank entry is associated with greater efficiency in the domesticbanking system” (Claessens et al, 2001, p.906). Yet, on the other hand, Uiboupin(2005) argues that this conclusion might not hold in transition economies in the shortrun. According to him, taking into account this time preference, overhead costs offoreign-owned banks could be higher, due to the competitive pressure of the domesticownedbanks, as well as due to the new-market-adjustment costs. Hence, cost efficiencycould be achieved in a long run only. It could be inferred that foreign-owned banksundoubtedly perform better; however, the time horizon matters.Majnoni et al (2003) pursue similar approach when they test whether thereliance on striking foreign ownership stake in Hungary is allied with improved costefficiency (as measured by operating costs) and profit efficiency (as measured by ROAand by lending spreads). Over their sample of 26 Hungarian banks lively in the 1994-2000 periods, they chase Multiple econometric regressions, testing whether aforementionedrelationships are statistically robust. However, alike Claessens et al (2001),Majnoni et al (2003) use “a set of efficiency and activity indicators” (p.15), in order tocapture dissimilar facets of cost and profit efficiency. The same applies for theindependent sets of variables, among which, for the purpose of this paper, the mostsignificant are those which measure duration of foreign ownership, foreign managementstyle and investment type. Findings are in line with the general notion that foreign bankownership pursues higher profitability and cost efficiency.But, according to Majnoni et al (2003) this increase is unswervingly dependenton the duration of the presence in a particular country, since a broader interest marginand a wider assortment of financial services could be achieved after a series ofproblems are overridden, later than the foreign stake has taken place. The same appliesfor the cost reduction, after different managerial strategies for achieving cost efficiencyhave been followed. It could be seen that Majnoni et al (2003) involves the managerialefficiency among the measures as well and confirms Uiboupin‟s (2005) conclusions. Asa digression, Hungary first among the transition economies has started the privatizationprocess.

Revista Tinerilor Economişti (The Young Economists Journal)Even though the aforesaid articles are based on the same methodology ofexamination, it could be distinguished how by tracking slightly different approaches, asimilar conclusion is reached: improved bank efficiency, whether it is due to higherinterest margins and lower overhead expenses, at one side, or foreign ownershipduration and management style, on the other.Frontier approaches of measuring bank efficiencyAlike the afore-mentioned methodological approaches, large part of theacademics use Frontier approaches, but they again defer in the range of techniquesproposed. However, although some authors (Berger and Humphrey, 1997) suggest aplenty of frontier approaches (Data envelopment analysis, Free disposal hull, Stochasticfrontier, Distribution-free and Thick frontier approach), the literature available asregards the topic, vastly uses the Stochastic frontier approach with slight modificationsamong.In this line of thinking, after distinguishing the different techniques on duty,Weill (2003), for instance, engages in detailed analysis of the differences in costefficiency between foreign-owned and domestic banks in Poland and the CzechRepublic. For this point, he utilizes a two-step approach, drawing on a sample of 47banks in 1997. He further takes up the Stochastic Frontier approach to estimate theefficiency scores. Following this author, “cost efficiency measures how close a bank‟scost is to what a best-practice bank‟s cost would be for producing the same bundle ofoutputs.” (p.580). Main weakness of this methodological approach is that it emphasizesthe shape of the frontier by spelling out a functional form of the cost function, but, onthe other hand, it allows for a random error, which in turn perks up the estimatedfigures (Weill, 2003). The same author comprises the level of equity in his model, inorder to confine the risk differences. Findings conform to greater cost efficiency forCzech and Polish banks. Namely, the regression of the cost efficiency scores on thenature of ownership demonstrated a positive and significant effect of foreignownership. Furthermore, Weill (2003) elucidates this by the fact of transfer of bankingknow-how and stronger corporate governance.Opiela (2000) uses the same methodological technique to assess the cost andprofit efficiency for the Polish banking sector only (56 banks), suggesting upperefficiency for the foreign owned banks. Also, Ogrodnik (2003) confirms the benefits forPoland from opening the banking sector and consenting to the inflow of foreigninvestments in it.Following this line of thoughts, Kraft et al (2002) examines the Croatianbanking system in the 1994-2000 periods, as well measuring the cost efficiency. Theyalso pursue the Stochastic Frontier approach, but they specifically focus on Fourierflexiblefunctional form, which slightly defers from the other frontier approaches, sinceit “augments the popular translog specification to include trigonometric terms.” (p.6).Further, three indicator variables as determinants of Croatian banks‟ cost efficiency inthe examined period are used, among which, the foreign ownerships counts for theimportance of this paper.Alike the above presented papers, Kraft et al (2002) did not find significantimprovements in the Croatian banks‟ efficiency after privatization. This refers to thedomestic as well as the foreign-owned banks. Several reasons could be argued, butauthors agree that among them, one possible might be “the movement of the frontierdue to the entry of more efficient foreign banks” (p.12). This, in turn, puts competitive42

43Finances - Accountingstrain on the domestic-owned banks, making them less efficient. However, the finalconclusion is that although entered reputable foreign banks possess efficiencyadvantages, they could exploit them properly in a long run only, a notion mentionedearlier.A large fraction of the literature for the topic is covered by Bonin et al (2003).They investigate the bank privatization process and its implications in six relativelyadvanced transition economies: Bulgaria, Czech Republic, Croatia, Hungary, Polandand Romania. In each of them, the investigation focuses on the ten largest banks bytheir asset size, and encompasses the 1994-2002 period. Emphasis is given to theforeign penetration in the banking systems of these countries. The methodologicalapproach is pretty similar to the above mentioned, but they start with “testing fordifferences in means across bank types for several measures of bank performance,including frontier efficiency estimates . . .” (p.5). For instance, when means for variousperformance measures like ROA, net interest margin and commission-to-income ratioare calculated, it could be inferred that foreign ownership counts for improved banks‟profitability. Moreover, the same procedure applies for the cost management, andenhanced efficiency is found. Again, the critical conclusion sheds light on the variety ofefficiency measures discussed previously.What's more, these authors embark on efficiency analysis by computing theefficiency estimates which are upgraded on the Translog profit and cost function –those that were mentioned earlier and which are much-more, standardizedmethodological pattern for examining the topic. However, Bonin et al‟s (2003)approach to some extent adjourns from those present in the literature. That is to say,dummies for countries and years are here built-in, with the intention that the efficiencyscores are corrected for the unchangeable features. Moreover, for the profit efficiencyscores, additional constant is drawn in, in order the net income to be normalized. Allthese and additional detailed features for improved model yielded Bonin et al (2003) tothe conclusion that privatization improves banks‟ performance and that the domesticbanks in which a stake of foreign ownership has been introduced in, experiencemaximization of their value in terms of the ease of attaining cheaper funds. Thesecounts towards the cost efficiency, as well as the enhanced profit efficiency, whichcomes from the broader interest spread, on top of the upgraded technology and newlines of services developed.In addition to the empirical studies discussed in this paper, Megginson (2004)concludes that in developing countries, the indication undoubtedly supports the notionthat foreign bank ownership reliance is being enhancing the profit and cost efficiency.Moreover, Clarke et al (2003) indicates that in the last few decades, foreign ownershiphas largely taken place in Peru, Venezuela, Argentina, Brazil, Czech Republic, Poland,Hungary and Balkan countries, contributing towards building better banking systems interms of the topic explored, and “may well be the default outcome for many nationalbank privatization programs” (Megginson, 2004, p.24) in future.ConclusionThe question that has been addressed in this paper is whether the reliance onforeign ownership in developing countries‟ banking systems, after a privatizationprocess has been tagged along, improves the bank profit and cost efficiency. Afterembarking on general reviews of the more significant privatized banking systems,important conclusions can be reached.

Revista Tinerilor Economişti (The Young Economists Journal)That is to say, almost in all cases, it was found that foreign capital inflowimproves bank efficiency, which embraces broader interest margin, lower overheadcosts, improved managerial efficiency, “ability to access a richer menu of financialservices and … higher quality loan portfolio” (Majnoni et al, 2003) and several smallereffects which count towards the overall efficiency. However, what matters is the timehorizon behind the infusion of the foreign stake, usually represented by the foreignpresence in a particular country.Another noteworthy result from this paper is that notwithstanding themethodological approach in exploring the topic, the same conclusion is lastly drawn.Specifically, these approaches encompass multiple regression models, mean variancesestimations and frontier approaches. Albeit the latter are represented through theStochastic Frontier approach only, still, it appears in a variety of operational forms,ranging from standard translog functions to adding trigonometric terms and dummyvariables for capturing special effects. Nonetheless, what matters is that they all lead tothe same conclusion: improved banks‟ profit and cost efficiency in terms of theacademic topic explored.REFERENCES1. Beck, T.,Crivelli, J.M.Summerhill, W.2. Berger, A.N.Humphrey, D.B.3. Bonin, J.,Hasan, I.Watchtel, P.4. Bonin, J.,Hasan, I.Watchtel, P.5. Bonin, J.P.Huang, Y.6. Claessens, S.,Demirgüç-Kunt, A.Huizinga, H.7. Clarke, G.,Cull, R.,Martinez, P.M.S.Sanchez, S. M.8. Demirguc-Kunt, A.Huizinga, H.State Bank Transformation in Brazil – Choices andConsequences. World Bank Policy Research WorkingPaper 3619, p.1-29, 2005Efficiency of Financial Institutions: InternationalSurvey and Directions for Future Research. EuropeanJournal of Operational Research, 98(97), p.175-212,1997Privatization Matters: Bank Performance in TransitionEconomies. Working paper, New York University, p.1-31, 2003Privatization Matters: Bank Performance in TransitionEconomies. BOFIT Discussion Papers, 2004(8), p.1-35, 2004Foreign Entry into Chinese Banking: Does WTOMembership Threaten Domestic Banks? BlackwellPublishers Ltd., p.1077-1093, 2002How Does Foreign Entry Affect Domestic BankingMarkets? Journal of Banking and Finance, 25(2),p.891-911, 2001Foreign Bank Entry: Experience, Implications forDeveloping Countries, and Agenda for FurtherResearch. The World Bank Research Observer, 18(34),p.25-59, 2003Determinants of Commercial Bank Interest Marginsand Profitability: Some International Evidence. Citedin: Claessens, S., Demirgüç-Kunt, A. and Huizinga, H.(2001) How Does Foreign Entry Affect DomesticBanking Markets? Journal of Banking and Finance,25(2), p.891-911, 199944

9. Kraft, E.,Hofler, R.Payne, J.10. Majnoni, G.,Shankar, R.Várhegyi, E.Finances - AccountingPrivatization, Foreign Bank Entry and Bank Efficiencyin Croatia: A Fourier-Flexible Function Stochastic CostFrontier Analysis. Croatian National Bank WorkingPapers W-9, p.1-17, 2002The Dynamics of Foreign Bank Ownership: Evidencefrom Hungary. World Bank Policy Research Paper,3114(22), p.1-24, 200311. Megginson, W.L. The Economics of Bank Privatization. Working PaperSeries, University of Oklahoma - Division of Finance,p.1-45, 200412. Nakane, M.I.Weintraub, D.B.Bank Privatization and Productivity: Evidence forBrazil. World Bank Policy Research Working Paper3666, p.1-29., 200513. Ogrodnik, M. Bank Privatization with Foreign Capital in Poland –Pros and Cons. Bank I Kredyt, National Bank ofPoland, p.61-73, 200314. Opiela, T. Assessing the Evaluation of Polish Commercial Banks.National Bank of Poland Working Paper no.18. p.1-23,200015. Sathye, M. Privatization, Performance and Efficiency: A Study ofIndian Banks. Vikalpa, 30(1), p.7-16, 200516. Uiboupin, J. Effects of Foreign Banks Entry on Bank Performancein the CEE Countries. Bank of Estonia Working paper,p.6-42, 200517. Unal, H.Navarro, M.18. Verbrugge, J.A.,Megginson, W.L.Owens, W.L.The Technical Process of Bank Privatization inMaxico. Journal of Financial Services Research, 16(3),p.61-83, 1999State Ownership and the Financial Performance onPrivatized Banks: An Empirical Analysis. Paperpresented at the World Bank/Federal Reserve Bank ofDallas Conference on Bank Privatization, Washington,p.1-50, 199919. Weill, L. Banking Efficiency in Transition Economies: The Roleof Foreign Ownership. Economics of transition, 11(3),p.569-592, 200345

Revista Tinerilor Economişti (The Young Economists Journal)JOINING EURO VERY RAPIDLY – A STEP FORWARD FOR NON-EURO EU MEMBERS ? *Prof. Ph.D Spulbar CristiLect. Ph.D Rizescu SabinLect. Ph.D Stanciu Cristian ValeriuUniversity from CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: Just before the last G20 meeting in London and following thequantitative easing measures taken by FED it has broken into the newsthat, during an internal discussion, IMF raised a really provocative issue:should the non-Euro EU members join the Euro very rapidly?! Consideringthe developing international economic situation we plead that adopting theEuro at a fast pace will be benefic for both sides of Europe: the Westerndeveloped countries and the Eastern emerging economies.JEL classification: F00, F30, F36Key words: European currency, convergence, budget deficit, current account deficitIntroductionJust before the last G20 meeting in London and following the quantitativeeasing measures taken by FED it has broken into the news that, during an internaldiscussion, IMF raised a really provocative issue: should the non-Euro EU membersjoin the Euro very rapidly?!At a first glance, the selected G20 members dismissed or at least played downsuch kind of action. But the question still remains: will be such an action a bad one or agood one?!Considering the developing international economic situation we plead thatadopting the Euro at a fast pace will be favorable for both sides of Europe: the Westerndeveloped countries and the Eastern emerging economies.OverviewWe have to mention first that no one of those emerging economies is in aposition to join the Euro according on the existing criteria. That means that the rules forjoining the Euro should be relaxed. No need to say that the ECB (that was built onBundesbank old tradition) and a good part of the developed Western countries,especially Germany, strongly rejected such kind of action saying that growing budgetdeficits in some of those countries have already damaged the Euro credibility and* This paper is part of the research project” “A model dedicated to forecast the evolution of thereal economy and financial markets system from Romania using concepts from open systemsthermodynamics”, project CNCSIS, type IDEAS, no. 952/16.01.2009 (project manager: lecturerPhD Cristian Valeriu Stanciu).46

47Finances - Accountingadding new struggling economies to the Euro zone will further put pressure on theEuropean single currency.In favor of faster introducing the Euro in the Eastern developing countries wehave to remind the great exposure banking systems like those of Sweden or Austria orGreece have on the Eastern Europe. For example loans made to Baltic States bySwedish banks left them exposed to almost 30% percent of the Sweden GDP. A sharpdecline in these countries‟ currencies would cause huge trouble for the Swedisheconomy. The same kind of situation are experiencing banks in Austria that have lendlarge amounts of money to Romania as well as banks in Greece have done. A currencycrisis in Romania could lead to a disastrous economic situation in Austria and inGreece, too. In this kind of respect, we have to add that, as authors rightfully do remarkin when a lender (a bank, for example) is exposed to a certain group of emergingcountries, when a country of this group might encounter financial problems, thoseproblems could easily spread to the entire group despite the fact that all the othermembers of the group are economically healthy and stabile. Such kind of situationscould far easier be managed if those countries already have been using Euro.In order to avoid such kind of situations adopting the Euro in Romania as wellas in Baltic states seems to be a good solution. And such kind of solution is notimpossible to reach. Emerging economies could very well introduce the Euro withoutbeing “de facto” members of the Euro zone meaning that they will not have sits – yet –at the ECB board.More else, countries like Bulgaria or even Romania that are running significantcurrent account deficits could benefit nicely by introducing the Euro. In this kind ofrespect, on one hand, any currency collapse will be avoided and, on the other hand,those current account deficits will not worsen by adopting the Euro because theireconomies are contracting, jobs are lost and wages are diminishing. In case of Romania,for example, the latest economic developments put this country on the verge of arapidly contracting of its current account deficit as GDP ratio. It could mean a lot interms of the competitiveness of this country as well as in terms of enforcing its financialdiscipline. More else, this ongoing situation could as well encourage foreigninvestments flowing into to Romania both as green field investments and investmentson capital markets.The legislation in emerging economies is still far from what it has to be.Adopting Euro sooner rather than later will push these countries to fulfill the so-called“EU community acquis” and to promote more social justice in their legislation (and weare talking here especially about Romania and Bulgaria). That will ease the wagepressures with good outcome in terms of productivity, competitiveness and will alsoease pressure on their budget deficitsWe don‟t have to forget that the ongoing crisis is due to the so-called cheapmoney policies and the US financial crisis seems to be more like a symptom rather thanthe cause of global problems. The US trade gap has exploded because the credit hasexploded. Once the US trade deficit will start to narrow (and it has already started tonarrow!) this country will borrow less money from overseas and especially from Eurozone countries. This money could (and should!) very well be lend to the Easternemerging European countries in order to keep them grow at a sustained pace andhealthy. Having Euro as currency their credit markets will become more competitive,more transparent because they will be forced to meet those well-known criteria andtheir real economies will have only to benefit. In this kind of respect a healthy growth

Revista Tinerilor Economişti (The Young Economists Journal)in the emerging European economies will stimulate growth in the EU developedcountries as the trade speed between EU partners will start to increase.We have to add to the picture that Europe of our days is a Europe of regionalrandom financial interconnections. And these interconnections do concern especiallythe Eastern European Countries and that mainly due to the huge increase in foreignownership of the banking systems of these countries we‟ve seen in the last ten year orso. In this kind of respect we have to notice that the financial and real economicconnections between Western and Eastern Europe are now stronger and morediversified than ever. And there is no secret that even the IMF has been encouraged andis still encouraging this ongoing situation. The banking systems of Eastern Europeancountries are now far from what they were used to be in late 90s. And what makes themso different from they were, is that foreign ownership are among the highest in theworld (almost 100% in Estonia, almost 90% in Romania and examples could easily goon). In fact, due to this situation, the banking sectors of those countries are quiteunique. We don‟t have to forget that those emerging economies had practically nofinancial intermediation when they started their roads as market-orientated economiesin early 90s. With no internal capital resources, the main engine of growth in theirGDPs was, of course, the consumption that leaded to current account deficits in almostall these countries. The most advanced of them in terms of democracy and economictransparency (Poland, Hungary, Czech Republic, etc.) received, during the 90s, quitenice amounts of western investments, so, they enjoyed smooth and sustainable growth.This situation leaded to a smooth and gradual credit growth in this group of “advanced”countries. No wonder that, when the credit bubble had exploded in late 90s, thesecountries were less exposed to economic excesses than their poorer colleagues coming“from behind” (Bulgaria, Romania, etc.). These countries were, actually, attracted, inthe credit bubble in a very irresistible way. Europe, as an economic entity has to face avery provocative and, somehow, dangerous situation: its poorest members that joinedthe EU in the last wave have the highest levels of average growth in private sectorcredit as ratio of GDP (Estonia 46%, Bulgaria 32.5%, Romania 39.4% versus some oftheir “advanced” colleagues like Poland 16.1% or Hungary 12.1%) during the 2004 –2007 period of time. We have to consider that almost all this credit was driven toconsumption. And we also have to consider that almost all this credit was financed byWestern European banks directly or thru their fresh-acquired local branches. So, noneed to add that the largest current account deficits are to be found in these countrieshaving the highest private credit growth/GDP ratios. Most of credit, in these countries,is Euro-denominated. So, the Western European banking system – or at least asignificant part of it - is directly or via its local branches exposed to those currentaccount deficits. We consider that, introducing Euro sooner rather than later, thisexposure could suffer smooth and well controlled decrease without “currencyaccidents” and without affecting too much the investing activities.More else, the private credit growth in these emerging economies is still highand has to remain high in order to reach some kind of natural saturation in consumptionas well as to reach a new quality in their investment-related activities: diminishing therole of governments in the investment expenditures as part of their GDPs. In this kindof respect, we have to mention that the dependence of non-deposit funding hasincreased significantly almost in all countries of emerging Europe the way that loan-todepositratios have also increased as well ratio between bank credit-to-GDP ratio andbank deposits-to-GDP ratio. And, as we mentioned, before, most of those credits are48

Finances - AccountingEuro-denominated. This situation requires a truly reliable foreign financing. And thisfinancing must be a market-related one. In order to reach such an important but sensiblegoal the emerging economies branches of Western European banking system must todevelop their own independence and must be helped to develop their own relationshipswith the ECB. The fact that not all the Western Europe countries have really bigexposures to the eastern emerging countries could be helpful in order re-think and rebuiltEurope financially. In fact, only Austria, Belgium, Sweden and, maybe, Greeceare heavily exposed but their banking sectors are nicely integrated in the WesternEurope banking sector as well in the world banking sector, while countries likeGermany, France, Italy or even Netherlands have exposures that can be actuallyneglected.We strongly believe that for each an every western bank heavy exposed to theEastern European region the first step could consist in diversifying its portfolio as wellas its assets, in other words restructuring its activity. And this step has to be made byremaining in the region and not by leaving the region. And a quick adoption of theEuro in these emerging countries could be helpful in dealing with these challenges.Of course, skeptics might argue: “ … okay, but how about the budget deficitstarget established at the Maastricht Treaty ?!”. In this kind of respect we have to remindto those skeptics that even Germany and France brought this target. The Maastrichttreaty was held in 1993 in a reviving world economic environment and we are now in2007 and (still) experiencing the worst financial and economic crisis after the GreatDepression of the 30s.Last but not least we have to add that the faster Eastern emerging economieswill introduce the Euro, the greater are the chances for a rapid EU budget convergence.Even Dominique Strauss Kahn, the managing director of the IMF has warnedearlier this year (March 2009) that the main threat for the global economy could comefrom a delay in restructuring of the countries‟ banking systems rather from deteriorationin some specific countries‟ budget deficits. In this kind of respect he avoided to makespecific nominations but almost in the meantime he and some of his fellow colleaguesmade explicit approvals on the US Federal Reserve quantitative easing actions whilerecommending a quick Euro adoption in the Eastern European countries.ConclusionsMaybe some kind of “road map” approved by both ECB and EuropeanCommission for the Eastern European countries having as target quickly joining theEuro by these counties could be nothing but helpful.REFERENCES1. Fota, C. “International Economics”, Universitaria, ISBN 973-742-529-4, 2006.2. Krugman, P., “International Economics. Theory and Policy”, Addison-Obstfeld, M. Wesley, ISBN 0-321-45134-1, 2008.3. Parkin, M. “Economics”, Prentice Hall, ISBN 0-321-42300-3, 2007.49

Revista Tinerilor Economişti (The Young Economists Journal)DEMANDS AND CONTROVERSIES REGARDING THE SPHERE OF INTERNAL AUDIT ACTIVITIESAssoc. Prof. Drăgan Cristian Ph.DAssoc. Prof. Brabete Valeriu Ph.DUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: The sphere of internal audit activities has seen a continuousevolution that has frequently generated debates and controversies amongspecialists. The study realized in this context intends, firstly, a briefoverview of the main stages of evolution and, secondly, it intends tohighlight the pronounced interdependence of the positioning of internalaudit and the nature of the entity's specific objectives and activities.JEL classification: M40, M42, M14.Key words: internal audit, sphere of activity, positioning, specific objectives, auditcommittee, managerial needs.Sphere evolution of internal audit activitiesAs it is known, the establishment of IIA was a significant moment for thedevelopment of internal audit. However, immediately after the establishment of thisprofessional body, the public perception of this activity was the extension of workperformed by external auditors, considering that internal auditors have a relativelymodest role in the life of the organization, having only „a limited liability in the totalmanagement spectrum” 1 .This mentality has persisted for a long time and we believe that it wasmaintained, inter alia, by the placement of internal audit department in theorganizational structure of entities, which in most cases it was subordinated to the chiefaccountant. Concurrently, both in the theoretical and in the practical work, there is quiteevident the confusion between internal and external audit, based on the dominantconcerns of the entities that had as a priority to inspect and to certify the accounts.Even if this subordination limited the internal auditor's work to accountingissues, the fact that he is employee of the unity represented the background for raisingthe interest for all types of operations performed by the unity, increasing its concern tomake them more profitable.Moreover, in economic organizations, it is found an accentuation of thedistance between their management and actual activities, issue that laded to the need todevelop some controls to ensure the management more efficient of the business. In thiscontext, the internal audit has the capacity to complete and to improve the forms ofcontrol established by means of an evaluation carried out independently.1 Moeller, R, and H.N. Witt, Brink's Modern Internal Auditing, 5 th Ed., New York: John Wiley& Sons, Inc., 1999, pag. 73.50

Finances - AccountingTherefore, in order to meet new practical requirements, the regulatory factors,they were concerned about the continued expansion of the activities of internal audit,from the accounting and financial issues to the operational sphere of the entity. Withthis in view, we consider, as a first significant step, the review realized in 1957 by IIA,of the Declaration regarding the responsibilities of internal auditors 2 , which carry theconsiderable expansion of the activities performed by internal auditors for the entity'smanagement, including in their range a number of new services:● the review and the assessment of the validity, of the appropriateness, and theapplication of accounting, financial and operational controls;● the indication of compliance with policies, plans and procedures established;● determining the degree responsible for any losses of company assets, andhow they are protected against assets;● the ascertainment of the reliability of accounting data and other informationabout the organization;● the quality assessment of responsibilities assigned.The process of extending the sphere of the activities undertaken by internalauditors continues depending on the requirements of reality, so that the said document,which is considered a landmark in the field, is subject to a subsequent revision in theyears 1976, 1981 and 1990, showing, once again, the rapid development of the internalaudit profession.The rules adopted by the organisms specialized were accompanied, in parallel,by debates and controversies on the subordination of internal audit function and,concurrently, in terms of a strict definition of the role fulfilled by it in the complexprocess of managing the organizations.Thus, in a first stage, the internal audit department was subordinated to thefinancial Directorate of the entity, which was considered an important step forward,proving its viability, by the fact it is still found in the practice of many organizations.This dependency, which although apparently creates the impression of limiting theexercise of internal audit, provided an appropriate framework for its manifestation in auniversal manner to the entity. It is, in fact, the main motivation for the longevity ofsuch organizational structure.Subsequently, many organizations have considered more appropriate thesubordination of internal audit function to the General Directorate, justifying this by theuniversal character of its concerns, and a series of studies on this subject have pointedout that, in some economic environments, such as the French environment, this trendhas become significant.The latest developments, characterizing particularly the Anglo-Saxon and theAmerican environments, emphasize, however, that the proper exercise of internal auditin operational field, and the support more efficient to the organization management, canbe achieved by subordinating it to the audit committee. Moreover, the supporters of thisapproach argue their opinion affirming that this solution represents also an appropriateway regarding the independence of the function.Delimitation of internal audit position within the entity and the nature of itsspecific objectives2 Statement of Responsibilities of Internal Auditor.51

Revista Tinerilor Economişti (The Young Economists Journal)As mentioned previously, the subordination of internal audit function to the auditcommittee is an opinion shared by a growing number of specialists from which westand, at least because of the considerations observed onwards.In general, if within the board of administration is formed such an auditcommittee is assumed from the beginning a specialization on a separate domain, whichmeans an extra competence and, implicitly, a better understanding of the managedissue.The audit committees consist of independent persons to whom any relationshipwith the entity is prohibited, except that which derives from this quality, which meansthat the work will be characterized by a maximum objectivity. This is absolutelynecessary especially as regards the correct interpretation of recommendations made byinternal auditors and, subsequently, to track their implementation.The use of a common language which represents a considerable advantage toidentify and evaluate the risks to what the organization is exposed, because it is knownthat in this regard, the management has specific ways to solve the issues that,sometimes, can be more difficult to reach by the internal auditors which, in this regard,are at the beginning, using such management techniques from a little time.The IIA Recommendation made by the U.S. Congress in April 2002 3 providedfor all companies listed on stock exchanges, in addition to the requirement of theexistence of internal audit function and the fact that this vests to the audit committee.Also, we notice that the audit committee report is considered by some expertsas a common practice among the most progressive corporations, which aim to achievean adequate structure and control processes, and to develop the internal audit function.In this regard, Mautz & Neumann believe that: “for most persons, the audit committeerepresents a bridge between the board of administrations and the auditors… To fulfilltheir responsibilities to shareholders and the large public, the members of the auditcommittee had become more interested and better informed on issued of auditing. Themanagement has also become conscious of the need to protect itself through a properattention given to internal controls and effective audits. Consequently, it has becomemore receptive to auditors suggestions and to the information requirements of auditcommittees.”Accentuating, also, the importance of audit committees and their role played inestablishing an appropriate relationship between the boards of administration and theinternal auditors, Brink & Witt 4 ascertain that: “in most cases, the internal auditinggroup has gone to very high levels in all operational areas, and has set itself as avaluable part and on top of the organization. Increasingly, the internal auditor servesthe board of administration – usually through its audit committee.”Actually, according to approaches developed under IIA, the internal auditrepresents an independent and an objective activity that gives to an organization theassurance regarding the degree of control over operations; it guides it to improve itsoperations and contributes to adding a value. Also, it actively contributes to achievingthe targets, to manage the risks and the related controls, the business government3The Institute of Internal Auditors (IIA), Recommendations for Improving CorporateGovernance: A position paper presented by The Institute of Internal Auditors to the U.S.Congress April, 8, 2002 (Altamonte Springs, FL: The Institute of Internal Auditors, 2002).4Brink, V.Z., and H.N. Witt, Modern Internal Auditing (New York: John Wiley & Sons. Inc.,1982), pag. 4252

Finances - Accountingprocesses and to increase their effectiveness by making proposals and appropriaterecommendations.As you can see, the internal audit has become the main instrument of the entityin terms of monitoring the risks and ensuring the quality control devices, beingconsidered by many experts a first line player in this direction.Regarding the risks, we can keep in mind that the main steps taken by auditorsare delimited on the following lines of action 5 :● to evaluate the risks existed in the areas subjected to the audit and to reportthe results obtained to management or to the audit committee or to bothstructures;● to develop a plan in order to ensure a systematic evaluation of all the risks towhat the organization is exposed;● to betake the attributions related to risk management activities if themanagement has difficulties regarding the solution of these issues;● to facilitate the risks assessment by self-assessment techniques;● to assess the risks associated to different development projects of the entity,and stop their implementation when they are not controlled to a predeterminedacceptable level;● assistance given to management in order to implement a model of risk withinthe organization.At their turn, the controls imposed on the organization's level represent theobject of the internal auditors concerns in the following activities 6 :● to effectuate conformity tests and to report the finding to the managementand only in special circumstances to the audit committee;● assistance given to management in planning some ample assessments,including control test;● to facilitate the controls understanding and development in the entity'sfunctional areas, using control self-assessment techniques;● to identify significant control weaknesses, including those founded on the topof the organization and to communicate these aspects to the audit committee;● the implementation of computerized testing techniques, such as thecontinuous monitoring of controls or their effectiveness;● assistance given to management in order to elaborate the report regarding theinternal controls effectiveness.With all these issues and the change of views regarding the subordination of theinternal audit department within the entity, becomes a significant ability of internalauditors and principally of the department manager, responding to requests receivedfrom both management and the audit committee. In this regard, the literatureemphasizes the possibility of tensions caused by the fact that internal audit should serveto two masters, which have a different perception, imposed by the specific objectives byeach of them, on how the internal audit function adds value to the organization.Thus, in light of the audit committee, the organization value can be enhancedby improving the quality of all information in its products. In turn, the management ofdifferent hierarchical structures believes that the desideratum mentioned can be5Research Opportunities in Internal Auditing, Edited by: Andrew D. Bailey Jr., Audrey A.Gramling, Sridhar Ramamoorti, IIA, 2003.6Op. cit.53

Revista Tinerilor Economişti (The Young Economists Journal)achieved as the internal audit becomes a factor of change at the operational level. Withthis in view, it is noted that the audit committee members are less interested by theeffectiveness of operations realized at the entity level, focusing more on the opinionsexpressed by the auditors regarding the adequacy of control devices, confirming that thedata provided by managers are reliable, the laws and regulations were respected andalso that the assets are protected. Moreover, the leaders of various hierarchical levelspursue, in particular, that the recommendations received from the auditors to provideopportunities regarding the deployed operations, which principally target the reducingof costs and, implicitly, to encourage the efficiency. They are concerned about thefindings of controls instituted only if they affect it evaluation to the heads of thehierarchy. As such, their priority is represented by the efficient and effective conduct ofoperations they coordinate.Also, we note that, in reality, the beneficiaries of activities performed byinternal auditors are more numerous. In this regard, we consider the external auditors,the suppliers and the customers of the entity and even regulatory factors of variousactivities which, also, have specific information needs.External auditors consider that an internal audit carried out rigorously and thatis characterized by a high quality is a major factor of substantially reducing theextension of their approach, made in order to develop the statement regarding theentity's financial situations.In turn, the entity's customers and suppliers, ongoing analysis of currentcontracts and prospects for joint activities, give special attention to the findings ofinternal auditors of the partner unit regarding the reliability and the security ofinformation provided by the system representing the interface between them and thebusiness partner.In relation to regulatory factors, is known that there are a number of areas thatare characterized by a significant regulation, made by specialized bodies documented,inter alia, by using the results of internal auditors.Some aspects regarding the specific activities of internal auditorsIn literature, are found also opinions that do not agree the execution of someactivities provided by internal auditors. In this respect, it's invoked their compatibilitywith the main services vested to them, representing those offering their endorsement asinsurance. Thus, as it is known, the internal auditors perform consulting services formanagement, which may call into question their role of independent analysts of theeffectiveness of the governance processes of the entity.In such circumstances, we consider that the involvement of internal auditors inconsultancy services is a benefit as they are not involved effectively in theimplementation of the recommendations elaborated. In addition, because the practice ofinternal audit subordination to the audit committee is expanding being imposed as couldbe observed by the regulations issued in this regard, appear the backgrounds throughwhich these experts are kept away from the beneficiaries of consultancy services and,thus are diminished the fears regarding the independence that must characterized them.In the same context, we mention also that similar views were expressed interms of monitoring the activity, sustaining that this is a component of the controlprocesses established within the organization and, therefore, may raise questions aboutthe role of internal audit, which is reflected both in the position of part of controlsystems and the insurer regarding their effectiveness.54

Finances - AccountingIn this case, we consider that the fears expressed are not justified, because themonitoring realized by internal auditors is different from the one made by managersthrough its independent character and, consequently, it provides assurance on theprocesses audited.Also, in the general context of government organization, starting from thepremise that there are more numerous the parties involved in this process, comingmainly from outside the enterprise, there are specialists who believe that providinginternal audit services by external partners (outsourcing) brings more independenceand, thus, contributes more to improving the overall governance process.ConclusionsThe evolution of internal auditing activity aims, at a main landing, the ongoingexpansion of the sphere of action. This trend is favored, significantly, by the position ofthe department within the organization. Thus, the added value conferred to entity byinternal audit can be maximized, among others, by ensuring an adequate subordinationwithin it, which ensures the premises of an effective approach.Concurrently, the activities included in the sphere of internal audit must ensure,through the objectives established, the information needs of managers, of auditcommittees and of all other parties having interests in the organization.REFERENCES1. Brink, V.Z.,H.N. Witt2. Moeller, R.,H.N. Witt3. Monks, R.,Minow, N.4. Morariu, A.,Suciu, Gh.,Stoian, F.Modern Internal Auditing, John Wiley & Sons, Inc., NewYork 1982.Brink‟s Modern Internal Auditing, 5th Ed,: John Wiley &Sons, Inc., New York, 1999.Corporate Governance, Second Edition, BlackwellPublishers, Malden, MA, 2001.Auditul intern şi guvernanţa corporativă, EdituraUniversitară, Bucureşti, 2008.5. Renard, J. Teoria şi practica auditului intern, Ministerul FinanţelorPublice, Bucureşti, 2003.55

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Management – Marketing - TourismTOURISM IN ROMANIA AND EUROPEAN UNIONLect. Ph.D Constantin SandaLect. Ph.D. Lupşa-Tătaru Dana AdrianaTransilvania University of BraşovFaculty of Economic ScienceBraşov, RomâniaAbstract: The tourism is considered by analysts as one of the mostversatile economic sectors and “the most profitable industry of the end ofthe 20th century”. Romania is considered the most valuable and naturalresources gifted country by the countries from central and east Europe,which gives it a great availability for tourism.JEL classification: C10, C41Key words: tourism, Romania, European UnionFrom the bellow figure 1, one can observe that Romanian tourists, between2002 and 2006 had preferred to travel inside the country. Also one can observe thetrend of Romanians to spend the holiday abroad was increasing with 184% in 2006compared to 2002.160014001200100080060040020002002 2003 2004 2005 2006internal tourism actionsexternal tourism actions EUFigure no. 1In top of preferred destination for Romanians there was Greece with 24%, Italywith 14%, Turkey with 11%, Hungary with 9%, and France with 7% and Spain with7%. The countries with less Romanian tourists are: Croatia, Bulgaria and Ukraine.The foreign tourists prefer to come to our country by train but also by plane. InRomanian tourists case there was a strong increasing in traveling by car. Although in2005 there was registered a significant increase of plane travels.57

Revista Tinerilor Economişti (The Young Economists Journal)The aim of Romanians' the trips to EU in 200415%46%Business tripsVisits to frinedsHollidays30%Figure no. 2The aim of Romanians' the trips to EU in 200515%53%32%Business tripsVisits to frinedsHollidaysFigure no. 3The aim of Romanians' the trips to EU in 200610%26%Business tripsVisits to frinedsHollidays64%Figure no. 4As seen in figures 2, 3 and 4, more and more Romanians leave the country forholiday, the percentage being 64% in 2006 compared with 46% in 2004. In 200558

Management – Marketing - Tourismcompared with 2004 the number of the Romanian travelers traveling to friends hadincreased to 32% compared with 30% from all the travels.Inside the country - between 2002 and 2006 - almost 25% of Romanians preferthe seaside and almost the same percentage prefer the mountains. 1% prefers religioustourism and 3% - fluvial cruses.Romanians that travel in European Union for business are less, in 2006 being10% compared with 24% in 2004 from total trips abroad.1000090008000700060005000400030002000100002002 2003 2004 2005 2006the returns of the Romanianvisitors from abroadtotal revenues of householdsFigure no. 5Between 2002 and 2006 the total revenues of the households had increasedwith 110.52%, the number of Romanian tourists that leaved the country had increasedwith 54.6%. In 2006 the number of the Romanian travelers was 8906 thousandscompared with 2002 when the figure was 5757 thousands.Prefered destination of the foreign visitors inRomania1000800600400200seasidebalnearmountainsDanube Delta01 2 3 4 5Figure no. 6The top preferences of foreign tourists were the hotels with 95%, urbanpensions with 3%, and agro pensions with 1%. Also, Rumanians prefer hotels with87%, urban and agro pensions with 5% and 4%.59

Revista Tinerilor Economişti (The Young Economists Journal)The mountain tourism is very dear to foreign tourists, followed by seaside andDanube Delta. In 2005 the number of the tourists was the highest from 2002-2006.In 2002-2007, Romania had 2% from the tourist placements from EuropeanUnion, which is composed by 27 countries, half of the tourist placement beingcomposed by in England (21%), Germany (19%), Italy (17%), the sum being 57%.2%RomaniaEU98%Figure no. 7. The number of turistic placement in EU-Romania, 2002-2006According to “Financial” paper from April 2009, the economic crises affect theRomanians‟ holiday, the number of tourists decreasing. Also, Romanian tourism haddecreased in the last two month of the year, the number of arrivals being with 15% less,compared with the same period of last year. In February, the arrivals had decreasedwith 18.9%, meaning a number of 360000 tourists.Also the number of foreign tourists coming to our country had decreased . InFebruary 2009 both the arrivals and the departures of foreign tourists had decreasedwith 21% and with 10%. Between Januarys-February 2009 most of the arrivalsconsisted of Romanians, meaning 78%. Most of the foreign tourists were traveling toHungary (39.3%), Bulgaria (20.6%), Italy (8.5%) and Germany (7.7%).REFERENCES1. *** http://www.insse.ro/cms/files/pdf/ro/cap20.pdf2. *** http://epp.eurostat.ec.europa.eu/portal/page/portal/tourism/data/main_tables60

Management – Marketing - TourismA COMPARATIVE APPROACH ON THE MOTIVATIONAL DOMINANTS AND PROFESSIONALPERFORMANCE OF THE EMPLOYEES BELONGING TO PUBLIC AND PRIVATE ORGANIZATIONSAssoc. Prof. Ph.D Mitrache MariusPh.D Student Ciorbagiu-Naon RaduUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: The approach on the professional performance of theemployees must be dealt with from the perspective of the process ofmotivation and job satisfaction rising. Therefore, the knowledge and theanalysis of the motivational dominants become increasingly important. Theresearch lead to valid results if there is a clear separation between thepublic and the private organizations; where the way work is organized andthe nature of the relationship among staff, influence the job satisfaction ofthe subjects, including their motivation. A comparative approach based onreliable methodological instruments is necessary, approach which couldlead to obtaining reliable information and could offer an objectivepossibility of correlating indicators, enabling thus the knowledge of themotivation, attitudes, mentalities and professional goals of the interviewedsubjects.JEL classification: A14, J17, I23Key words: motivation, motivational dominant, public organization, privateorganization, professional competence1.1 Research objectives and hypothesis on identifying motivation and performanceStarting from the existing studies and theories in the field of work psychologyand organizational management, regarding motivation and professional performance,this research analyzes the intensity of the motivating factors and job performance of:- employees of a public institution- the University of Craiova- the employees of a private institution- Ford Craiova CompanyThe previous literature, stated the necessity of approaching performance fromthe point of view of a motivational and employee development process as well as jobsatisfaction rising.On this basis, the following hypotheses which guided the present paper wereformulated:I.1. When referring to the activity in a public institution, which deals witheducational services, the intrinsic motivation prevails over the extrinsic one, while theactivity in a private company, which deals with car construction, is dominated by theextrinsic motivation;I.2. In appreciating job satisfaction, different aspects of teaching have differentdegrees of prevalence, and factors such as payment will be low -ranked; whereas, in a61

Revista Tinerilor Economişti (The Young Economists Journal)private company, the factors such as payment are ranked higher than those referring toprofessional development;I.3. In both types of institutions: the public institution as well as the privateone- the way work is organized and the interpersonal relationships influence the degreeof job satisfaction of the employees;I.4. We assumed that both motivation and the job satisfaction are influenced bythe professional performance.The main investigating instruments which highlight aspects related tomotivation, satisfaction and professional performance are the questionnaire, designed inorder to identify the motivational dominants and job satisfaction, and the interview. Theresults of the research emphasize the motivating factors as well as the satisfaction oneswith different prevalence according to the way satisfaction and professional motivation,as well as professional performance are appreciated.Research methodologyThe main research method used is the opinion survey by using thequestionnaire and the interview. We have chosen these research instruments having inmind the idea that these can offer reliable information and the objective possibility ofcorrelating the indicators, making thus possible the knowledge of motivation, attitudes,mentality, and goals of the interviewed subjects.In elaborating the research methodology we had to take into consideration thefact that motivation is a very difficult factor to be measured, since a series of elementsare of abstract and personal nature. We had to take into account the fact that favorableworking environment increases the employees‟ motivation and job satisfaction.Consequently, the research used the two following instruments:1. A self-administered questionnaire (“Motivational dominants”Questionnaire).The questionnaire was filled in by 84 professors and by 84 Ford CraiovaCompany employees. The population of the research sample according to the gendercriteria is the following: 65, 3% female and 34, 7% male (University of Craiova) and72, 6%-male and 27, 4%- female (Craiova Ford Company). The purpose of thisquestionnaire: identifying the teaching staff‟ degree of motivation and performance.„Motivational dominants” QuestionnaireQuestionnaire variablesI. Leadership (the need for power): the desire of influencing the people around,leading them towards success or manipulating them for your self-interest , being aleader, or not, depends on the others (decision making independence)II. Expertise (need for achievement). The tendency or the desire of buildingpersonal prestige, of being considered an expert, a professional, of being “the shadowman” who influences decisions (good relationship)III. Relationship (need for affiliation): the desire the individual feels toestablish and maintain friendly relationships; the desire of working in a pleasant team,with nice people (good relationship)IV. Subsistence (existence needs): the individual has basic needs (rest, stability,money, food, security)ScoringWe sum up the values for each of the items below and we divide it to 8.I. Leadership(the need for power: 1,4,8,9,17,20,24,3262

63Management – Marketing - TourismII. Expertise (need for achievement: 5,10,13,14,18,21,25,29III. Relationship (need for affiliation): 2,7,11,15,23,27,28,31IV. Subsistence (existence needs): 3,6,12,16,19,22,26,30Motivational dominants Questionnaire(Adapted from T. Constantin)This questionnaire aims at identifying aspects related to your professionalmotivation. The data obtained will be used as teaching material that will help analyzethe relationship motivation-professional effectiveness, as well as the relationshipcommunication-motivation. Please read the following statements related to your workcarefully and circle the answer you agree with, taking into account the significance ofeach variant:1 –never agree; 2 – rarely agree; 3 – sometimes agree; 4 –agree to a certainextent;5 – often agree; 6 – frequently agree; 7 –always agree.I am the one who imposes certain dynamics in the group 1—2—3—4—5—6—7I like to work in a united and harmonious team 1—2—3—4—5—6—7I believe that nowadays it is advisable to save money 1—2—3—4—5—6—7I obtain good results when I organize and conduct the activity myself 1—2—3—4—5—6—7I am interested in acquiring the latest information in the field I work in 1—2—3—4—5—6—7I prefer a job that makes me feel secure 1—2—3—4—5—6—7During my professional activity I like to get involved in tasks that 1—2—3—4—5—6—7imply team workIn my domain I consider myself capable of deciding consciously 1—2—3—4—5—6—7I take the initiative when certain changes are necessary in order to 1—2—3—4—5—6—7organize the professional workI consider that what I do must be done with maximum of competence 1—2—3—4—5—6—7and fairnessI like to maintain a pleasant atmosphere inside the group I work with 1—2—3—4—5—6—7It is important for me to have a job that could offer security 1—2—3—4—5—6—7I consider that I must have a series of responsibilities at work 1—2—3—4—5—6—7It is vital for me to know as much as possible in the domain I work 1—2—3—4—5—6—7It is important for me to work with pleasure 1—2—3—4—5—6—7It is important for me that my salary should cover expenses 1—2—3—4—5—6—7I take up responsibilities related to the organization of the 1—2—3—4—5—6—7professional activitiesIt is important for me to solve any problem I deal with 1—2—3—4—5—6—7It is important for me to have some savings 1—2—3—4—5—6—7I have the courage of taking the risk that certain situations imply 1—2—3—4—5—6—7I know my duties very well and I do my best to fulfill them, as 1—2—3—4—5—6—7efficiently as possibleI work better when there are no family problems 1—2—3—4—5—6—7It is important for me to have good working relationships 1—2—3—4—5—6—7I believe I am capable of starting and managing my own business 1—2—3—4—5—6—7In my domain, the decisions must be adopted objectively 1—2—3—4—5—6—7Regular meals and rest are essential to me 1—2—3—4—5—6—7I work better when I cooperate 1—2—3—4—5—6—7I like to work in a friendly environment 1—2—3—4—5—6—7I am capable of analyzing a problem, a situation, weighting its 1—2—3—4—5—6—7advantages and disadvantages

Revista Tinerilor Economişti (The Young Economists Journal)I thoroughly plan my money and my expenses 1—2—3—4—5—6—7I take part in the team work with pleasure 1—2—3—4—5—6—7I am capable of stepping up major responsibilities to a greater extent 1—2—3—4—5—6—7than the othersAge__________ gender_______ Education___________ job___________2. An interview designed for the 84 professors, members of the teaching staff at theUniversity of Craiova, with the purpose of highlighting the causes that led to a certainhigh or extremely low factor of professional motivation.INTERVIEW GUIDE1. Why do you consider having harmonious and good relationships with yourcolleagues motivating?2. Why do you feel motivated to accept such a position?3. Why do you consider the salary and a secure job motivating for your work?4. Why/why don‟t you want to be free?5. What is the most unsatisfactory thing in your manager‟s activity?6. How about your colleagues‟ activity and the relationship you have?7. Are you satisfied or dissatisfied with the organization and communication inyour institution?8. Why do you consider yourself satisfied/dissatisfied with the organization andcommunication in your institution?9. Which of the following aspects do you find more motivating in obtaining jobsatisfaction?- payment- supervising- interpersonal relationships- a secure job- leadership- Working conditions- communication- professional achievement- professional appreciation- promotion1.2 Particularities of motivation and performance for the employees of a publicinstitutionA.1.Results of the research based on questionnaire (Motivationaldominants questionnaire)This questionnaire has four variables and the scores of the subjects for eachitem are calculated in Table 1, where statistic values such as the mean the median, thesample minimum and the sample maximum of the “Motivational dominants”questionnaire are highlighted. These values are presented for each questionnairevariable separately.64

65Management – Marketing - TourismTable no. 1. Statistic values of the “Motivational dominants” questionnaireLeadership Expertise Relationship SubsistenceMean 5,0 6,5 6,4 5,7Median 5,1 6,6 6,4 5,8Sample minimum 4,2 5,7 5,8 3,9Sample maximum 6,6 6,7 6,9 6,6A wider evaluation of the “Motivational dominants” questionnaire dimensionsshow the desire of the teaching staff for these needs as it follows: expertise,relationship, subsistence and leadership.Table 1 clearly shows each subject‟s values for the “Motivational dominants”questionnaire. These values are inserted in a chart for each variable of the questionnaireand we can identify for all the subjects involved a higher motivation for expertise,relationship, subsistence and lower motivation for leadership.Tables 2, 3, 4, and 5 show frequency and percentage, each value of the fourvariables being discussed separately.Table 2 Frequency and percentage of the leadership variableValues Frequency Percentage (%)4,2 6 7,14,4 12 14,34,5 6 7,14,6 12 14,35,0 6 7,15,1 3 14,35,3 12 14,35,4 6 7,16,6 12 14,3Total 84 100,0The table presenting the values for leadership clearly shows that the averagevalues are between 4,4 and 5,3. These values present a low and medium motivation ofthe teaching staff regarding leadership.Table 3. Frequency and percentage of the expertise variableValues Frequency Percentage (%)5,7 6 7,16,0 6 7,16,1 6 7,16,4 12 14,36,5 12 14,36,6 12 14,36,7 30 35,7Total 84 100,0Table 3 presenting the frequency and percentage of expertise variable show anincrease of motivation for this dimension in comparison to the previous one, withaverage values between 6,4 and 6,7. These values show a high motivation of theteaching staff in comparison to the need for achievementTable 4 . Frequency and percentage of the relationship variableValues Frequency Percentage (%)5,8 6 7,16,1 18 21,4

Revista Tinerilor Economişti (The Young Economists Journal)Values Frequency Percentage (%)6,3 12 14,36,4 12 14,36,5 6 7,16,6 6 7,16,7 18 21,46,9 6 7,1Total 84 100,0The table presenting the frequency and percentage for relationship show thatthe average values are between 6,1 and 6,4 which show a high motivation of theteaching staff and that only 4 members of the teaching staff scores higher than 6,7 withan intense desire for this factor.Table 5 Frequency and percentage of the subsistence variableValues Frequency Percentage (%)3,9 12 14,34,9 6 7,15,4 6 7,15,7 6 7,15,8 18 21,46,1 12 14,36,7 24 28,7Total 84 100,0Consequently, regarding the motivation of the teaching staff at the University ofCraiova, the research reached the following conclusions:C1. There is an increased motivation of the employees for expertise andrelationship dimensions (high level), medium level of the subsistence and lowmotivation for leadership.C2. It is important to know the different aspects of motivation for the teaching staff,since they are reflected in the way students and other teaching colleagues in theinstitution are treated.C3 Knowing the motivational structure of the teaching staff may prevent differentnegative effects.C4 There is positive correlations between the leadership motivation of the othersand the performance of the teaching staff.A.2. Interview resultsThis interview has the purpose of highlighting the causes which led to the veryintense or very low occurrence a certain factor of the professional motivation. In orderto establish these causes of the motivation and intense or low motivation, the teachingstaff had to answer questions such as: “Why are you pleased by the leadership in yourinstitution?” or „ Why do you want to work in a harmonious environment?”At the end of the interview the following were obtained:-The subjects who want to be part of a united team, where they could builddurable relationships assert that this would help them work better without conflicts andhaving a good communication when talking about courses.-The teaching staff wanting good payment for their work, asserts that thisaspect of their work is very important in order to be motivated to work better, and those66

67Management – Marketing - Tourismmembers who are not motivated by the payment assert that this is not the onlymotivating factor for teaching-All the subjects of this study are content with their leader‟s activity, most ofthem asserting that he/she runs the department efficiently, being involved into theirproblems- The vast majority of the teaching staff is satisfied with the relationship insidethe institution and asserts that this is due to their openness in discussing and forming aunited team in order to reach the teaching goals.1.3 Characteristics of motivation and performance for the private institutionsThe hypothesis of the present study states that apart from payment there is aseries of factors which can determine an employee to be perform better, therefore it isvery important that the employees in a company should be motivated financially andnon-financially in order to reach performance.Table 6. Statistic values of the Motivational dominants” questionnaire.Leadership Expertise Relationship SubsistenceMean 5.0 6,0 6,6 6,1Median 5.0 6,0 6,7 6,1Sample minimum 4.2 5,7 5,8 3,9Sample maximum 6.6 6,7 6,9 6.7From the above table it can be noticed that the most important need in a publicinstitution is the relationship need (6,7-the highest level), being followed by thesubsistence one(6,1 highest level) and expertise (6,0)and the lowest level is registeredby the leadership item (5,0-low level)The above stated hypothesis is confirmed by these results, enabling thestatement that in a private company the motivation of the employees is related mainlyto the payment policy (subsistence item). However, a factor that should be taken intoconsideration is the relationship/affiliation item. Therefore, payment stimulus - as anactivator of economic motivation –is undoubtedly one of the most important categoriesof stimuli designed to maintain a high level of job satisfaction.Similar to the research on the teaching staff of the University of Craiova, thetables 1, 2, 3 and 4 show the frequency and figures related to each value of the 4variables taken separately.Table 7. Frequency and percentage of leadership variableFrequency Percentage (%)4,2 11 13.14,4 7 8.34,5 10 11.94,6 9 10.85,0 10 11.95,1 7 8.35,3 12 14.35,4 7 8.36,6 11 13.1Total 84 100The table presenting frequency for leadership shows that the values between4,4 and 5, 3 are dominant, meaning that there is low and medium motivation forleadership.

Revista Tinerilor Economişti (The Young Economists Journal)Table 8. Frequency and percentage of leadershipFrequency Percentage (%)5,7 29 34.56,0 21 25.06,1 11 13.16,4 9 10.76,5 6 7.16,6 4 4.86,7 4 4.8Total 84 100.0The table displaying the frequency and percentage of the expertise variablestates that most of the interviewed people (59.5%) prove low motivation to theachievement need. These findings may conclude that there is low motivation of theemployees for self development and for obtaining professional performance.In conclusion, the assertion „a high level of commitment of the employees isdetermined by the high level of motivation and loyalty” is not valid.Table 9. Frequency and percentage of the relationship variantFrequency Percentage (%)5,8 4 4.86,1 5 5.96,3 8 9.56,4 10 11.96,5 6 7.16,6 8 9.56,7 15 17.96,9 28 33.4Total 84 100.0For the relationship item, the values between 6,4 and 6,9 are dominant,meaning that the communication system both with their colleagues and with theirleaders is very important.Table 10.Frequency and percentage of the subsistence variableValues Frequency Percentage (%)3,9 2 2,44,9 4 4.85,4 9 10.75,7 6 7.15,8 5 5.96,1 28 32.26,7 30 33.3Total 84 100.0The subsistence item presents the highest values (6,1 to 6,7), leading to theconclusion that for the Ford Company employees, their job security is very importantand they find job security and the certitude that their work covers the subsistence needsvery motivating.Consequently, as a result of the administration of the ”Motivational dominants”questionnaire to the 84 employees belonging to Ford Craiova Company, the followingconclusions emerge:68

Management – Marketing - Tourism- C.1. A high motivation of the employees to the subsistence andrelationship items (high level), medium level for expertise and low motivation forleadership was noticed;- C.2. The role the social component plays in the organization isimportant, since it may influence work productivity and job satisfaction for theemployees, loyalty and maintaining them in the organization.- C.3. Beyond the subsistence and security needs of the individual, workhas an important function in covering superior needs such as interpersonal relationships- C.4 The involvement and loyalty of the employees in the companythey work for are of low level, since an important reason they continue working isrelated to the subsistence.ConclusionsThe research regarding the knowledge and the analysis of the motivationaldominants within the two types of organizations, public and private, have been based onsome specific dimensions in order to compare them. Therefore, by means of theresearch instruments, aspects such as subsistence and security, relationship, socialclimate, involvement and loyalty of the employees, allowed the possibility of ananalysis and comparison between the motivation and performance of the publicinstitutions and those of the employees in the private institutions.The conclusions of such a comparative approach are extremely useful for theleaders in applying motivation rising and training techniques to their employees.REFERENCES1. Canals, J.Albino, V.Garavelli, A.C.Gorgoglione, M2. BurleaSchiopoiu, A.3. Chung,W.W.CKo C.C.Y.,Cheung,E.W.M.Wong, T.C.W.Organization and technology in knowledge transfer,Benchmarking: An International Journal Vol. 11 No. 6,2004 pp. 584-600.Managementul resurselor umane, Editura Universitaria,Craiova, 2008.IT-enhanced order and delivery process of a fast movingconsumer goods (FMCG) company. A case study,Benchmarking: An International Journal Vol. 14, No. 1,2007, pp. 123-139.4. Cole, G.A. Managementul personalului, Editura Codecs, Bucureşti,2000.5. Constantin, T. Evaluarea psihologică a personalului, Editura Polirom,Iaşi, 2004.6. Druţă, F. Motivaţia economică, Editura Economică, Bucureşti,1999.7. Kyriakidou, O.Gore, J.Benchmarking organizational culture in hospitality,tourism and leisure SMEs, Benchmarking: AnInternational Journal Vol. 12 No. 3, 2005, pp. 192-206.8. Rickards, R.C. BSC and benchmark development for an e-commerceSME, Benchmarking: An International Journal Vol. 14,No. 2, 2007 pp. 222-250.9. Staughton, R.Johnston, R.Operational performance gaps in business relationships,International Journal of Operations & Production69

Revista Tinerilor Economişti (The Young Economists Journal)Management Vol. 25 No. 4, 2005, pp. 320-332.10. *** Ghid privind motivaţia în funcţia publică,www.anfp.gov.ro.70

Management – Marketing - TourismCURRENT ISSUES ON CHANGE MANAGEMENT IN PUBLIC ORGANIZATIONSPh.D Student Laurenţiu BarcanUniversity of CraiovaFaculty of Economy and BusinessAdministrationCraiova, RomaniaAbstract: Public organizations that manage to successfully maintain itscompetitiveness change not look like a unique event, but as an ongoingprocess, necessary for survival, development and perfecting them.Change must be perceived as an intrinsic element of an organization andshould be integrated into the philosophy and models of its action.JEL classification: M48, H11Key words: management, organization, government, public, change, crisisPublic organization is the body organized structures, the company created tomanage public affairs. What makes an effective bureaucratic institution is their rationalshown in the four main dimensions of them:- Can handle a large number of tasks;- Emphasize the quantification;- Operate in a predictable, standardized;- Emphasize the control of the institutions involved in the system.In a democratic state the public institutions have the following functions:- Preparation and adoption of normative acts;- The enforcement of laws;- Monitoring of the implementation of decisions taken at political level.The objective is a public institution serving the public interest. There aresituations in which private initiative can not meet the requirements of society andtherefore required specific institutions.Need for change in public institutionsThe evolution of society has imposed several types of administrative systems.If the traditional bureaucratic system, the staff responded to stimuli without takingsimple decisions today are granted more importance than the management,administration, the only means. Crisis is likely to take the place of personal rules andpublic officials are obliged to submit to such factors of power. These crises can help thebureaucratic organization.To measure public sector performance indicators are needed. They made thedistinction between classical efficiency and quality service. Therefore managers mustmeet the following conditions:- Have a clear vision of goals and means of achieving them, to measureperformance against these objectives;71

Revista Tinerilor Economişti (The Young Economists Journal)- To understand the resources and the most effective ways to invest;- To have information about jobs, training and access to specialized expertise.All these activities have specific managerial activities that fundamentalcommunication.There are two main categories of factors that influence change within theorganization:- External factors can be controlled to a lesser extent by managers.- Internal factors that act through changes in the organization.In addition to the factors listed, there are a multitude of elements, which bynature: their content, generating change.Recognition and understanding the need for changeClear and deep perception of the need for managers to change the organizationchange process is essential. The perception of change is important but not sufficient andtherefore should be supported by a complex of activities from effective managers.Therefore, one of the most important aspects is to understand the organization's staff,managers and subordinates, the need for change.The staff organization should be helped to understand that the currentorganizational structure should be adapted to new requirements involved in thetransition to a market economy that the current information system should be changedand transformed into an effective tool to reach managers and their decisions need abackground participatory, using the methods and techniques of modern management.Understanding the need to change entails knowing that a continuation of theprocess management and execution of older structures in the new conditions lead,inevitably, sooner or later, critical for the organization.Change management requires a systematic sequence of trials accompanied by afeed-back time. Implement change management involves the author's vision, thefollowing steps:- defining the factors that lead to change;- recognition, understanding the need for change;- diagnose problems involving change;- identify methods by which to make change;- establish procedures for the implementation of change;- defeat the resistance to change;- implementing change;- the results of implementing change.Down methods of implementing changeDefeating the resistance to change is the main obstacle that we face change.The reasons which generate resistance to change are:- personal interests;- misunderstanding of the fundamentals of change;- tolerance to change (carelessness);- the fear of change;- tendency to self-effort.To minimize this phenomenon, however, resistance to change, managers caninitiate a set of activities, such as:- preparation time by changing discussions with those involved in this process;72

Management – Marketing - Tourism- assist and encourage those involved in the process of change throughparticipation in it;- organization of debates on issues of change;- interpersonal influence;- the pressure - and can generate resentment and hostility;Given that resistance to change was defeated following proper implementationof change and feedback is generated by permanent a triggering factors actually.Influencing implementation changeThere are many factors underlying the change. All these factors can be groupedinto four main groups:- Political factors;- Economic factors;- Socio-cultural factors;- Technological factors.Organizational transformation involving changes at three levels. A first level isto change attitudes and behavior of public organization employees. The second changerelates to the management system as a whole, and the last layers deep concern of theorganization, systems of values, beliefs and affectivity in the community of employees,to keep in mind that the last level is the first two. Another feature of organizationaltransformation lies in the fact that change is not limited to simple maintenanceorganization officials, but they aim at the renewal of the organization as a whole.Major changes in the organization do not occur simply. Achieving changeinvolves running a really complex process that confronts the forces that exert pressurefor change and forces that oppose change.Resistance to changeChange is in essence a transformation or a change in the status quo, a shift froma state of affairs to another, from one set of conditions to another. The change meansfor many people, uncertainty or lack of security regarding their future at work,relationships with others. It is therefore very likely that fear or anxiety of people aboutto change, to lead them to attempt to block, to resist its introduction.Resistance to change is a positive phenomenon because it proves the existenceof a certain degree of stability and enables organizational behavior prediction. Effectsof resistance to change is, however, mainly negative: it can generate conflict within theorganization, but mostly it is an obstacle in the way of progress.Assessment changeA change can take place in one or more of the levels listed below:- Individual;- Team;- Group / Division;- Organizational.The length and difficulty of implementing changes depend directly on the levelat which it occurs. Among the usual causes of opposition to change are:- narrow personal interests;- erroneous understanding and lack of trust;- differences in assessing the situation;73

Revista Tinerilor Economişti (The Young Economists Journal)- low tolerance to change;- pressures exerted by groups of colleagues;- stress associated with fear of change;- negative experiences related to past changesAmong the approaches that may be taken to reduce the opposition include:- training and communication;- participation and involvement;- facilitation and support;- negotiation and agreement;- manipulation and cooptation;- explicit and implicit coercion.ConclusionsChange issue is a near-obsessive preoccupation in sociology organizations canbecause importance of bureaucratic rigidity, or problems faced without ceasing, bothbusiness leaders and responsible administrative reforms.Public organizations that manage to successfully maintain its competitivenesschange not look like a unique event, but as an ongoing process, necessary for survival,development and perfecting them. Change must be perceived as an intrinsic element ofan organization and should be integrated into the philosophy and models of its action.Therefore, to understand the mechanisms of change within an institution, aswell as innovation, should be built character of change. Change is natural, is a problemthat requires research. Change should not be understood as a crisis or even a simpleprocess of adaptation or development, but rather as expressions of a multitude ofmutations in the institutions.REFERENCES1. Androniceanu A. Managementul schimbărilor, All Educational, 19982. Andrews K. Toward professionalism in Business Management,London, 19903. Marinescu P. Managementul instituţiilor publice, Editura Universităţiidin Bucureşti, Bucureşti 20034. Oliver Torres-Blay5. V. H. Vroom,Arthur G. JagoEconomie D‟entreprise. Organisation, Strategie etTerritoire a l‟aube de la nouvelle economie, 2e edition,Ed. Economique, Paris, 2004The new leadership. Managing participation inorganizations, Pretince Hall, Englewood Cliffs74

Economic Theories – International Economic RelationsEVOLUTIONS IN THE WORLD COMPETITIVENESS CLASSIFICATION –THE CASE OFROMANIA *Assoc. Prof. Ph.D Dragomir LaurentiuUniversity of CraiovaFaculty of Economics and BusinessAdministration, Craiova, RomaniaAbstract: This article approaches the problem of competitiveness andaims to outline the place of our country from the point of view ofcompetitiveness as opposed to other countries; this analysis is carried outat a global level. One can notice that our country has a pretty low positionin the world competitiveness classification, this position being influencedby a series of factors, as for example: underground economy andcorruption, taxes, inefficient agriculture and high interests. In spite ofthese, there are still some factors which can improve this position, forwhich Romania has registered some significant progresses in the lastyears.JEL classification: O11, O57, P52Key words: competitiveness, World Competitiveness Yearbook, IMDThe problem of competitiveness has presently become a central preoccupationboth in the scientific debates and in the practical actions of the governments and of thecompanies. Although there are many individual points of view, their systematizationand synthesizing has not been accomplished yet. It is thought that there are a ser5ies ofvariables which may influence the competitiveness of a nation (cheap and abundantworkforce, natural resources and technical capital, exchange rate and interest rate,quality of the economic policies and the relevance of the proposed targets, theperformances of the managerial practices and of the inter-human relations, etc.), butthese are not enough in order to formulate a theory. The following aspects shouldtherefore not be disregarded:a) the competitiveness of an economy is a concept and a macroeconomicreality, which also has microeconomic basic elements (the existence of a relevantnumber of competitive companies can condition the competitiveness of a nationaleconomy);b) in spite of the fact that it a macroeconomic concept, the competitiveness ofan economy does not mean the fact that this economy is performing in each of itssectors (any economy is performing in a certain field or in some but not in all fields);c) it is thought that any economy can be competitive if it increases its marketshare (especially the share of its own exports in the international ones) as a result of ahigh productivity and due to the prices and quality, variety and accuracy of the offereditems. [Gavrila, 2009, p. 129]*Article financed by UEFISCSU through the program IDEI, Contract CNCSIS no.826/19.01.200975

Revista Tinerilor Economişti (The Young Economists Journal)The most difficult problem related to the competitiveness of an economy is itsevaluation in absolute or relative terms. In order to characterize the competitiveness ofa country it is not sufficient to take into consideration a performance index as forexample GDP or productivity, or GDP per capita, or the indices referring to thepresence on the international market through export. In practice this evaluation is veryimportant, businessmen need these data to set up the business plans and the strategies,the expansion projects, while the public decision factors need the evaluation of theirresults in order to set the governmental policies.In consequence, one has to take into consideration a considerably high numberof variables for the evaluation of competitiveness. The difficulties does not rely on thenumber of analyzed factors, but in the way of approaching these, taking into accountthe fact that6 some of them have a qualitative determination (the style and the ability ofthe managers the quality of the products, etc.). Their quantification is not easy,especially because it can be accomplished only according to some indices regardingprices, costs, salaries, productivity, investments, exports, etc. In spite of this the numberof the factors which can be taken into consideration is unlimited, the productivity, thecost of the workforce and the investments, all these have a decisive role in creating theperformance and the position of the nations in the world hierarchy of competitiveness.According to the reports of the European Commission and from the point of view ofthese three factors, the European Union is behind United States of America and Japan.Therefore, in the last two decades, the European Union has registered a productivitygrowth of 45%, as opposed to 53% in Japan and 64% in the USA. The hourly laborcosts in the manufacturing industry in most of the European countries were higher thanin the USA and Japan.Considering the fact that the more factors are taken into consideration, the morethe accuracy of the evaluation increases, a general preoccupation is measuring thecompetitiveness of the national economies and positioning them according to the it‟slevel and dynamics.An extremely complex but also exceedingly handy instrument for theevaluation and comparison of competitiveness on a macroeconomic level is the WorldCompetitiveness Yearbook issued by the International Institute for Management andDevelopment from Lausanne.According to this yearbook, the competitiveness of a national economy needsto have a complex, multi-factorial approach. This is the expression of the internalcompetition from the economy of a country and of the competitive position of thateconomy on the international market; it is an expression of the economic phenomenonbut also of the political phenomenon, of the infrastructure, but also of technology,demography and education.In evaluation competitiveness, the yearbook elaborated by IMD starts from 4competitiveness factors which are divided further in other sub-factors.Table no. 1. Division of competitiveness factors into sub-factorsEconomic performance Government efficiency Business efficiency InfrastructureInternal economy Public finances Productivity Basic infrastructureInternational trade Tax policy Labor market76TechnologicalinfrastructureInternational investments Institutional frame Finances Scientific infrastructureUsing the workforce Business legislation Managerial practices Health and environmentPrices Societal frame Attitudes and values Instruction

Economic Theories – International Economic RelationsThese sub-factors are further subdivided into a variable number of criteria, sothat they reach a total number of 246 criteria (127 concrete data, statistical figures and119 evaluation data from surveys), where one can add 77 criteria which are not used incalculating the indices for each country they are used only for general information.According to the competitiveness factors there are a number of associated criteriawhich are used for the evaluation of the competitiveness as it follows: economicperformance – 79 criteria, governmental efficiency – 72 criteria, business environmentefficiency – 71 criteria, infrastructure – 101 criteria.The data (calculated through the evaluation of these factors and sub-factors, aswell as of their associated criteria) accessible from the Yearbook elaborated by IMDallow the creation of some independent analysis regarding competitiveness of aneconomy or of a group of economies. As for Romania, this has been supervised since2003, period in which there were no variations of the competitiveness degree, but forthe last year.Table no. 2. Evolutions of Romania’s position in the world classification ofcompetitivenessYear Position Rating2003 43 33,6362004 45 47,9972005 46 41,7842006 49 42,1302007 44 47,2872008 45 47,5492009 54 46,945One can also notice that in this period (2003-2009) except for 2007 when therewas a growth in the world hierarchy, the trend was decreasing.In 2007, Romania‟s position was generated by the variations of the positions ofour country on each of the four competitiveness factors:- In what the „economic performance” is concerned, Romania has registeredthe highest growth, going up from the position 41 in 2006 to the position 35 in 2007;- in what the „government efficiency” is concerned the evolution was weaker ,our country going up only one position from 46 in 2006 to 45 in 2007;- in what the „business efficiency” is concerned the situation was constant,having the position 50;- in what the factor „Infrastructure” is concerned the trend was increasingreaching from the position 48 in 2006 to 42 in 2007;This growth of the competitiveness of Romania and the position from 2007were generated:- firstly by a series of positive aspects related to economic growth (real GDPgrowth and real GDP per capita growth), the living cost index, the service export, thetax on profit rate of the enterprises, the total public debts, funding the CDI activities(real GDP growth), the number of days needed to set up a company;- secondly, by the indicators resulted from the survey which shows the lifequality, the improvement of the university education which start to answer the needs ofthe competitiveness, the correlation of the linguistic abilities with the needs of thecompanies, the improvement of the public finances management, etc.The factors which had a negative impact, and which reduced Romania‟scompetitiveness in 2007 to 5 position as opposed to 2006 are those which refer to:77

Revista Tinerilor Economişti (The Young Economists Journal)direct investments, subsidies, electricity costs for industrial consumers, the currentaccount balance, tourism receipts, inflation, export of goods, the low level ofexpenditures with research and health together with other indices which result from asurvey carried out in the business environment which show the risk of the politicalinstability, the creating exodus, a lack of credibility of the managers in the society, thedisinterest of the companies for the continuous training of the employees, the lack ofimplementation of the ethical business practices in companies.In 2008 Romania‟s position has registered a decrease with one position(position 45) as opposed to 44 in 2007, the situation on the four factors being thefollowing:- in what the „economic performance” is concerned the situation was constant,Romania occupied the position 35, being before some countries as Finland (position 36)Bulgaria (38), Hungary (39), Croatia (40), Portugal (44), Italy (45), Greece (48), Russia(49), Ukraine (50), Turkey (53);- in what the „government efficiency” is concerned Romania went down by 3position from 45 in 2007 to 48 in 2008;- in what the „business efficiency” is concerned there was a growth from the 50in 2007 to 47 in 2008, surpassing countries as Bulgaria (place 48), Russia (49), Poland(50) and Croatia (51);- in what the factor „Infrastructure” is concerned there was a decrease from 42in 2007 to 43 in 2008.Factors which had a negative impact, decreasing Romania‟s competitiveness in2008 were: direct investments outside the country, the current account balance, tourismreceipts, inflation, high-tech products exports, low level of the expenditures withresearch and health together with other indicators resulted from the survey in thebusiness environment which show the presence of the black market, of the bureaucracy,of a high level of pollution, a lack of qualified labor force as well as higher lack of ITCaptitudes on the labor market.Therefore, competitiveness is not only economic growth of performance butalso a series of other factors as: environment, life quality, technology, knowledge, orscientific research, etc. In this context it can be explained why some countries as USA,Japan, Great Britain, Northern countries, as well as smaller and open economies, asHong Kong, Singapore and Switzerland can maintain their positions for a larger periodof time.For 2009, the analysis of competitiveness is based on the statistics of 2008, yearwhich was characterized by a period of growth, the countries entered in the economiccrises in different moments and react differently to these. The countries whichmaintained in 2009 the same position as in 2008 are: USA (1 st place), Switzerland (4 thplace), Australia (7 th place), Canada (8 th place), the Netherlands (10 th place), Norway(11 th place), Great Britain (21 st place), Slovenia (32 nd place) and Poland (44 th place),A large part of the countries have registered important decreases in 2009 asopposed to 2008: Columbia and Greece have fallen 10 positions, reaching to 51,respectively 52. Romania comes loosing 9 positions, occupying the 54 th place in 2009as opposed in 45 in 2008. The competitiveness of the following countries hasdecreased considerably: Luxemburg (from the 5 th place in 2008 to the 12 th in 2009),Ireland (from the 12 th place in 2008 to the 19 th place in 2009), Jordania (from the 34 in2008 to 41 in 2009), Hungary (from 38 in 2008 to 45 in 2009), Spain (from 33 in 2008to 39 in 2009).78

Economic Theories – International Economic RelationsFor other countries, the effects of the economic crisis were much more reduces,and these have managed to gain position in the word classification of competitiveness.For example Denmark went up one position in 2009 as opposed to 2008, occupying the5 th place; Sweden reached from the 9 th place in 2008 to the 6 th in 209, Finland went upremarkable with 6 places, occupying the 9 th position this year. Germany went up by 3places as opposed to 2008, occupying the 13 th position; Japan also went up with 5places in 2009 as opposed to 2008 reaching the 17 th position.The most spectacular evolutions were registered in Indonesia which registeredthe highest growth, from 51 in 2008 to 42 in 2009 while Estonia registered the highestdecrease loosing 12 positions as opposed to 2008, reaching the place 35.Romania occupies one of the last places in the 57 states, namely the place 54,before Argentina, Ukraine and Venezuela, after a spectacular decrease of 9 places injust a year. This decrease is the result of the variations of the position of our country oneach competitiveness factor:- In what the „economic performance” is concerned Romania registered in 2009a growth reaching the 32 nd place as opposed to 35 in 2008, surpassing countries asHungary (place 33 in economic performance), Slovakia (34), Israel (38), Finland (40),Spain (46), Italy (47) and Russia (49);- in what the „government efficiency” is concerned our country has lost a placeas opposed to 2008, occupying the 49 th position. If the current trend in economicperformance is increasing, reaching from the 41 st place in 2005 to the 32 nd in 2009, inwhat the governmental efficiency is concerned we have registered decreases since 2007(place 45), in 2008 we lost 3 places, and in 2009 we lost another place occupying the49 th position.- in what the factor „Infrastructure” is concerned Romania has lost 9 position,going down from the 47 th place in 2008 to the 56 th in 2009;- in what the „business efficiency” is concerned the situation is similar,Romania lost 10 places as opposed to 2008, reaching the place 53 in 2009.Table no. 3. Evolutions of Romania’s position in the classification of thecompetitiveness factorsYear2005 2006 2007 2008 2009Competitiveness factorsEconomic performance 41 41 35 35 32Government efficiency 46 46 45 48 49Business efficiency 47 50 50 47 56Infrastructure 45 48 42 43 53In this context we may this that the factors which had a positive impact in 2009on the Romanian competitiveness were: the real GDP growth per capita, theunemployment rate, direct investments in the economy, public debt, tax on profit rate,tariffs for broadband, tariffs for fixed telephone lines, investments intelecommunications, payments for the profession from the series sector, studentsteacherbehavior (number of students for a teacher), management payment, as well asother indices resulted from a survey which show the growth of the of thepreoccupations of the companies for the customer satisfaction, the improvement of theethical practices in the companies the availability of a well trained workforce, thegrowth of the transparency of the governmental policy and of implementing itsdecisions etc.In spite of these, the balance of the current account, the inflation the gross79

Revista Tinerilor Economişti (The Young Economists Journal)domestic product per capita and the low flexibility of the labor market, budget deficit,the low level of the expenditures for research and health, the direct investments outsidethe country, the receipts from tourism together with other indicators resulted from thesurvey in the business environment show a lack of audit and accounting in the businessworld, the defective administration of the pension funds, the problems in the healthsector, the hard accession of funds, taxation, lack of a development strategy on a longterm sustained by research, all these are factors which had a negative impact decreasingRomania‟s competitiveness in 2009.In connection with the dynamics of the competition at world level, thespecialists of the International Institute for Management and Development considersthat this will depend only of the competitiveness level from Asiatic countries, beingframed, this way, three stages between the world competition and that of the greatnations from Asia:• in the first stage China, India and other Asiatic nations are considered assuppliers of inputs for American, Japanese and European companies. As a result, Chinabecome the center of processing industry, India supplies office equipments andThailand is the country that assemblies the components;• in the second stage, these nations begin to gain in what concerns the buyingpower and creates a middle class, that develops and gathers wealth;• in the third stage, Asia will develop, becoming a world competitor, creatingown world companies that will start to promote local brands. A similar case representedJapan, immediately after the second world war when it become from a nation thatproduced cheap goods one that possesses brands of world amplitude.In this context can be appreciated that the technological industries do not actionlike a “locomotive” of world economy. In the conditions that several companiesdisappeared and the capitalization of burse market suffered a severe failing, theeconomical agents and the stock exchange are now very sensitive at the quality ofbusiness partners and at the profile obtained as a result of the realized investment. Willnot be offered checks in white for the technological sector. With all these, theinvestments with capital begin to have a new advance, but the same happens with theprice of petroleum. This price is observed with attention because of the negative impactthat might have over the structure of the corporative costs, fact that might postponemore the economical recovery, but, in the same time, the increase of petroleumindicates an economy that warms, produces and this way consumes more.REFERENCES1. Gavrilă, I.,Gavrilă, T.Competitivitate şi mediu concurenţial, Editura Economică,Bucureşti, 20092. Iancu, A. Dezvoltarea economică a României. Competitivitatea şiintegrarea în Uniunea Europeană, Editura AcademieiRomâne, Bucureşti, 20033. Porter, M. The compettitive avantaje of nations, The Free Press, NewYork, 19904. Porter, M. Avantajul concurenţial, Editura Teora, Bucureşti, 20025. Voiculescu, D. Competitivitatea întreprinderilor şi a naţiunilor, EdituraIntact, Bucureşti, 20076. Voiculescu, D.,Mereuţă, CAnaliza de competitivitate a economiei româneşti, EdituraAcademiei Române, Bucureşti, 199880

Economic Theories – International Economic RelationsINCENTIVES AND CONSTRAINTS IN THE PUBLIC SECTOR: THE BEHAVIOR OF THE RENT-SEEKING BUREAUCRATAssist. PhD Student Radu ŞimandanPolytechnic University of BucharestDepartment of ManagementRomaniaAbstract: The aim of this paper is to analyze the incentives andconstraints that a typical bureaucrat face in his or her daily activity and topresent some conclusions related to the most likely behavior ofbureaucrats. We begin by analyzing the behavior toward advantageseeking. We then apply the hypothesis of rent-seeking behavior to theactivity of bureaucrats. After discussing the main differences between theincentives and constraints of the managers of privately owned enterprisesand bureaucrats, we conclude that the activity of rent-seekingcharacterizes the activity of bureaucrats. Finally, we identify the rule of lawas the best institutional arrangement for discouraging the rent-seekingactivity of bureaucrats.JEL classification: B25, D73, H83Key words: institutional analysis, rent-seeking, bureaucracy, rule of law.Rent and rent-seekingEconomic rent is defined as the surplus that a factor of production gets abovethe minimum amount of money needed to keep it in its current. All factors ofproduction have alternative uses in which they can earn more or less than in theircurrent use. The opportunity cost of using one factor of production is the bestalternative use that must be forgone. In order to prevent it from moving from one use toanother, a factor of production must earn a sufficient amount of money (i.e. bydefinition the economic rent).Capital, land, and labor have all alternative uses. Their owners will seek themost productive use for their property. For instance, a parcel of land can be used foragriculture or it can serve for developing a residential area. The owner of the parcelmust earn enough from cultivating the land in order to prevent him from transferring itsuse for buildings. In other words, the owner must earn enough in economic rent.The owners of labor-power can also earn economic rent. If an engineer can earnin the current employment a salary that is greater than the one in the best availablealternative, he or she earns an economic rent. The analysis of the economic rent earnedby the owners of labor-power is complicated by the non-monetary advantages thatpeople obtain from different jobs, advantages that influence their decisions. The size ofthe economic rent obtained by the mentioned engineer can be substantially different inthe actual use of his or her work-power. In other words, the economic rent for the81

Revista Tinerilor Economişti (The Young Economists Journal)owners of labor-power is given by the sum of monetary and non-monetary gains in theactual use over the gains in the best available alternative.Seeking and keeping the economic rent define the behavior of the people asresource owners. Economic rent is a very pleasant thing for the individual that gains it.However, it is under a permanent threat from the competition. To describe the behavioraimed at obtaining and keeping economic rent, economists use the term rent-seeking.Resource owners will engage in rent-seeking and rent-keeping activities when theybelieve that the anticipated benefits are greater than the anticipated costs. For example,employees that realize that in the current occupation gain economic rent will resort tostrikes or some other means of pressure if they are at risk of losing their jobs. In termsof rent-seeking behavior, we can define a strike as the most powerful means thatemployees can use in order to keep the economic rent they gain in the currentemployment.Capital owners can also gain economic rent. The competition makes marketprices to be closely related to the opportunity cost. This way, the economic rent isdiminished. It can be regained through finding new ways to satisfy the consumers,technological improvements, and better management. To the degree that the consumersare willing to pay a price that covers the opportunity cost, wealth is created. People‟sbehavior aimed at gaining rent through creating benefit is called profit-seeking. For anentrepreneur, the rent the plane through political means is just as good as their end ofday and through markets. In addition, it has a net advantage: the government canprotect the rent through obstructing the competition.Let us take the case of an automobile manufacturer. Studying the incentives andconstraints that the managers face in their rent-seeking behavior can help us create aproper image. The enterprise gains profits that stock owners and managers think asappropriate. However, profits are declining due to increased competition from foreignproducers. If the enterprise does not adapt its production to the consumers‟ demand,profits will continue to decrease and will ultimately turn to losses. If the rules of thegame in the economy allow it, the managers have a strong incentive to seek protectionfrom the politicians through some form of entering barriers (for example, through theintroduction of import duties). Since the economic case in favor of free internationaltrade is strong, economists explain import duties based on the rent-seeking behavior:some producers are successful in convincing politicians that sector X of the economyneeds protection from foreign competition.The structure of incentives and constraints (i.e. the rules of the game) is themain element that models the behavior of entrepreneurs in their trying to engage inrent-seeking as opposed to profit-seeking. Therefore, there are two opposite ways ofaction for a resource owner seeking the most profitable productive destination for hisresources: rent-seeking and profit-seeking. The difference between the two is given bythe wealth that is created in the economy. The entrepreneurial way of obtaining andkeeping the rent is the one that produces wealth in the economy (Cowen & Tabarrok,1999). The political way does not produce wealth; it merely transfers the benefits fromone person to another.The rent-seeking bureaucratWithout any doubt, the term bureaucrat has a pejorative meaning. No onethinks that his or her job is related to bureaucracy. In the eyes of the public, thebureaucrat is thought to be indolent, indifferent, without initiative, and always ready totake bribes. Nevertheless, we will employ the following hypothesis: the bureaucrat is no82

Economic Theories – International Economic Relationsdifferent then the business people or managers. One does not need specialcharacteristics in order to become a public servant. In fact, there are numerous cases inwhich politicians employ trustworthy managers to run a government bureau. Thebureaucrats are no better or worse than their equivalent working for privatecorporations. The bureaucrats are employed by the government administration or byvarious regulation agencies. The official denomination of such employees is publicservants, but in economic theory, bureaucrats and bureaucracy are the common termsused. Analyzing the set of incentives and constraints of bureaucrats is essential indetermining their behavior. The bureaucrats have a strong incentive to serve theinterests of the politicians that supervise their bureau.There is a fundamental distinction between private company and a governmentbureau: unlike the private company, a government bureau does not seek profits. Thepurpose of the bureau is to supply a good or service in exchange for a budget that thestate periodically grants it. The consumers do not buy the goods or services that thebureau supplies in the regular sense, so the value that consumers assign to those goodsand services cannot be determined. That does not mean that the goods or services are ofno value. It simply means that the value of the good or service cannot be identified.Some bureaus may charge consumers a user fee in exchange for the service supplied,but usually this does not cover the costs incurred.In the case of bureaus, since there is no profit drive, efficiency is a futile term.The efficiency of privately owned firms is the result of voluntary actions of individuals.The activity of government bureaus is based on state financing, i.e. it obtains itsrevenue through coercive means. However, efficiency cannot exist in lack of voluntarybehavior. The outcome is that there is no precise tool to be used to assess the degree towhich a bureau reaches its targets. A bureau cannot be assessed as being more efficientthan other that supplies the same service in a different area. Accordingly, bureaucratscannot be rewarded with higher payments for their success nor can they be punished forfailure.Given the fundamental distinction between the incentives of bureaucrats andmanagers, one may ask the following question: what are the goals of a bureaucrat? Theanswer given in the last century by Public Choice school theoreticians is that thefundamental goal of a bureaucrat is to try to maximize the budget of his organization. Ahigh budget is advantageous to the bureau chief and to the lower level bureaucrats. Thegoals that the bureau chief may have can always be better attained with a higher budget,caeteris paribus. Among the goals of the bureau chief, we can enumerate reputation,transfer to a larger or better bureau or other government position in the future, getting agood job in the private sector, and being elected to a political office. Lower-levelbureaucrats also favor a large budget. A large budget means an increase of personnel.Consequently, the demand for supervisors is likely to increase. The chances forpromotion are higher in a large organization. A large budget could also mean a betterworking environment for lower level bureaucrats. They may have more machines, alarger office, and a more modern equipment to work with. Lower level bureaucrats arethus likely to favor a bureau chief that promises to augment the size of the bureau.As shown above, the bureaucrat is a rent-seeker. They tend to gain advantagesin the current occupation that is higher than the best available alternative; they willspend resources to preserve that gain. The existing literature on this subject points thatthey can influence the political decision-making process to their own benefit.The rule of law as a set of constraints in the public sector83

Revista Tinerilor Economişti (The Young Economists Journal)The political way of seeking competition advantages (i.e. rent-seeking) doesnot produce new benefit for the economy; it merely redistributes the value that hasalready been created. Since in many cases it takes the shape of restrictions imposed tothe free competition, rent-seeking behavior leads to market distortions. Thesedistortions, especially when they influence the exchange rate and the price of variousgoods and services, lead to increased difficulties for individuals to plan for the unsurefuture and increase chances for error (Ikeda, 2003). The prospect of obtaining economicrent through political means modifies the incentives and constraints that people face.An increasing number of people will engage in rent-seeking, reorienting scarceresources from market competition and consumers‟ satisfaction to seeking advantagesfrom politicians in their capacity of rules makers. Over time, this activity willundermine the trust in law and private property.Hence, rent-seeking activity leads to wasting scarce resources. The institutionsof an economy are essential in determining the size of rent that is possible to extractthrough political means. As a rule, the greater the benefits over costs, the greater theincentive to engaging in rent-seeking. Conversely, the lesser the benefits, the lesser theincentive for rent-seeking. Enforcing private property rights and, therefore, individuals‟economic freedom, as well as a limited government tends to reduce the level of rentseeking.The rule of law represents an institutional arrangement that protects privateproperty rights and individual liberty. The rule of law protects individuals fromarbitrary government intervention and therefore constitutes a guarantee for limitedgovernment and individual freedom. Legal rules that favor some competitors overothers in specific markets are clear violations of the rule of law by breaching theprinciple of the universality of law. In fact, as Public Choice theories have proven, theexcessive regulation of the contemporary economies is a consequence of the rentseekingactivity in a democracy (Gunning, 2003). An economy that is strictlycharacterized by the rule of law is an economy without rent-seeking activity.If successful, the rent-seeking activity is a clear breach of the principles of therule of law. Legal regulations that stem from rent-seeking tend to privilege somecompetitors at the expense of others. Self-oriented competitors are interested incapturing politically generated rents and they will spend resources in order to be amongthe winners. Rent-seeking and rent-keeping are fundamental motives for interventionisteconomic policy in modern-day democracies.REFERENCES1. Cowen, Tyler& AlexanderTabarrok2. Gunning, J.Patrick“The Opportunity Costs of Rent Seeking”, Journal ofPublic Finance and Public Choice, 1999, XVIIUnderstanding Democracy. An Introduction to PublicChoice. Taiwan: Nomad Press, 20033. Ikeda, Sanford “Rent-Seeking: A Primer”, The Freeman. Ideas On Liberty,4. Lemieux,Pierre5. Niskanen,William A.November 2003“The Public Choice Revolution”, Regulation, Fall, 2004,pp. 22-29Bureaucracy and Public Economics, The Locke Institute,Aldershot, UK and Brookfield, US: Edward Elgar, 199484

Economic Theories – International Economic RelationsFED’S “QUANTITAVE EASING ACTION”– MORE THAN A MOVE FOR US ECONOMYREVITALIZATION? *Lect. Ph.D Rizescu SabinLect. Ph.D Stanciu Cristian ValeriuProf. Ph.D Spulbar CristiUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: On March 18 th 2009, FED has made a move it hasn’t done since1960 (the so-called Operation Trust conceived by the Kennedyadministration): it stepped into the market in order to buy long termsecurities for an amount of some 1.25 trillion dollars. FED also said thisprogram could be expanded to include a lot of other financial assets. Thekey issue here is the money resulting from this quantitative easing actiontaken by FED has not US economy as main destination, but, throw IMF,US are due to become the main creditor of the world.JEL classification: F00, F30, F36Key words: FED, long term bonds, quantitative easing measure, open market actionJust before the last G20 meeting in London and following the quantitativeeasing measures taken by FED it has broken into the news that, during an internaldiscussion, IMF raised a really provocative issue: should the non-Euro EU membersjoin the Euro very rapidly?!At a first glance, the selected G20 members dismissed or at least played downsuch kind of action. But the question still remains: will be such an action a bad one or agood one?!Considering the developing international economic situation we plead thatadopting the Euro at a fast pace will be favorable for both sides of Europe: the Westerndeveloped countries and the Eastern emerging economies.On March 18 th this year, FED has made a move it haven‟t done since 1960 (theso-called Operation Trust conceived by the Kennedy administration): it stepped into themarket in order to buy long term securities for an amount of some 1.25 trillion dollars.The move is due to take place following two steps:-1 st step: an immediate release of 300 billion dollars in order to buy long termTreasuries (especially 10year T-bonds)- 2 nd step: the purchase (in an unspecified period of time) of mortgage backedsecurities guaranteed by Fannie Mae and Freddie Mac for the rest of 950 billion dollars.* This paper is part of the research project” “A model dedicated to forecast the evolution of thereal economy and financial markets system from Romania using concepts from open systemsthermodynamics”, project CNCSIS, type IDEAS, no. 952/16.01.2009 (project manager: lecturerPhD Cristian Valeriu Stanciu).85

Revista Tinerilor Economişti (The Young Economists Journal)The move is aimed at re-launch the banking system credit operations and liftingthe US economy out of recession by lowering rates on mortgages and other consumerdebt of any kind.In the same kind of respect, FED also announced a program to restart consumerand small businesses lending. FED also said this program could be expanded to includea lot of other financial assets. The program is designed on spurring lending for autos,credit cards and loans for businesses‟ capital spending. However, FED suggested thatthe help for the embattled mortgage industry might be over – at least for a while –saying any broadening of the program will be beyond this area.Since the last FOMC meeting in late January ”the US economy continues tocontract” the FED members stated. Also, they noticed that “job losses, declining equityand housing wealth and tight credit conditions have weighed on consumer sentimentand spending”.But, there was a remark that kept our attention in a very particular way. In itsstatement, FED said that “problems overseas have crimped demand for US exports,dealing domestic companies another blow”. And all that when the US internationaltrade gap has became less than half (26 billion dollars in February) of its picks reachedin mid 2007 (more than 60 billion dollars)!Great investors like Warren Buffet and George Soros heavily criticized theFED action but they really meant what they said?! Among other issues they raised theywere saying that, far from resuming the lending activity in the business sector, thismove will only artificially and temporarily revamp the price of assets and of goods andservices – finally conducting to inflation without gains in productivity (stagflation).We argue that, at least for the time being, inflation is out question in US. Wehave only to remind that both values of PPI (Producer Price Index) and CPI (ConsumerPrice Index) were showing in recent months that inflation is well contained. More else,PPI has known its first Y/Y decline since 1955. Also, we have to add to the picture thatfor the month of April 2009 we‟ve just seen a monthly decline in the CPI number (-0.1% M/M) and only a modest increase in the PPI number (+0.1 M/M) while in theirY/Y dynamics both numbers have shown sharp year/year declines: April PPI Y/Y: - 3.6%; April CPI Y/Y: - 0.4%.Also, we have to say that the recent monthly job losses in US were huge indeedand that could mean everything (anything!) but inflation. In the last three months we‟veseen dramatic declines in the non-farm payrolls number as well as well as in the joblessrate number: April non-farm payrolls M/M: actual: - 663,000 (consensus forecast: -650,000); April jobless rate: actual: 8.5% - in line with expectations; March non-farm payrolls M/M: actual: - 651,000 (consensus forecast: -648,000); March jobless rate: actual: 8.1% (consensus forecast: 7.9%).So, assuming that all money released by FED is to have the US economy asdestination, still we don‟t see any inflationary pressures to develop at least for the next6 to 12 months ahead.But, the key issue here is the money resulting from this quantitative easingaction taken by FED has not US economy as main destination!86

Economic Theories – International Economic RelationsThe last G20 meeting (April the 2 nd 2009) has given free way for 500 billiondollars at the IMF disposal in order to help emerging economies. We have to rememberthat Romania itself has borrowed money from IMF just recently! We did notice that themain contributor - as a sovereign country – to this kind of “world stimulus package” is,actually, the United States of America (100 billion dollars)!So, US are due to become the main creditor of the world, but in a very strangeway – and that because US is also the main debtor of the world.So, a third of those 300 billion dollars released by FED by purchasing longterm T bonds are actually designed to finance emerging economies.At the last G20 meeting, the status of the US dollar as world‟s reserve currencywas subject of serious discussion actually for the first time in the post World War II era.It seems , in the aftermath, that America has learned its lesson in recognizingthat the “laissez-fair economic policy” and excessive deregulation in the bankingsystem were mistakes.US wants to puts an end to the “consumerism era” and to put its economy backon track by regaining in terms of productivity in order generate a new kind of growthbased more on added-value and less on assets. The ignition of such a process seems tobe this main contribution it made to the IMF efforts in assisting emerging economies.These economies will restart to re-think their own kind of growth and are suppose tobuy more capital goods “made in USA” and, so, lifting more pressure of its already 6months sharp narrowing trade deficit.Growing demand overseas for US made goods and services will stimulate theentire business sector and the US economy will start to generate some new and freshliquidities. We also have to add to the picture that the average American homeownerwill never-ever spend (especially on imported goods) the way he or she has done in thelast decade. The US dollar is due to remain weak, at least for a while, and that will alsobe a “plus” for the American international trade position. As the US international tradewill improve, this country will start to pay down its national debt. The US economicgrowth engine will never be the same it was in the last four decades. The work will bere-priced as well as capital gains.Our guess is that “easy money policy” will reach its end sooner rather than laterand that because the US economy has an enormous potential of growth. In this kind ofrespect we have to remind that this economy produced growth at 140 – 150 dollars/oilbarrel and the recent sharp decline in oil prices has created a huge “productivityreserve” by diminishing energy costs in the entire US business sector. So, the profitmargins will benefit, too.On the other hand, we have to notice that US is actually the only country beingin a position to lend money to the world, directly or via IMF, with no bad effects on itsown economy. That could happened because any other big dollars detained (bigexporters like China, for example, that has the US dollar as main currency in itsreserves and continues to buy US debt) that eventually has intended or do intend to lendUS dollars to the world will reach nothing but undermine its own economy by puttingdown the value of the dollar and diminishing its own reserves.As many analysts already noticed, big exporters like China have createdeconomic engines for nothing!Also, we have to add that the US capital markets are the most liquid, the largestand the deepest in the world. These capital markets assure large doors for good capitalcoming to US as well as large doors for insane capital leaving US. In this kind of87

Revista Tinerilor Economişti (The Young Economists Journal)respect we have to notice that US Treasury made its moves by using market instrumentswhile the FED‟s quantitative easing measure is, basically, an open market action.The US economy is an innovation-based, versatile, and very dynamic one. Itsworkforce is the most flexible and mobile in the world. By re-thinking the capitaldistribution and re-pricing work, the US government will encourage the development ofnew products (goods and services) with good outcomes in terms of productivity gains.As we‟ve noticed earlier, the average American consumer‟s behavior haschanged dramatically in recent months and is due to continue this way. As theAmericans will start to leave the consume-on-debt behavior by dropping down theircredit cards and to save more, the behavior of the banking system will also change byswitching from finance consumption to finance investment-based activities.It‟s time to remind that US still has the most powerful and prestigious academicsystem in the world. Its well-known universities ( MIT, Harvard) are still the placeswhere the world top researches do work and put out their results. It is to expect thatsome of those results will soon reach some interests in the economy and will attractinvestments in order to create those new products we were talking about.At the last G20 meeting the american voice was a little bit milder than usually,but, while the US dollar is contested indeed but nobody sees a valuable replacement forit, US is to remain the largest and the most powerful economy in the world and, ofcourse, it will use the power of the dollar as the single world reserve currency.The last FED action will relieve the world economic tensions and will be asupport for growth to the developing countries (like Romania!). Those countries willstart to consume more than they do now and the IMF will watch closely to theireconomic policies, avoiding mistakes made in the past.The world has changed dramatically in recent months but the economic lawsremain, basically, the same.The economic war will continue reaching worldwide dimensions that world hasnever seen before. The US economy will face fierce challenges in fighting with itsdeficits but exporters like China and – why not ?! - Germany will face even toughertasks. These big exporters have built their economic policies on the assumption that theUS consumption market is kind of “black hole” and is to remain this way forever. Theywere deadly wrong – Germany output has already fallen 6% Y/Y and China‟s recentslowdown has never been seen in the last two decades. Oil exporters like Russia andArabic countries that built their economic plans and budgets assuming the oil price willremain above 100 US dollars/barell, will also be in trouble. The US mood to consumeon-debthas change dramatically.The world economy itself is about to experience dramatic changes. One thingwill remain in place, at least for the foreseeable future: the US Dollar will remain theworld reserve currency.REFERENCES1. Krugman, P.,Obstfeld, M.“International Economics. Theory and Policy”, Addison-Wesley, ISBN 0-321-45134-1, 2008.2. Parkin, M. “Economics”, Prentice Hall, ISBN 0-321-42300-3, 2007.3. *** www.federalreserve.gov4. *** www.ustreas.gov5. *** www.imf.com88

Economic Theories – International Economic RelationsCONCISE CHARACTERIZATION OF THE EVOLUTION AND BEARINGS OF WORLD-WIDEECONOMY AND THEIR INFLUENCE OVER THE MOBILITY OF TRADING COMPANIESPh.D Student Demetra Lupu-VişănescuUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: The current world wide economy met deep changes, especiallyin the last decades, changes which had major effects over business area.These determined the adoption of some decisions, at the level of mainactors of economical life, which allow them to resist at new challenges. Inthis way, strategies should think again such trading companies, as mainmotor of world-wide economy attended to the requirements imposed bythe market. Thus, managers took into consideration strategies whichsupposed including the achievement of some partnerships and strategicalliances, reaching even at mergers and entity acquisitions, which allowedthem the consolidation of the position on the market.JEL classification: G00, G34, M21Key words: merger, acquisitions, world economy,The current economy, characterized by a big international degree has its origininto the modern economy based on the development of industrial technology starting1860s. The technological revolution of communications allowed the evolution anddevelopment of a modern trading system. In the second half of 19th century the underseaintercontinental telegraphic cables contributes to the outline of world-wide market,determining a fantastic increasing amount and the complexity of deals. Thus, it wascreated an informative average capable to sustain an authentic international tradingsystem.Today, more than ever, we can talk about the existence of some economicalinterdependences generated by the existence of a world market formed as a result ofreports which established between national savings and which function as aninternational division in different countries. This tendency is manifested more and morein the evolution of world economy.However, we can affirm that lack of balance produced in a national economy (aconclusive example is the case of the crisis produced by mortgaging in the USA) cangenerate dysfunctions wave developed in all sectors at all level of world economy. Weattend to a real domino effect products because of economic interdependences andwhich don‟t sum up only at one activity sector or more than a national economy and alllevel of world economy affecting practically all the activity domains.At last, through studying, chances which influenced decisively the worldmarket is achieved practically an analysis of tendencies developed at world economicallevel.In the last decades is remarked an increased change of production factors andespecially a big increasing of capital movements, as well as more weight of privatecapital in financial deficiencies of developed countries. The change unprecedented of89

Revista Tinerilor Economişti (The Young Economists Journal)capitals facilitated the taking over control in some companies as in the foreign country,through national and international mergers and acquisitions.Unfortunately, the capital change doesn‟t produce a big migration ofinvestments and implicitly manpower form advanced countries to those not verydeveloped. Rather, form the analysis statistic data delivered by The Organization ofUnited Nations through World Investment Report-2008 we can observe a biggerconcentration of direct abroad investments in the advanced industrial savings, whileother countries stay outline as investments or trading.Other tendency which manifests in the world economical level consists in thefact that the current world market is characterized through a high institution degree ofinternational economical changes, as a result of the appearance of a big number oforganizations, associations and unions of states, producers, exporters and importers,created with the purpose of free promoting of national economical relationships. Weattend, thus the foundation of various organisms created at regional level, which have asmain role the regulation of economical changes, as Nations Association of South-EastAsia (ASEAN), Economical Cooperation of Asia- Pacific, North America Free ChangeAgreement (NAFTA), Andin Pact, Common Market of South Cone, which hascountries in South America (MERCOSUR) ,Central European Free Change Agreement(CEFTA), Organization of Petroleum producers and Explorers (OPEC) and why notEuropean Union (EU).Also, there were made multiple international economic regulations which don‟tpursue the creation of closed national economy, isolated by the economy of othercountries and free circulation of goods, services, capital and manpower.Other specific element of the current world market consists in that main„actors” of the market are the transnational companies, which were founded as a resultof external increasing strategies of national entities, through the foundation ofheadquarters out of boarders of the country and taking over of some acquisitions. Thesetransnational companies are mainly responsible of transnational production companies.The data show the number of transnational companies is continuously increased in thelast 15 years. Thus, if in 1992 are recorded about 31,000, in 1998 their numberincreased about 53,000, in 2004 about 61,000 and in 2006 were registered about 78,000with over 780,000 of abroad headquarters. On the basis of data in the reports made byspecialists in the Organization of United Nations, the increasing trend of transnationalcompanies‟ number manifested in the last years is presented in figure No. 1.8000060000400002000001992 1998 2004 2006Figure no. 1 The number of transnational companies in 1992-2006From 780,000 transnational companies recorded in 2006, 58.000 whichrepresent a percentage of 74,36% have their base in the developed countries, 18,500respective 23,72 % in not developed countries and 1,500, equal with 1,92% of thesenumber, in the developed ones the percentage is about 33,33%-a number of 260,000-in90

Economic Theories – International Economic Relationsnot really developed countries the percentage of 52, 18%-cca 407,000 entities-and inpercentage of 14,49%, respective 113,000 in countries with transit economy.Meanwhile, the statistic data show that the biggest number of abroadheadquarters are situated in China, about one third. When it analyze these representonly 2% of world value, that shows the fact that more foreign headquarters in China arewith very small value or are represented by „joint ventures” associations with smallcompanies.If we analyze the amount of production achieved by transnational companies isconsisted that in 2006, this represented about 10% of the amount of raw internalproduct at world level, and the export achieved by there is increased at about one thirdof the export achieved at world level. As main actors, the transnational companiesbecame more and more active about the taking over through acquisition or merger ofsome economic entities, which allow them the attack of some new market segments,having the final purpose a strong position and implicitly maximize of the obtainedprofits.A trend which makes individual the current world economy is showed througha big part in economical changes at world market level manifest as a result of aneconomic cooperation and international financial under various forms: foreign directinvestments, co-productions, sub-productions, mixt companies. Thus, it is attended anew vision regarding the world market and implicitly the international economicalchanges which interpret sales abroad not as an „external trading” and as a world-widetrading. In this vision can attend as a lot of products is for a headquarter in a certainarea and no the export in that area.In this context appear new segments of world market which don‟t vise, as in thepast, only the trading with goods. This refers to: international trading with goods,services, capital- capital market-international deals with foreign currencies-internationalcurrency market- hi-tech market. It can attend that world market at the end of 20thcentury and beginning of 21st century doesn‟t suffer comparison with the world marketof 19th century, and not only from deals‟ point of view especially of the content,segments, fluxes and their achievement techniques, of concise analysis we willcontinue.International trading with goods remains the main segment of the world-widemarket, even if, in the possessed weight, recorded a decrease of 95% in the 19th centuryto about 50% in the end of the 20th century. This relative decrease of the possessedweight on the world-wide market of the international trading with goods was generatedby the development known by other segments.The most important extent on the world-wide market is known, now, by thesegment international trading with services or invisible trading. This segment isrepresented by international transport activities, international tourism, post office andtelecommunications- a more and more important role has the internet network whichknows a big development in the last decades-insurances and re-insurances, dues (inrevaluation of property right), international financial-banking activities, culturalservices.In the analysis of statistic data can be observed that the increasing rhythm of theinternational trading with services is superior to the increasing rhythm of theinternational trading with goods, such is noticed in the analysis of the table No. 1 andfigures No. 2 and391

Revista Tinerilor Economişti (The Young Economists Journal)It can be noticed that, in the absolute value, the amount of the internationaltrading with goods-12.065.414 million $in 2006-goes beyond very much theinternational trading with services-its absolute sum of money was situated at about.2.812.815 million $ in 2006-if is considered the increasing rhythm, is established aconsiderable advance of services against goods. In the analyzed period of time theamount of the international trade with goods recorded, totally, an increasing trend. Ifin 1980 this situated at 2.032.145 million $, in 1985 recorded a decrease at 1.970.357million $, decrease followed by an increase until 3.479.591 million $, in 1990,5.171.624 million $ in 1995, 6.455.744 million $ in 2000, 10.466.866 million $ in 2005and arriving to 12.065.414 million $ in 2006. The increase of the amount of trade withgoods due, especially, the increase of products weight, which includes very expensiveadvanced technologies, and the decrease of cheaper raw materials weight. Regardingthe amount of the international trade with services, the increased trend maintainedduring all the analyzed period, from 319.080million $, the recorded value in 1980, to407.216 million $ in 1985, 831.676 million $ in 1990, 1.239.816 million $ in 2000,2.536.775 million $ in 2005 and reaching to 2.812.815 million $ in 2006.Table no.1 The evolution of the international trading with gods and servicesduring 1980-2006YearPercentageAbsolute value of the Absolute value of thePercentage increaseincrease of theinternational trading international tradingof the internationalinternational tradingwith goodswith servicestrading with serviceswith goods(millions of dollars) (millions of dollars) (%) (%)1980 2.032.154 391.0801985 1.970.357 407.216 96,96 104,131990 3.479.591 831.676 176,60 204,231995 5.171.624 1.239.816 148,63 149,072000 6.455.744 1.536.459 124,83 123,922005 10.466.866 2.536.775 162,13 165,112006 12.065.414 2.812.815 115,27 110,88Total increase index 593,73 719,24The processing of data delivered by every year reports made by specialistsinside The Organization of United Nations allows us the achievement of suggestivepresentation of the evolution of the international trade with gods parallel to evolution ofthe international trade with services, Fig. No.2.15000000100000005000000godsservices01980 1985 1990 1995 2000 2005 2006Figure no.2. The evolution of the international trading with gods and servicesduring 1980-2006If we analyze the evolution of increase index of the international trade withservices is established that it outruns, per total, about 125,51 per cent the internationaltrade with goods, recording an increased trend during all the analyzed period. In 198592

Economic Theories – International Economic Relationsrecorded an increase with about. 4.13 % against 1980, while the international trade withgoods was situating at 96,96% of the amount achieved in 1980, recording a decrease of3,04%. Following the increased trend, in 1990 the international trade with servicesdoubled, recording an increase with 104,23 % against 1985, parallel to it theinternational trade with goods increased in lower rhythm, only 76,60% in the sameyear. In succession is recorded the same increasing rhythm, and in 2006 theinternational trade with services recorded an increase of 619,24% against the referenceperiod, respective 1980, while the international trade with goods knew an increase onlyof 493, 73% against the same year. Considering data analyzed above, in Fig. No. 3 weshowed graphically the evolution of increasing index of the international trade withgoods and services during 1980-2006, easily notice, although both trends are increased,the international trade with services records a faster increase in comparison with theinternational trade with goods.800600400200godsservices01980 1985 1990 1995 2000 2005 2006Figure no.3. The evolution of the international trading with gods and servicesduring 1980-2006One of the most dynamic segments of the world market which had a decisiveinfluence in the extension of deals like mergers and acquisitions from national tointernational level, is represented by international deals with capitals (capital market).Inside this segment the biggest ampleness have direct foreign investments presented inthe financial cash-flow, but especially to obtain the control package over an economicentity by an external deliverer.As we said, the mobility of capitals put decisively the fingerprint over themobility of trade companies, because they were created the premises about thedevelopment of deals like mergers and abroad acquisitions. The analysis of theevolution of these deals in the last years makes evident the increased trend which exists.If in 1990 the level of deals with capital increases at 1.980.792 million $, in 2006 theirlevel touched 13.304.690 million $. The increasing trend of direct foreign investmentsis showed in table No. 2, which, on the basis of statistic data published by theOrganization of Unites Nations, is presented the amount of direct investment during2000-2006 at world economy level and their main component respective countries withnot really developed economy, transit economy and developed economy countries.Table no. 2. The evolution of the direct foreign investments during 2000-2006Million dollarsYears2000 2001 2002 2003 2004 2005 2006EconomyWorldeconomyCash-flowfinanceDeals on thecapital markets1.411.366 832.567 621.995 564.078 742.143 945.795 1.305.8525.810.189 6.210.762 6.789.206 8.185.387 9.570.522 10.048.015 11.998.83893

Revista Tinerilor Economişti (The Young Economists Journal)EconomyDevelopingcountriesCountrieswith transiteconomyDevelopedcountriesYearsTotal of directforeigninvestmentsCash-flowfinanceDeals on thecapital marketsTotal of directforeigninvestmentsCash-flowfinanceDeals on thecapital marketsTotal of directforeigninvestments2000 2001 2002 2003 2004 2005 20067.221.555 7.043.329 7.411.201 8.749.465 10.312.695 10.993.810 13.304.690256.096 211.999 166.275 178.705 283.006 314.279 379.0521.707.639 1.786.913 1.727.499 1.978.065 2.287.694 2.621.615 3.155.8561.963.735 1.998.912 1.893.774 2.156.770 2.570.700 2.935.894 3.534.9089.040 11.524 13.393 24.187 40.285 41.169 69.28371.222 99.412 127.472 172.648 227.973 304.869 389.13080.262 110.936 140.865 196.835 268.258 346.038 458.413Cash-flowfinance1.146.230 609.045 442.327 361.186 418.879 590.347 857.517Deals on the4.031.327 4.324.437 4.934.235 6.034.672capital markets7.054.855 7.121.532 8.453.853Total of directforeigninvestments5.177.557 4.933.482 5.376.562 6.395.858 7.473.734 7.711.879 9.311.370A more attentive analysis of structure of this type of deals shows the fact thatthe majority of direct foreign investments are concretized in deals on the capital marketand especially shares acquisitions of the economic entities.Although, in 2000, the deals on the capital market at world economy levelrepresented about. 80% of all direct foreign investments, equal with 5.810.189 million$. Meanwhile the direct foreign investments (ISD) concretized in cash-flow financeincreased as absolute value of 1.411. 366 million $ representing 20% of all. Theincreased trend maintained regarding the absolute value of ISD and percentage weightof deals on capital market.Although, in the analysis of presented data, is seen in 2006 the total amount ofISD reached at 13.304.690 million $ recording an increase over 84% against 2000.Meanwhile, the weight of deals on the capital market situated at 90% of total ISD,against cash-flow, whose weight became half against 2000 reaching at only 10% in2006. The analysis of absolute cash flows makes evident the fact that during 2000-20006 the level of 1.411.366 million $ recorded in 2000 wasn‟t touched, happening asystematic decrease. The lowest level recorded in 2003, when cash flows recorded only6,45% of ISD total, situate data 564.078 million $. On the other hand, the deals on thecapital market recorded a bigger increase, over 206%, reaching in 2006 a record levelof 11.998.838 million $. Data presented previously (table no.2), we made in fig. no. 4 agraphic presentation of the evolution in absolute values, which is noticed very clear theincreased trend of direct foreign investments per total years especially having recordedby deals on the capital market against cash-flows.As it previously underlined, it is noticed a concentration of capitals in countrieswith developed economy about. 70% in 20006 level of direct foreign investments‟ total,while not really developed countries remain outside regarding capital infusions at 27%level.94

Economic Theories – International Economic Relations140000001200000010000000800000060000004000000200000002000 2001 2002 2003 2004 2005 2006cash-flowcapital marketFigure. no. 4. The evolution of the amount of direct foreign investments during2000-2006Also, the increased rhythm of direct foreign investments record in not reallydeveloped countries is inferior rhythm recorded in advanced industrial countries. Thisthing has a negative effect the more and more increased of the differences between twokinds of states (powerful industrial and not really developed states).From communication and international communication techniques‟ point ofview the most advanced segment of world market is represented by currency deals,operations of currency sale and purchase, respective international currency market. Thecurrency deals, as some trade deals are achieved as forms of electronic trade, throughInternet, fax, electronic courier or SWIFT. The brilliant increase of the amount of thesedeals dues firstly to the progress and innovations achieved in telecommunication andinformative technologies area which allowed the achievement of deals in real time, nomatter the distances between partners. In some statistic data, is seen in 1972 that netdaily currency flux represented 15 billion $, in 1986 this reaches almost of 200 billion$, in 1995 about. 1.300 billion $ and in 2003 over 2000 billion $-representing anincrease of about 1 3333, 34%.Other segment of the world market which develops extremely fast isrepresented by hi-tech market. Its current evolution is based on progresses achieved inareas like: information, telecommunications, optic fibers, chemical complex products,aerospace industry.The changes of this area are so fast than we can say that we attend at a newtechnologic revolution, which supposes the organization of the production on the basisof electronic means.Passing through older concepts of mechanization and automatization, the newconcept integrates project, management, production and marketing, transforming thetraditional economy, based on all production, in a more efficient production organizedinto shorter, flexible and exactly executed series. Other domain which achieved radicaltransformations is biotechnology.The recent discoveries, form agriculture to medicine, present a lot of economicproblems, ethics and judicial and the most emphasized are considered the transplant ofhuman genes and clone.After all presented in here, we can say that the world market is characterizedthrough an accentuated vitality, through an ascending movement, in the impact of thedevelopment of production factors and firstly a technical and scientific and informativerevolution. This trend is manifested through a fast rhythm of international fluxes‟increase and the depth of interdependences which are achieved between all worldeconomies.The process of interdependence depth shouldn‟t understand as achievement of95

Revista Tinerilor Economişti (The Young Economists Journal)a system of mutual and real dependences. On contrary, it should be mentioned theseinterdependences take place between developed and weak developed economies,between small and big economies, rich and poor, they have discrepant forms,representing some domination relationships and for others dependence relationships.We can say that the current world economy is showed as an ensemble ofeconomical, political, trading and financial-currency interdependence which took placebetween national economies, over-national structures and transnational companieslooked and analyzed objectively.During the time the world economy suffered a series of changes due mainly totransformation which took place on the world market.Although, a first change consists in modifying of world import and exportstructure, something made evident through the decrease of raw materials weight andsemi-made products, which now are appreciated that they have about one third of worldtrade, parallel with the increase of remade and high remade products, which have twothirds. Main cause results that the prices of high remade products recorded anaccelerated increase, because the revolutions in information and hi-tech area, unlike theprices of raw objects which recorded slower increase or sometimes decreases.Other transformation we attend is represented by trade protection, in that way,parallel to a discount in custom taxes level, takes place a single proliferation of untaxedobstacles in the world trade, showed through quantitative restrictions, norms andtechnical standards, phytosanitary norm and even packing and marking norms.In the same time appeared and developed 3 big trade poles, respective West-European pole having all countries member in European Union and EuropeanAssociation of Free Change, North-American pole formed by the USA, Canada andMexico, and Japan and South Asia and South-East pole formed by Japan and newindustrial countries in the area. These 3 area have together about 80% of world export(see figure. no.5).1200100080060040020002006GermaniaSUAChinaJaponiaFrantaOlandaMarea BritanieItaliaCanadaBelgiaFigure. no. 5. The level of exports in 2006Other tendency which manifests in the world economy represented by a fasterincrease of the trade in South-East Asia and Europe. Analyzing the weight of differentregions in the international trade made in the last 20 years is seen that, while themajority of regions records stoppage or even increases, both regions are situated on anincreased trend.Also, the economic development at world scale was influenced by 2 bigtendencies, apparent opposite which manifested in the last decades of the last century,respective creation and consolidation of national entities, as well as affirmation of theindependence of nations, on a hand, and the stress of integration and economic96

Economic Theories – International Economic Relationsinterdependences, cultural and political between states and economic agents, on theother hand, what took toward world economy.European Union represents a conclusive example of world economy, wherepractically national borders loose their importance. So, we can say that transnationaleconomic activity represents the most important transformations of world economy.In the same time is known that , in the increase of interdependences betweencountries as a result of increasing freedom of circulation of production factors, goodsand technologies, resulted in the extension of transnational links, big contemporaryproblems are transformed form national problems into world problems.The tendencies manifested in the evolution of world market and implicitly ofworld economy, especially at the end of 20th century and at the beginning of 21stcentury, they took at the more and more frequently using of a new concept titled„globalization”. This term isn‟t new, in 1980s, the globalization had the technologicalprogresses which made easier and faster the international deals. Robertson defines theglobalization as „the process of multiplying complex of links and interconnexionsbetween states which make the world system”.Now, we can estimate that globalization is the result of conjugated action ofmore factors, as: more stressed freedom tendencies of trade changes, the developmentof capitals‟ markets and respective direct foreign investments, international productionand distribution of transnational big companies, the huge jump of trade services,multiplication and diversity of international trade changes, big changes in the capitalstructure.Some critics consider globalization shouldn‟t be something else than anAmericanize”globalization has Micky Mouse‟s ears, drinks Pepsi or Coca Cola, eatsBig Mac‟s, works with IBM laptops. Many world companies see it something good, butothers consider it a strong threatening.”Even if in the world level are many opponents of globalization phenomenon,this is an inevitable and irreversible process supported by the developed countries. Aswe see in the statistic data previously presented, the supporters of globalization are theUSA, Japan and South-East Africa‟s countries which have an economical,technological and financial potential of about. 90% of world production, theinternational trade and financial resources made for the majority of poor and not reallydeveloped states take a smaller part of world richness.Through introduction of advanced technologies (automatized and informative),through the increase and diversification of industrial production, freedom of trade, moreand more capital fluxes, globalization produces, on one hand, well-being, and on theother hand it deeps the economical and social inequalities, making to increase theunemployment and poorness. A small number of states benefits of the biggest richnessof the world while majority of poor states take a smaller part of world richness.As we previously presented one of the factors which generate globalization ishi-tech spread. This phenomenon has contrary effects made in the increasing of highqualification specialists, but meanwhile these technologies generate technicalunemployment which affects unqualified or reduced qualification employees.In the globalization process appears a series of over-statal and internationalorganisms. In these terms the attributes of national state is changed, giving up a part ofsovereignty of these organisms, but gain a series of new attributes through participationat their function. A conclusive example is EU itself, being in all extension processthrough integration of new states and deepening of economical, financial, trade and97

Revista Tinerilor Economişti (The Young Economists Journal)technological relationships.The care for the environment should be other major component of globalizationage.In the context of stressing of contemporary economical and socialtransformations, humans permanently confront with the major dilemma of satisfactionof current requirements without compromise the environment and necessities of futuregenerations. In these terms the development must foresee the passing of an economywith ecological character which allow the achievement of an equilibrium between theincrease of population, its needs and using of resources protecting the environmentterms.Synthesizing the presented aspects we can hold that contemporary world ismarked by numerous major changes which are remembered.-Globalization of markets, international and national economies whichimposes a redefining product and market‟s strategies, being conscious of bigcompetition between firms and world character which they have.-Stressing of technical and technological changes and informationexplosion, confirmed with more accelerated promoting rhythm of technical progressand new information technologies.-Identification of world competitiveness, parallel to moving stress from pricefactors to technical level, product‟s quality, adjacent services or notoriety etc.-Diversity and request’s refinement, consumption becoming more and morepersonal.-Conscious of limited character of energetic resources of raw materials,with more drastic requirements regarding the insurance of ecological equilibrium.-Stress of influence and pressures of different groups of stakeholders:shareholders, customers, deliverers, associates of customers, ecologists, governmentsetc.-Concentration of production and the development of big companies andindustrial group, determined by the necessity of maximum value of economicadvantages, increase of international competition, but modification of concept regardingcompetitiveness politics which, under the impact of the creation of internationalproduction system became more flexible regarding mergers, acquisitions and creationof mixt companies, even in terms which take to sensitive concentration of economicactivity.-Development of partnership in searching domain-development, productionand/or distribution. These reasons determined the extension of strategic options linkedby colaboration, regarding the touch of some common purposes, through strategicalliances between competitiveness and partner entities.-Third of national economies, phenomenon generated by the impact ofincrease of productivity in primary and secondary sector and the increase and diversityof services‟ requirement.-The cost and more increased mobility of capitals, conjugated with radicalmodification in the last years of significance of international financial fluxes and theirlimited character, reported to „capital hungry” what features the world businessenvironment.In the analysis made by us, we can conclude that globalization contentedpractically all the world and the speed which extended it determined Robert Reich tosay, in 1996, that „we live deep transformations which will re-arrange the politics and98

Economic Theories – International Economic Relationseconomy of next century. It won‟t be national economies, when this process will beclosed. What will remain in some borders will be people who will form the nations”.So, in this specialist‟s opinion all economic activity will belong of a global economywhose nationalism will be very hard identified and people‟s well-being will depend onbig corporations‟ success and not the success of each nation.In this context, we are against author‟s feeling, who considers that the missionof state will considerably diminish. So, the role of main actor of international economicrelationships and regulation and systematization of national economic activity doesn‟tbelong exclusively to state and it was taken over by transnational companies. In thefuture it is said that these will take over entirely this role against national state.All these, we can‟t forget the fact that are contrary opinions according to thesethe state political institutions are and will remain the main force in modeling of worldeconomy. To sustain this opinion the author considers, and we basically appreciate, thatcurrent world economy is more and more political, and at the origin of bigger andbigger interdependences between states don‟t stay only the economic reasons,especially political ones. The effects of main indicators (payments balances, changerates etc) over the world economy are felt again and through their political bearings .So, we can‟t deny the political bearings in the economic life, the question is:Don‟t the political actions which states call have an economic hidden motive. In ourpoint of view and other researchers even if they hide in different forms (defense ofdemocracy, right of territorial independence), motivation of all political actions basedon an economic hidden motive, concise or supremacy over natural resources andespecially hydrocarbons or the extension of economic influence areas. Thesetransformations, world economy level, influenced the traditional thoughts overeconomic entities and its organizational and leading approach.The necessity of faster and efficient adaptation to these changes, with thepurpose to grow the competitiveness capacity, took to the movement of strategicmanagement toward prospective and projective thought, essential feature of performedmodern firms.The changes in strategic thought stimulated the passing from theoretical modelof economic systems to the world economy based on the networks which the basisprinciple has the interconnections and mutual interdependences, this evolution is, ofcourse, in the world globalization trend. It was influenced the mobility of tradecompanies made in the increase of mergers‟ and acquisitions‟ deals at national level andespecially at international level and which, finally, took to the appearance oftransnational companies. Beside the concentration phenomenon of economic activitiesin the hand of transnational companies we attend to a restructuration process ofcompanies which didn‟t adapt to new requirements imposed by globalization. This wayare manifested transformations which vise the division of companies, through thedetachment of some sectors of activity. This thing allows the creation of some flexibleeconomic entity which react and adapt faster upon modifications generated by theevolution of world economy. The announcement of bankruptcy of somedisadvantageous companies which didn‟t adapt to requirements imposed by the currenteconomy, allowed the business climate even elimination in the market or economicentities entered in insolvency.Our study based on available data which were in 2006, published by TheOrganization of United Nations in 2007, data which didn‟t foreshadow the economicalcrisis which affect the USA and implicitly the world economy.99

Revista Tinerilor Economişti (The Young Economists Journal)The crisis which erupted in The USA in 2007 affected the financial market andcreated problems in many countries, generated mainly by the increased cost of loan. Atmicro-level and macroeconomic level have the ability to invest of economic entitieswas limited. The impact over the transnational companies which benefited by ampleliquidities, showed in an increased level of recorded profit, was small than expected! Atmicroeconomic level, developed companies can be affected by the slow of increase ofthe USA economy, as well as uproar which is on the financial markets, generated by thelack of liquidities entering in decrease of fluxes of direct foreign investments. On theother hand, the relative sudden change of economic increase in not really developedcountries could reduce this risk. Around the loans‟ crisis in the USA, the worldeconomy was affected significantly by depreciation of dollar. Taking into account thatthe evolution of change rate is one of the main factors which influences the directforeign investments was seen that the decrease of exchange course of dollar stimulatedthe increase of these investments in the USA. So, in the report of the Organization ofUnited Nations for 2007 is underlined that „direct foreign investments in the USA werestimulated by the relative increase of European investors‟ fortune parallel to thediscount of costs of the investments in the USA”. In addition the companies whichexported in the USA suffered because of change rate, what reached to the extension oflocal production. This situation is illustrated in the change of strategies in someEuropean transnational companies which pursue to open new production units or toextent the abilities in this country.Slowing down of world economy and financial uproar reached to cash crisisand loans market in many developed economies. As a result, deals like mergers andacquisitions recorded remarkable decreases. In the first half of 2008, the value of thesedeals was 29% smaller than recorded in the secondary half of 2007. On the basis ofavailable data estimates the value of direct foreign investments during 2008 will reachabout 1,600 billion $ level. Meanwhile , the flux of direct foreign investments will beprobably for not really developed countries. Also, is seen that a decrease of „optimism”and more precaution in the investments and extended plans of transnational companies,what takes to the decrease of mergers and acquisitions deals. Meanwhile we attend todivisions and even bankruptcies of economic entities entered in insolvency because oflack of cash.In World Economic Forum developed in Davon in spring 2008, specialistspresented the delicate problem of world economy generated by problems in thefinancial markets. In the middle of debates was the world economy recession generatedby American economic recession. The question which was formulated plastically byparticipants (political leaders, business men, managers and not finally economicspecialists and famous accountants) was : „If America sneezes all world should getcold?” The answer was given by American specialists , respective prof. NourielRoubini (University of New York) who said : „The USA doesn‟t sneeze only but notfinally has a flu, and an extended pneumonia”. Meanwhile, Kenneth Rogoff (HavardUniversity) said that : „We confront with a serious financial crisis, with world resultsgenerated by American economic crisis”. Inside this forum, the executive director ofPricewater houseCoopers, Samuel DiPiazza, declared that as a result of searches madeby his company „the biggest preoccupation of directors is represented by economicrecession”. According to bearings made by the same company during September-November 2007, considerably decreased the interest of directors regarding mobility of100

Economic Theories – International Economic Relationscompanies, they being interested by international mergers and acquisitions only of 38%against 47% recorded previous year.These transformations made during financial periods which beated moneymarkets and lack of cash which created numerous and difficult problems in bankingsystem generated the slow of economic activities and look at the preoccupation of allworld toward American economy, its health depends, lastly, the world economy. Weare agreed with specialists‟ opinion, expressed into the forum, that these things takeplace mainly because of the fact that American economy represented still now theengine of world economy, and now, when this suffers it isn‟t other economy to take thisrole (not even European Nation economy isn‟t ready to such a role).In conclusion, we can appreciate that we attend to a clear manifestation ofglobalization phenomenon is contemporary and it shapes our attitudes. The problemwhich put isn‟t how to stop this phenomenon but how can we influence the evolutionsuch we don‟t loose control. We appreciate that ex-president of the Organization ofUnited Nations , Kofi Annan, who said: „Unless we can make globalization works forall, finally, it will work for nobody”. Globalization should generate an economicincrease, security, education, protection of the environment, shortly a better worldgovernment which ensures a larger distribution of opportunities and a good average forthe economic increase.REFERENCES1. Postelnicu, G.. Globalizarea economiei, Ed.Economica, Bucuresti, 20002. Robertson, R. Globalisation, Sage Publishing House, London, 19923. Reich, R The Work of Nations, Bristol Academic Press, 19964. Moisuc, C. Relaţii economice internaţionale, Ed.România de Mâine,Buc., 2006.5. Turcanu, Gh. Strategii contemporane ale corporaţiilor6. United Nations World Investment Report – 2000-20087. * * * International Trade Statistics 2007, W.T.O., 2008101

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Business Statistics – Economic InformaticsLABOR PRODUCTIVITY AND WAGES IN THE REPUBLIC OF MACEDONIAAssist. Ph.D Student Predrag TrpeskiJunior Teaching Assist. Biljana TashevskaUniversity “Ss Cyril and Methodius”Faculty of EconomicsSkopje, Republic of MacedoniaAbstract: The relationship between wage and labor productivity is veryfrequent and receives a special treatment in economic theory and practice.The purpose of this paper is to explore the relationship andinterdependence between net-wage and labor productivity in the Republicof Macedonia during the period 1995-2007. The objects of analysis are therelations between the two variables on aggregate level of the Macedonianeconomy, as well as for certain economic sectors separately (industry,mining and water management; agriculture, fishing and forestry;construction; transport and communications; trade and financial services).Based on the results from the performed analysis, the paper reveals howand to what extent changes in real net-wage influence the changes inlabor productivity in Macedonia, on aggregate level and in the observedsectors.JEL classification: J24, J39Key words: real wage, GDP per worker, labor productivity, OLS regression, correlation.1. IntroductionRelation between wages and labor productivity is subject of continualobservation by economists. Numerous papers with different approaches and researchaspects are dealing with the abovementioned issue. Researches commence withestablishing simple models for determining the correlation between wages and laborproductivity and go to development of models for determining their interdependence. Inrecent times the models which examine labor productivity‟s dependence on wages areconsidered increasingly important. Researches made by Gordon in the 1980s showedthat “..the reaction of the labor productivity on the changes of real wages and cyclicalfluctuations in the output are almost identical in USA, Japan and Europe” (Gordon1988, p. 1). Efficiency wages models (Yellen 1984, Akerlof, Yellen 1986 and Katz1986) can be included in more advanced models. They point out that higher wagesincrease productivity of workers. (Trpeski 2005, pg.72-84). According to efficiencywages theory, companies can work more efficiently if they maintain wages on a levelhigher than the level at which clearance of the labor market is enabled. Therefore,companies can be more attractive if they maintain wages on a higher level, even if laborsupply exists on the labor market. The essence of this theory is that higher wagesincrease workers productivity. This theory puts workers‟ productivity and their wagesin a direct relation. If higher wage level is followed by increased productivity, then103

Revista Tinerilor Economişti (The Young Economists Journal)higher wages can provide increased profit for the companies. Companies have a lot ofreasons to pay workers higher wages: first, wages for efficiency improve workershealth, second, wages for efficiency increase labor force quality, third, wages forefficiency stimulate workers to increase their efforts and fourth, wages for efficiencydecrease the rotation rate of the working force (more details in Mankiw 1998, p. 295-307 and Stiglitz 1994, p. 717-727).In the scope of the efficiency wages theory several models are developed asfollows: shirking model, models of working force rotation, adverse selection modelsand sociology models. Except in the efficiency wages models, interdependence betweenlabor productivity and wage can be noticed in models for implicit contracts, as well as“insiders-outsiders” models.2. Characteristics of the labor market in the Republic of MacedoniaThe labor market in the Republic of Macedonia in the transition period can bequalified as imbalanced. For observed period the supply of the working force drasticallyexceeded the demand, which resulted in high unemployment rates that prevailed on ahigh level in a long period of time.The economic performances of the Macedonian economy can be realized fromfollowing table:Table no. 1Active Inactive Unemployment Employment Real GDPTotal % Total % Total % Total % Mil $ %2000 811.557 52,9 722.699 47,1 261.711 32,2 549.846 35,8 3.588 4,52001 862.504 55,5 691.916 44,5 263.196 30,5 599.308 38,6 3.437 -4,52002 824.824 52,6 742.129 47,4 263.483 31,9 561.341 35,8 3.769 0,92003 860.976 54,5 718.474 45,5 315.868 36,7 545.108 34,5 4.631 2,82004 832.281 52,2 762.276 47,8 309.286 37,2 522.995 32,8 5.368 4,12005 869.187 54,1 738.810 45,9 323.934 37,3 545.253 33,9 5.815 4,12006 891.679 55,1 726.810 44,9 321.274 36,0 570.404 35,2 6.345 4,02007 907.138 55,7 721.496 44,3 316.905 34,9 590.234 36,2 7.583 5,8Source: Statistical Yearbook, Bulletin of the Ministry of Finances of Republic of Macedonia,05-06.2008, pg. 50.The high rate of unemployment can be considered to be imported from theperiod before transition. The Republic of Macedonia has inherited an unemploymentrate of 22,6% at the end of the 1990s. This unemployment rate continually increased inthe transition period and reached 37,3% in 2005. In the last decade, the rate of GDPgrowth was stable, but was lower than the growth rates of other countries which aspireto EU or became EU members in the mentioned period. An exception from this is 2001,when the growth rate was -4,5%, but it was understandable because of the internalconflict that occurred in the same year.The rates of employment in the Republic of Macedonia are drastically lowerthan the rates in EU. In the period between 2000 – 2007, the average employment ratewas 35,35%, which is far below the Lisbon goal which envisions employment in EU toreach 70% until 2010. Employment in EU-27 rose from an average 64,5% in 2006 to65,4% in 2007, and in EU-15 it is higher and amounts 66,9% in 2007. However,employment rates in EU countries have not reached the Lisbon goal (rate ofemployment of 70%) established in Lisabon strategy in 2000 (Employment in Europe2008, p. 28-29). The average employment rate in EU-27 is 4,6 percentage points below104

Business Statistics – Economic Informaticsthe Lisbon goal of 70%. In EU-15 it is 3,1 percentage points below the goal. In theRepublic of Macedonia, the rate of employment in 2007 is 33,8 percentage points lowerthan the Lisbon goal.900.000800.000700.000600.000500.000400.000Inactive populationUnemploymentEmployment300.000200.000100.00002000 2001 2002 2003 2004 2005 2006 2007Figure no. 1 Employment, unemployment and inactive population in the Republicof MacedoniaTable 2 presents the average growth rates of the real annual net-wage and realGDP per worker in the period 1995-2007, where rg w stands for average net-wagegrowth rate and rg gdp per worker stands of average growth rate of GDP per worker. §§It can be noticed that, in almost all sectors of the macedonian economyproductivity grew with a faster average rate than the net-wage in the correspondingsector. An exception is the financial services sector, which is one of the faster growingand expanding sectors in Macedonia, and also a sector with high average wagescompared to other sectors. The average growth rate of the real net-wage is 10,04percentage points higher than the average growth rate of the productivity in this sector.This contributes for almost equal average growth rate of the two variables on theaggregate level.As can be noticed from table 2, on aggregate economy level, GDP per workerin the period 1995-2007 grew with an average annual rate of 4,76%. This is not onlydue to the increase of real GDP, which in the same period rose by only 2,59%, but it isalso due to the decrease in employment. The employment in Macedonia in the referredperiod decreased with an average rate of 0, 27%.Table no. 2§§rgGDP n1YYn11100andrgw n1WWn11100. Yn – GDP per worker in the last year;Y1 – GDP per worker in the first year; Wn – real average net-wage in the last year; w1 - realaverage net-wage in the first year.105

Revista Tinerilor Economişti (The Young Economists Journal)Sector rg w rg GDP per workerIndustry, mining and water management 5,54 7,91Agriculture, fishing and forestry 3,39 12,27Construction 4,14 9,48Transport and communication 5,11 6,65Trade 3,72 5,28Financial services 10,50 0,46Total economy 4,37 4,76*Authors‟ calculations according to data from the table in the annex.3. Data and methodologyThe purpose of this paper is to investigate the relationship between laborproductivity and wages in the Republic of Macedonia during the period 1995-2007.Therefore, we performed analysis of this relationship on the level of the total economy,as well as for certain economic sectors separately. In this context, we used annual datafor real GDP, average number of employees and annual average net-wage, for thedetermined period. The labor productivity is expressed through real GDP per worker(per employee), separately for each sector. Workers in the context of this paper areconsidered to be anyone officially employed by business subject, regardless of whetherthe position is for an indefinite or definite period, and regardless of whether theindividual is employed full or part-time. ***A few constrains need to be taken into account when interpreting the results:- High levels of GDP growth per worker appear not only due to the GDPgrowth in the sector, but also to the decrease in the number of employees.- The 2001 interethnic conflict has an influence on the final results.- The analyzed period for which estimations are made is relatively short. Theregression and correlation analysis give more accurate results when the time series arelonger and thus the number of statistical data is larger.- The estimations are made based on real values. For this purpose, a conversionof the nominal values of GDP and net-wage into their real values was made, usingappropriate price indexes i.e. deflators. In calculating real GDP we used GDP deflator,while in calculating real net-wage we used the CPI, which is used to determine the levelof inflation in Macedonia. Due to the use of different price deflators for the GDP andthe net-wages, some gap might occur in the dynamics of growth of the two variables.- Economies in transition are usually characterized by a high informaleconomy, which is not reflected in the official data.The first step taken in analyzing the data was drawing scatter charts, in order tosee whether the two variables are correlated, i.e. whether the dynamics of their growthis related to each other. After that, we estimated the influence of net-wages that theemployees receive for their work, on their productivity. The main goal is to examine therelevance of the claim that higher wages stimulate workers, and hence induce higherlabor productivity.The estimation is based on a regression analysis, using the ordinary least squaremethod (OLS). The relationship between labor productivity and net-wages can bepresented with the following model:Y i = b 0 + b 1 x i + e i*** Definition from the State Statistical Office of the Republic of Macedonia.106

Business Statistics – Economic Informaticswhere Y i presents real GDP per worker, and x - real average annual net-wage.The net-wage is the explanatory variable, while GDP per worker is the dependentvariable. The coefficient b 0 is the intercept term, while the b 1 coefficient shows theslope of the regression line, and e indicates the standard error. We are mostly interestedin the b 1 coefficient, because it illustrates the extent of change in labor productivity as aresult of a change in real net-wage of 1 denar. ††† A positive value of b 1 shows a directrelationship between the two variables, while a negative b 1 value shows an inverserelationship between the analyzed indicators.Also, as complementary to the regression, the coefficient of single linearcorrelation was estimated. What do the correlation coefficients mean and how tointerpret them? They show the level of linear accordance of net-wage and real GDP perworker. Their interpretation, considering that all estimated coefficients have a positivesign, can be based on the following intervals:MRInterpretation0 – 0,70 There is no significant direct relation0,71 – 0,80 There is a significant direct relation0,81 – 0,90 There is a strong direct relation0,91 – 1,00 There is a very strong direct relation4. Empirical resultsIn this section we present the results from the performed empirical analysis.Table 3 shows the results from the calculated regressions according to the model givenin the previous section. It contains the coefficient of correlation between the twoanalyzed variables (MR), the coefficients calculated in the regression (b 0 – interceptterm and b 1 – regression coefficient) and the determination coefficient (R 2 ). While thecorrelation coefficient expresses the intensity of the relationship between productivityand real net-wage, the determination coefficient shows how ell the total variation in thedependent variable is explained by the variation of the explanatory variable. The scattercharts that show how productivity, expressed as real GDP per worker varies as realannual net-wage changes, are presented in Appendix 1.If we analyze the charts, we canconclude that none of the sectors exhibit a very strong direct relationship betweenproductivity and net-wage.The OLS regression on aggregate level is statistically significant at 95%significance level. However, the relationship between GDP per worker and net-wage isnot strong. The correlation coefficient is only 0,57 and the determination coefficient is0,32, indicating that the changes in labor productivity are far more determined by otherfactors than by changes in real net-wage. A one denar increase in real annual net-wageinfluences is related to an increase in real GDP per worker of 3,25 denars.The correlation between the two variables is the strongest in the followingsectors: construction (0,88), agriculture, forestry and fishing (0,84), and industry,mining and water management (0,82). They all have a strong direct connection betweenproductivity and net-wage. This can be seen both from the scatter charts, as well asfrom table 3.††† Denar is the national currency of the Republic of Macedonia. All data used in this researchare expressed in national currency.107

Revista Tinerilor Economişti (The Young Economists Journal)The construction sector has the highest determination coefficient (0,78), whichmeans that 78% of the variations in the labor productivity can be explained withvariations in the net-wage that the workers receive. The OLS regression is statisticallysignificant at 99% and the b 1 coefficient shows that when annual real net-wageincreases by 1 denar, the real GDP per worker increases by 7,09 denars. In theagriculture, forestry and fishing sector, 75% of the variations in the labor productivitycan be explained with variations in the net-wage that the workers receive, and the b 1coefficient is 35,58.In the industry, mining and water management sector, where 68% of thevariations in productivity can be explained with variations in net-wage, the b 1coefficient is 2,16, indicating that a one denar change in real annual net-wage induces a2,16 denars change in GDP per worker. In the agriculture, fishing and forestry sectors71% of the variations in productivity is due to changes in net-wage, while the rest 29%are due to other factors. A one denar change in annual net-wage causes a 35, 58 denarschange in GDP per worker. This is the highest coefficient compared to other sectors.The OLS regression for the sector transport and communications is statisticallysignificant, but there is a weak direct relationship between the two variables. Thevariations in net-wage only explain one third of the variations in productivity, while theother two thirds are a result of the influence of other factors. The regressions for thefinance services and trade sectors are not statistically significant. This just confirmswhat can be seen from the scatter charts, that there is no significant direct relationshipbetween productivity and net-wage in these sectors. They even show a slight inverserelationship, which does not confirm the hypothesis that higher net-wages increaselabor productivity. The number of employees in the trade sector exhibits a tremendousincrease in 2004 of 440%, while the GDP only increased by 27%, thus resulting in adecline in GDP per worker of 76%.Table no. 3 Regression results108b0Coefficients MR R 2Total economy 260,10 3,25* 0,57 0,32Industry, mining and watermanagement 110,40 2,16** 0,82 0,68Agriculture, fishing and forestry -2149,00 35,58** 0,84 0,71Construction -208,13 7,09** 0,88 0,78Transport and communications 236,91 3,91* 0,57 0,33Trade 2145,29 -7,80 0,27 0,07Financial services 1680,00 -1,36 -0,40 0,02Note: * significant at 95%, ** significant at 99%5. ConclusionBased on the performed analysis of the economy and labor market in theRepublic of Macedonia for the period 1995-2007, and considering the indicatedconstrains in section 3, different results have been reached for the relationship andinterdependence between real wage and labor productivity in different sectors analyzedin the paper.On an aggregate level, there is no strong direct correlation between real wageand labor productivity i.e. changes in real net-wage explain only 32% of the changes inb1

Business Statistics – Economic Informaticslabor productivity. The labor productivity is far more determined by other factors thanreal net-wage. But in some sectors there is a strong direct relationship between laborproductivity and net-wage and the variations in real net-wage explain to a great extentthe variations in labor productivity.The results show that there is a strongest relationship between productivity andnet-wage in Construction and in Agriculture, fishing and forestry, and also in Industry,mining and water management. This is due to two reasons: first, wages in these sectorsare maintained on very low level and second, these are sectors where the labor greatlyparticipates in forming GDP. Considering this, current employers can expect that byincreasing the wages of workers, they will achieve an above-proportional growth inlabor productivity. The same can be expected by investors, domestic and foreign, thatwish to invest in these sectors. This is correct taking into consideration the given levelof wages. At higher wage level, it should be expected that this relationship wouldbecome weaker.There is a completely different situation in the sectors where wages are on ahigher level, and where the participation of labor in forming the output is lower. Atypical example is the financial services sector, where the relationship between the twovariables is not statistically significant.REFERENCES1. Akerlof, G.Yellen, J. L.2. Akerlof, G.Yellen, J. L.(eds)“A Near-Rational Model of the Business Cycle with Wageand Price Inertia”, Quarterly Journal of Economics,Supplement, 1985Efficiency Wage Models of the Labour Market, CambridgeUniversity Press, Cambridge, 19863. Goldin, C. “Labour Markets in the Twentieth Century”, NBER,Historical Paper No. 58, 19944. Gordon, R. “Productivity, Wages and Price Inside and OutsideManufacturing in U.S., Japan and Europe” NBER, WorkingPaper No. 2070, 19865. Gujarati, D. Basic Econometrics, McGraw-Hill, New York, 20036. Katz, L. F. “Efficiency Wage Theories: A Partial Evaluation”, NBERMacroeconomics Annual, 19867. Ministry ofFinance of theRepublic ofMacedonia8. Risteski, S.andTevdovski, D.Bulletin of the Ministry of Finance of the Republic ofMacedonia , Skopje, November 2005Statistics for business and economics, third edition, Facultyof Economics – Skopje, 20089. Trpeski, P. New Keynesian Economy, master thesis, Library of theFaculty of Economics, Skopje, 200510. StateStatistical Yearbooks Skopje, 1997, 1999, 2001, 2003,Statistical 2005, 2007, 2008Office of the109

Revista Tinerilor Economişti (The Young Economists Journal)Republic ofMacedonia11. Yelen, J. “Efficiency-Wage Models of Unemployment”, AmericanEconomic Review, May, Vol. 74, 1984Appendix 1: Scatter charts of the relationship between labour productivity and netwage110

Appendix 2: Average annual net-wage and GDP per worker – real valuesYear1995199619971998199920002001200220032004200520062007Total economyAnnualnet-wage102,97103,43106,00112,84116,79115,61120,02132,95140,21148,11150,41157,17171,07GDP perworker475,36504,59563,15619,85644,46700,88757,99843,11937,16635,99671,79712,14758,94Industry, miningand watermanagementAnnualnet-wage99,62100,0999,20105,22108,21107,46132,28146,81151,41159,53163,53178,28186,42GDP perworker244,47262,34364,77388,32379,37381,56401,25418,77489,72394,16429,86478,56557,77Agriculture,fishing andforestryAnnualnet-wage5704,306055,066757,857438,267733,518410,519095,9210117,3211245,947631,928061,478545,689107,24GDP perworker694,64756,86858,001121,871269,461385,161519,421936,522542,711907,532446,182679,302430,25Annualnet-wage76,6676,5976,6382,2987,4088,5691,6398,05Construction103,87112,69116,80115,26123,92GDP perworker283,39278,61332,64424,10429,57487,18452,56476,31621,70472,38534,96619,06744,15Transport andcommunicationsAnnualnet-wage8335,729082,2710295,9713462,4315233,4916621,8718233,0823238,2730512,5722890,3029354,1632151,5629163,04GDP perworker491,02498,14571,09741,69861,70941,261118,541122,121181,38770,43826,11931,11919,81Annualnet-wage3400,623343,263991,735089,215154,805846,105430,725715,727460,415668,546419,527428,748929,80TradeGDP perworker852,27978,801183,721281,291289,161370,111164,631305,512288,01533,41523,15576,84625,73Financial servicesAnnualnet-wage110,60176,62182,12204,27224,71221,91239,44262,64278,83303,72311,58309,01333,36GDP perworker1718,921680,561137,821444,331374,381354,681242,141122,311086,641095,881238,031482,391586,80Business Statistics – Economic Informatics111

Revista Tinerilor Economişti (The Young Economists Journal)112

Business Statistics – Economic InformaticsCONSIDERING THE INEFFICIENCIES IN LABOR MARKET FOR AN EXPLANATION OFMIGRATION FACT FROM RURAL TO URBAN AREAS IN TURKEYAssist. Prof. Sibel CENGIZAssoc. Prof. Cem Mehmet BAYDURMugla UniversityFaculty of Economics and AdministrativeSciencesDepartment of Economics, Mugla, TurkeyAbstract: In this study, it is intended to explain determinant pointsbetween market price of labor and shadow price of labor and explainmigration from rural to urban according to this wage difference.Unemployment or rigidity in urban labor market causes different wage levelfrom equilibrium wage level. This high level wage increases alternativecost of rural against urban and encourages migration from rural to urban.The state of instigating the migration from rural to urban that causing bythe increase on wages levels which is in proportion to secession ofcompetition level has been calculated by considering the Turkey examplefor different sectors. Consequently, it has been determined that the wagelevel modified according to the distortion in competition is one of thefactors effecting the migration to rural to urban.Keywords: Shadow Price; Migration from Rural to Urban; Labor MarketJEL classifications codes: R23, J211. IntroductionThe migration from rural to urban areas which is a result of industrialization andmodernization is an important social phenomenon and is based mainly on economicreasons. The expectations for a better life and income seem to be the most importanttriggering factors for the rural population. Therefore, there are a number of theoreticalapproaches which can be used to explain the reasons for migration from rural to urbanareas. The aim of this paper is to present the determinants between the labor marketprices and its shadow prices by defining the various features of the labor market indeveloping countries and also to explain the migration from rural areas to urban areason this basis ‡‡‡ .In an economy in which there are market distortions, it is impossible to take theshadow prices (wages) of labor which is equal to marginal output of it as market prices(wage). Therefore differentiation of market prices from shadow prices enables us to‡‡‡ MAZUMDAR, Dipak, Rural-urban migration in developing countries in handbook of urban,Economics Volume II, edited by E.S Mills, Elseveir Science Publisher, 1987.113

Revista Tinerilor Economişti (The Young Economists Journal)evaluate the shadow prices in respect of alternative costs §§§ . In urban regions, in spite ofunemployment, the prices being paid are lower than the equilibrium wage rate. Fordifferent reasons such as market distortions, incomplete information, minimum wages,and unions, the existence of unemployment in urban areas causes the wages of urbanareas to be higher than the equilibrium wage rate in proportion to the unemploymentrate **** . As a result, these high wage levels cause an increase in the alternative cost inrural areas compared with urban areas and encourage migration from rural to urbanareas.The main reasons of migration from rural to urban areas, which started in the 1950sin Turkey, is the onset of mass production in agriculture sector and laborers beginningto have expectations of higher incomes and life standards associated with urban areas asa result of pressure mounted by population increase and the production of products withnear zero marginal value in the agriculture sector †††† . Despite the fact thatindustrialization has not been able to gain sufficient momentum in Turkey to absorb thelabor migration, from rural areas to urban areas it has not stopped. On the contrary, thehigh economic income in urban areas encourages the migration of labor while ignoringthe reality of unemployment. The migrated labor had been absorbed due to fact thatindustrialization in Turkey could not gain sufficient momentum. However even this factcould not stop the migration from rural to urban. Therefore, the highness of yield ofurban areas even existence of unemployment caused continuance of migration.In this study the basic assumption is that; the higher alternative cost of living inrural areas in Turkey under imperfect markets is related to the migration from rural tourban areas. If the labor market works in Perfect Competition Market (PCM), and theValue of Marginal Product of Labor (VMP L ), that is equal to an employment of oneextra unit of labor in rural areas, becomes equal to the labor wage in urban areas and theconditions are considered to be consistent with standard economic theory. For this tohappen, the complete mobility of labor and capital in rural areas is required; however,various reasons such as market rigidity, land ownership and urban labor rigidity mayprevent perfect elasticity of demand of labor in rural areas. Despite of these factors,high urban labor wages that are equal to the alternative rural cost lead to thecontinuation of migration from rural areas to urban areas. In this case study, thephenomenon is accepted to exist in Turkey and the alternative high cost of rural areas isconsidered as a basic assumption for the migration from rural to urban and was tested.The relationship between the three different return types, defining the rural returns andrural alternative cost, namely ACRAMW (alternative cost of rural areas in terms ofminimum wage), ACRAMI (alternative cost of rural areas in terms of manufacturingindustry) and lastly ACRAPMI (alternative cost of rural areas in terms of publicmanufacturing industry), and rural returns was tested for the period 1990-2006. Thestudy is made of three sections; in the first section, how the rural alternative costs areaffected by deterioration in the competition conditions of the labor market are shown by§§§ LE, Kien, T., Shadow wage and labor supply in agriculture: new estimation method,University of Virginia, working paper, 2007, p.2.**** KOSKELA, Errki, SCHOEB, Ronnie, Tax progression and efficiency wages: partialequilibrium analysis, Helsinki Center of Economic Research Discussion Papers, 2007, pp.1-3.†††† STIGLITZ, Joseph, E., The structure of labor markets and shadow prices in LDCs,ed.,Richard H. Sabot, Migration and the Labor Market in Developing Countries, Boulder, CO:Westview, 1982, pp. 13-63.114

Business Statistics – Economic Informaticsapplying methods from the study of Stiglitz‟ (1982); in the second section, alternativecosts of rural areas and their progress are studied, and in the last section, therelationships between rural returns and alternative costs of rural areas areeconometrically evaluated.2. Alternative Cost of Rural Areas and Migration from Rural Areas to Urban AreasThe purpose of this article is to define various characteristics of the labormarket in developing countries and to demonstrate the relationships between the marketcost of labor and its shadow price. Therefore, this approach may be considered as thegeneral equilibrium approach on a microeconomic basis. The results of a generalequilibrium approach of 2x2x2 as the market of both rural and urban areas can besummarized with the five equations below:PxMRTSx, y(1)PyMPPLrural, L. Px MPPurbanL ,. Py w(2)MPPrural, C. Px MPPurbanC ,. Py r(3)x wyMRTSL, C MRTS rL,C(4)rw MPPurbanL, MPPrural, L(5)PxThese five equations are sufficient to define shadow prices in an atomisticmarket economy. By using equation (2), the level of shadow prices in conditions ofcompetition is defined as an equalization level of rural and urban area labor to theirmarginal products. In other words, the level of shadow prices is defined as an amountthat equalizes the marginal product of labor thereby maximizing the social welfare andprices in urban areas. An amount equalizing prices in urban areas, without having anymarket errors, namely under PCM, the marginal product of labor equals the shadowprice of labor ‡‡‡‡ .Labor market prices are not suitable tools to measure shadow prices since underperfect competition market conditions because they are independent from real life.However, this assumption means that in the case of any deterioration in labor forcemarket, shadow prices will become different from market prices and form a referencepoint in terms of alternative cost. Thus, when there are rigidities of price, market errorsand deteriorations, shadow prices are not marginal products of labor. In other words,there is no longer a connection between labor prices and shadow prices as much as thelabor market retreats from PCM. The marginal product of labor as a market price cannot be taken as a reference point in real life. If PCM is valid, it can be said thatemploying one extra person, or the alternative cost of an employee (shadow price), in arural area marginally equals to urban wage §§§§ . When labor is distributed effectively‡‡‡‡ JACOBY, Hanan, Shadow wages and peasant family labor supply: an econometricapplication to the Peruvia Sierra, Review of Economic Studies 60, 1993, pp. 903-921.§§§§ STIGLITZ ,pp.13-15115

Revista Tinerilor Economişti (The Young Economists Journal)between rural and urban areas, the supply price of labor in urban areas has to be equalto marginal product value of labor in rural sector. If all employees receive VMP L as awage, labor will be distributed more effectively between the two sectors and totalmanufacturing will be maximized.When there is a deviation from PCM, since labor supply elasticity is notinfinite, both rural and urban prices will be equal to average product rather thanmarginal product of labor ***** . Therefore, employees in rural and urban areas receivewages in accordance with average product more than the marginal product. The supplyprice of labor determined in urban sector is the average product of urban areas.Unemployment resulting from wage rigidity due to incomplete information, minimumwage, sustenance costs of staying in urban areas, legal limitations, and labor unionsmakes shadow and market wages different from each other. Even if there is no decay inthe rural sector, the basic determinant between market price and shadow price of laborin the urban sector is the elasticity of labor demand as an indicator of the decay in labormarket in the urban sector. When elasticity of demand is not infinite in urban labor as inPCM, payments to labor will be larger than the alternative cost. For instance, when theentire workforce is registered in a union, elasticity of demand will decreasedramatically and a substantial part of payments to workers will either turn into incomeor wages that could be higher than the equilibrium wage rate in a rural area where aneffective contract and legal minimum wage is implemented. Therefore, wages that areequal to marginal product cannot be used as the alternative cost of labor in rural areas.According to the traditional approach, when there is a wage gap between ruraland urban areas, the shadow price level should be lower than the real wage level inurban areas. In the Harris-Todaro static model, the shadow price is equal to the marketwage. In this model, if migration from rural to urban areas does not increase wages inthe urban sector, the shadow wage and market wage will equalize with each other. Ifthere is a decreasing marginal product of labor in the rural sector and the labor price isdetermined according to the marginal product, then migration from rural areas to urbanareas will always increase the level of wages in rural areas. This finding is valid forother statistical studies as well ††††† .qMPPL, rural Crural(6)LqMPPL, Urban Curban(7)LIt can be deduced from equation (6) and (7) that labor and capital efficiency inrural and urban areas is a function of capital volume in rural and urban areas. If C(urban)>C (rural), level of rural labor wage will be higher than that of urban labor wagemarginally. As long as this difference exists, labor mobility will keep continuing. Thislabor movement is called immigration. Tadoro‟s suggestion is valid in this case.Little and Mirless stated that wages paid to employees are different than theshadow price in the modern sector (in urban areas) for developing countries. As it is***** KOUTSOYIANNIS, Anna, Modern micro economics, Palgrave Macmillan; 2nd Revisededition, 2003, p.500.††††† HARRIS, John,R., TODARO, Micheal, P., Migration, unemployment and developmen,American Economic Review, 60, 1970, pp.126-144.116

Business Statistics – Economic Informaticsindicated in the literature, migration affects the shadow price of labor ‡‡‡‡‡ and labormigration between the two areas has free circulation. In the first region living isdependent on agriculture and the other is a modern sector and wages received in thissector „wm‟ are higher than market clearing wages „w a ‟. Wages can not balance themarket due to market defects and other factors. A wage in „wm‟i level leads to anunemployment level such as „u‟. On the contrary, employment in the agricultural regionis complete but marginal product of labor is either low or constant.An assumption can be made at this point; as a function of withdrawing fromcompetition, the difference between the two wage levels, namely, the wage thatequilibrates the market and the level of prevailing wage can be described depending onthe level of distortions or unemployment. If there was no unemployment, the prevailingmarket wage and equilibrium wage could be equal. By using this logic, the followingequation can be written §§§§§ :wa ( 1u)wm(8)Unemployment rate in equilibrium would be;wau 1 (9)wmThe alternative cost of extra labor to convince the migrants can be consideredas output losses for those in rural areas. However, this approach is faulty. The realalternative cost is the urban wage itself and the probable gain in the urban areas ****** . Asmarket clearing wages are determined due to marginal products, these wages will haveto be discounted if they are accepted as wages of urban areas due to the existentconditions, structural imbalances and distortions. „1/1-u‟ in the following equation isthe discount ratio relative to unemployment and according to this, discounted incomereceived by a marginal worker in an urban area defines the alternative cost of migrationfrom rural areas to urban areas. In this study, the alternative cost of rural areas is takenas the discounted wage of urban areas. The alternative cost of rural areas v;wav w m(10)1 uDespite unemployment in urban areas, the price paid is not below theequilibrium wage. Since there is generally unemployment in urban areas for differentreasons wages in urban areas will be higher than the equilibrium wage directly relatedto unemployment. This high wage level will increase the alternative cost in rural areasand will encourage migration from rural areas to urban areas.Theoretical literature describing the effect of migration on shadow pricesindicates that even in involuntary unemployment cases, migration is not able toeliminate the inequality between shadow prices and market wages. The underlying‡‡‡‡‡ LITTLE, Ian, Malcom, D., MIRLESS, James, A., Project appraisal and planning fordeveloping countries, Nueva York: Basic Books, 1974.§§§§§ GUPTA, M.R., Shadow wage rate in dynamic Harris-Todaro model. Oxford EconomicPapers, New Series, Vol. 38, No. 1, 1992, pp.131-140.****** HEADY, Cristopher J., Shadow wages and induced migration, Oxford Economic Papers,New Series, Vol. 33, No. 1., 1981.117

Revista Tinerilor Economişti (The Young Economists Journal)reason is that even if migration increases in the elasticity of demand, and labor marketsin urban areas vary from the PCM †††††† .Migration from rural to urban areas can change alternative costs by increasingurban unemployment. In addition, other rural area factors should be taken into accountwhich could change alternative costs in urban areas. There are four factors whichdetract from or differentiate the labor wage in rural areas from the marginal product andare characterized as the alternative cost of urban areas in terms of urban alternative costand are called as rural yield. Factors that affect rural yield are;a) Advantages and disadvantages of being a family memberb) Land ownership by those who work in rural areasc) Wide use of traditional subsistence wages in rural areasd) The reasons for migration from rural to urban areas are: problems concerningbasic needs and disputes and or disagreement over property rights after returning fromurban to rural areas.All of these factors affect „v‟ which determines the alternative cost of migrationbetween rural and urban areas. In other words, since (dv/dOwnership)

Business Statistics – Economic Informaticsthese factors will affect the alternative cost of migration. Thus alternative cost ofmigration „v‟ will either decrease or increase depending on the factors listed above. Inthis aspect, while the factors such as high wages in urban areas, unemployment,employment in public sector, social security, and education, etc. increase alternativecosts of living in rural areas, and land ownership, economical policies improving ruralincome and industrialization, family and living in urban areas decrease alternative costof rural areas.3. Estimation of Alternative Cost of Turkish Rural Areas and Empirical CaseBasic economic activities of the Turkish rural sector are agriculture based.Capital stock and investments in this area are insufficient. Depending on the type ofagricultural activity in rural areas, and the number of small producers, a substantialamount of economic instability may be present. In addition, the large number of smallproducers working small lands in the Turkish agricultural sector contributes to lowerproduction levels and efficiencies. According to the General Agricultural Census inTurkey in 2001, areas smaller than 50 thousand square meters constitute 64.81% of thetotal agriculture areas ‡‡‡‡‡‡ . Dependency of economic activities to agriculture in ruralareas and widespread presence of small production facilities may lead to substantialeffect of economic instability on this area §§§§§§ . In addition, dominancy of smallproducers in Turkish agricultural production and activity of these producers in smallagricultural lands leads to low production levels and low efficiency. According toGeneral Agricultural Census in Turkey in 2001, establishments with an area smallerthan 50 thousand square meters make up 64.81% of the total of establishments In theEuropean Union on the other hand, ratio of small establishments smaller than with anarea of 50 thousand square meters is 21.34% ******* . Such small lands can notsignificantly benefit from economies of scale in agricultural production.Due to the rigidity of supply and demand in global agricultural production, thesector needs to be supported by the state. Turkish agriculture was heavily subsidizedthrough market price supports until the year 200l. Market price supports are regarded asone of the factors responsible for the continuation of low productivity and the lack ofcapitalization in the Turkish agriculture sector. Price supports have been replaced by thepolitical tools that intervene in prices and volume less extensively compared to the past.These policies were developed in cooperation with international organizations and inare also in part the result of disinflationary politics of the early 2000‟s. The attempt toapply disinflation politics and market mechanism to each sector of the Turkisheconomy accelerated the migration of small agriculture producers to urban areas. Fromthis perspective the alternative cost of living in rural areas rapidly increased. Theagricultural sector accounted for approximately 48% of employment between 1980 and1999 it dropped down to 26.4% in 2007. This drop led to an increase in labor force‡‡‡‡‡‡ State Institute of Statistics, General Agricultural Census, Ankara, 2001.§§§§§§ SAHIN, Afsin, SARACOGLU, Metin, The Function of Rural Development Politics onMigration from Rural to Urban Fact in Turkey, EKEV Academic Journal, Year:10, Number:28,2006, p.209.******* BOR, Ozgur, A look to the aftermath of direct income payments system, MediterraneanJournal of Economics, (9), 2005, pp.33-51.119

Revista Tinerilor Economişti (The Young Economists Journal)demand and accelerated the migration of those near zero marginal product producers tourban areas ††††††† .During the 1950s, modernization in agriculture which started with theimplementation of the Marshall Plan sped up migration from rural areas to urbanareas ‡‡‡‡‡‡‡ . The people who constituted the hidden unemployed in the agriculturalsector became openly unemployed in the mid 1980s when the industrializationdecelerated in cities. On the other hand, demand for work in Turkey probably increasedevery year due to the population growth and the failure of industrial development tokeep pace with this growth for almost 20 years. These changed the conditions for themigrants contributed to the transition from hidden unemployment into openunemployment. Nevertheless, increasing unemployment and labor demand could notprevent real wages of those who worked in manufacturing industry in urban areas fromrising above market clearing wages. Real wages were higher than the equilibrium valuedue to rigidity in the labor market. In this sense, the alternative cost of urban areas inrelation to rural areas increased between 1990 and 2001 and in the crisis year of 2001the narrowing of real wages in the manufacturing industry in urban areas decreased thealternative cost in the rural areas. Despite all these factors, the alternative cost in ruralareas exhibited an inconsistent progression after the crisis, and the alternative cost inrural areas increased relatively while the real income of these areas decreased.This study proves that the reasons for urban attraction to a great extent dependon the alternative cost of rural areas and industrialization in urban areas. In a studyconcerning the geographical dimensions of migration from rural areas to urban areas, itwas demonstrated that there is a close relation between internal migration to urban areasand industrial plants on the map of Turkey §§§§§§§ . For this reason, in the estimation ofalternative costs in rural areas, manufacturing industry wages and minimum wage weretaken as the explanatory variances in the model. Data placed in columns 10, 11 and 12in Table 1 measure alternative cost in rural areas in terms of production industry, publicmanufacturing industry and minimum wage. According to column 10 in Table 2 whichshow alternative cost in rural areas in relation to the manufacturing industry, it can besaid that real wages in the manufacturing industry between 1990 and 2000 in Turkeydisplayed a wavy progress. Alternative cost in rural areas in terms of the manufacturingindustry which showed a 35% increase in 1991 in comparison to that in 1990 and dropin real wages in 1997 began to increase again and regained value in a 15% ratio. Thisincrease in value which followed a wavy progress until the year 2000 lost value again ina ratio of 73% and this variation in real wages continued to drop in 2003 and 2005.The progress, shown on the monthly average real wages per person in urbanmanufacturing industry (UMIMARWPP) in column 11 in Table 2, follows a fluctuatingcourse once again. The monthly average real wages per person in public manufacturing(MARWPPPMI) followed a course parallel to the results in column 10. In terms ofminimum wage, the alternative cost in rural areas followed a fluctuating course between1990 and 2007 and in the following years, except for 1997 and 1999, the alternative††††††† Independent Social Scientists, 2008 intersection in Turkey, politics, economics andsociety, İstanbul: Yordam Press, 2008, pp.169-172.‡‡‡‡‡‡‡ KOYMEN, Oya, Capitalism and peasantry, landholders, bosses, Istanbul: Yordam Press,2008, pp.135-142.§§§§§§§ TUMERTEKIN, Erol, Internal migration in Turkey, Istanbul: Geographical Institute of theUniversity of Istanbul, 1968, pp.57-58.120

Business Statistics – Economic Informaticscost in rural areas fell to lower levels every year. On the other hand, the decline inincome levels in rural areas and the increase in the alternative cost of living in ruralareas due to changes in agricultural politics were not able to prevent migration to urbanareas although the wages in the manufacturing industry were decreasing.Considering the annual return rates between 1990 and 2006 in agriculturewhich was regarded as the most important economic activity of rural areas in Turkey,UMIMARWPP was at much lower levels than the rural alternative cost. It can be statedthat the main reason for this was common family labor without payments. When annualreturn rates in agriculture are evaluated between 1990 and 2006, it can easily be seenthat these rates are considerably lower than UMIMARWPP, MARWPPPMI and theminimum wage. The main reason behind this are the large number of small familyowned lands and the reduction in prices and returns in agriculture sector brought aboutby of the implementation of agricultural liberalization policies in the context ofinternational agreements. When the alternative cost of urban areas relative to rural areasis examined in Table 2 and evaluated as an agricultural return, it can be stated that theagricultural return between 1990 and 2006 decreases and therefore alternative cost ofurban areas gradually decreases.4. Making a Model for Alternative Cost of Rural AreasAverage rural return =C1+C2* Alternative Costs of Rural Areas (AlternativeCost of Rural Areas in terms of Minimum Wage, Alternative Cost of Rural Areas interms of Production Industry and Public Manufacturing Industry)+C3*Rural SocialSecurity+C4*Growth Rate of Rural Areas +UThe model estimates the relationship between rural return and differentalternative cost of urban return. The unemployment rate of people with highereducation in rural areas or the macro economic growth rate is used as a control variable.Considering the model mentioned above, the relationship between alternative cost ofrural areas and alternative cost of urban areas is limited by defining different alternativecosts. The estimated test results are given in Table 3.The relationship between the rural return and three different return typesdefining alternative cost of rural areas, namely ACRAMW, ACRAMI lastly ACRAPMIwill be tested for the period 1990-2006. In the first, second, third and fourth models, thenumber of Insured Actively Working People in agriculture sector and in the fifth model,the macro growth rate were used as a control variables in the respective tests.Model 1: RR= C (1) + C(2)*ACRAMW + C(3)* NIAWPA +C(4)*RR(-1)RR=Rural return, ACRAMW =Alternative Cost of Rural Areas in terms ofMinimum Wage, NIAWPA = Number of Insured Actively Working People inAgricultureC (1) =Constant VariableC (2) =Alternative Cost Coefficient in terms of Minimum Wage in Rural AreaC (3) = Coefficient of Number of Insured People Actively Working inAgricultureC (4) =Alternative Return Coefficient of Rural Areas in the Previous YearSince all variables in Model 1 are second order stationary, these time series canbe put into a direct regression analysis. All time series are co-integrated with eachother. In other words, the series have similar reactions on the same frequency and theymove together. Our model is logarithmic. Consequently, the coefficients are also121

Revista Tinerilor Economişti (The Young Economists Journal)elasticity coefficients. An autocorrelation problem occurred during the first test. Inorder to remove the autocorrelation problem, the lagged values of agricultural returnswere taken as independent variables and put into a regression analysis once more. TheDurbin Watson value in Model 1 (as shown in Table 3) was found to be 2.14 and noautocorrelation was found according to this value. The selected regression equation isstatistically significant. The F value is considerably higher than the table value. Theimprobability of such an equation is very close to zero. A White test was conducted inorder to determine if there was any heteroscedasticity and the test results concluded thatthere was not (any heteroscedasticity) at all. This means that there is an inverserelationship between agricultural return and minimum wage in urban areas at a rate of2.8 % and when minimum wages and unemployment in urban areas are consideredtogether, any increase in minimum wage decreases rural return, thus decreases itsattractionModel 2: RR=C (1) + C (2)*ACRAMI+ C (3)* NIAWPA +C (4)*RR (-1)RR= Rural return, ACRAMI= Alternative cost of rural areas in terms ofmanufacturing industry,NIAWPA =Number of Insured Actively Working People in Agriculture; RR(-1)= Rural Return in the Previous YearC (1) = Constant VariableC (2) = Alternative Cost Coefficient in terms of Manufacturing Industry inRural AreasC (3) = Coefficient of Number of Insured Actively Working People inAgricultureC (4) = Coefficient of Rural Return in the Previous YearThe equation estimated for Model 2 as shown in Table 3 is statisticallysignificant. The F value 36 is higher than the table value. The probability of lack of arelationship between rural return and UMIMARWPP and alternative cost in rural areasis 3 in one million. This is a very low probability. An autocorrelation problem was alsoencountered in Model 2, similar to Model 1 and the autocorrelation was removed bytaking the lagged values of agricultural returns. A White test was conducted in order todetermine if there were any heteroscedasticity and the constant variance hypothesis wasaccepted. Statistically, the alternative cost coefficient of manufacturing industry ismeaningful for a significance level of 5% and it has a inverse relationship with ruralreturn. Each 1% increase in alternative cost in the manufacturing industry decreases therural return by 3%.Model 3: RR=C(1) +C(2)*ACRAPMI+C(3)* NIAWPA +C(4)*RR(-1)ACRAPMI= Alternative Cost of Rural Areas in terms of Public ManufacturingIndustryC(1)= Constant VariableC(2)= Alternative Cost Coefficient of Rural Areas in terms of PublicManufacturing IndustryC(3)= Coefficient of Number of Insured Actively Working People inAgricultureC(4)= Coefficient of Rural Areas in the Previous YearWhen Model 3 as shown in Table 3 is examined, it can be concluded that theestimated equation is statistically significant and the F value 39 is higher than the tablevalue. The probability of lack of a relationship between rural return and monthlyaverage real wages per person in public manufacturing industry and alternative cost of122

Business Statistics – Economic Informaticsrural areas is 2 in a million. This is also a very low probability. An autocorrelationproblem was encountered similar to those in Model 1 and Model 2 and theautocorrelation was removed by taking the lagged values of agricultural returns. AWhite test was conducted in order to determine if there was any heteroscedasticity;none were detected and the constant variance hypothesis was accepted. Statistically, thealternative cost coefficient of manufacturing industry is meaningful for a significantlevel of 5% and it has an inverse relationship with rural return. Each 1% increase inalternative cost of manufacturing industry decreases the rural return by 3.1%.Model 4: SA=C(1)+C(2)* ACRAMW +C(3)* NIAWPA +C(4)*SA(-1)SA= Share of agriculture in GNP (Gross National Product)C(1)= Constant variableC(2)= Alternative Cost Coefficient of Rural Areas in terms of Minimum WageC(3)= Coefficient of Number of Insured Actively Working People inAgricultureC(4)= Share Coefficient of Agriculture in GNPC(5)= Share Coefficient of Agriculture in GNP in the Previous TermModel 5: SA=C(1)+C(2)* ACRAMW +C(3)*MEG+C(4)*SA(-1)SA= Share of Agriculture in GNPMEG=Macro Economic GrowthC(1)= Constant VariableC(2)= Alternative Cost Coefficient of Rural Areas in terms of Minimum WageC(3)= Coefficient of Macro Economic Growth VarianceC(4)= Share Coefficient of Agriculture in GNP in the Previous TermThe results of models do not change when the number of Insured ActivelyWorking People in agriculture sector is included as well. The Growing Performance ofTurkey should be evaluated in order to determine the significance level of Models 4 and5 as given in Table 3. When the growth variable is included in the model, the testsdescribed above were repeated by including an unemployment variable to exploratorypower of the model.In this context, the share of agriculture in national income was taken as thedependent variable, instead of per capita income in agriculture. The minimum wage,which is the alternative cost of rural areas, was put in a regression by usingUMIMARWPP and MARWPPPMI as the base. A significant relationship was foundbetween the share of rural areas and minimum wage and the estimates regarding thisrelationship are presented in the Table 3. The model formed is statistically significantaccording to the Table 3 and the F value 36 is higher than the table value. Theprobability of lack of accuracy of this equation is 3 in a million. An autocorrelationproblem was solved as described previously and a heteroscedasticity problem does notexist according to the results of the White Test. The alternative cost variable of ruralareas is statistically significant in terms of minimum wages. Since the equation islogarithmic, the coefficient also gives elasticity values. In this regard, a 1 % change inthe minimum wages decreases the share of rural areas (agriculture) in GNP by 44%.In accordance with the explanations above, they were put into a regressionanalysis again by considering the real exchange rate of GNP. Since the exploratorypower of this model was higher than the other models, it was taken as the basicequation. This equation is able to explain 92% of the return relation of rural and urban123

Revista Tinerilor Economişti (The Young Economists Journal)areas. The equation is statistically meaningful. The F value 50 is higher than the tablevalue. The probability of lack of accuracy of this equation is very close to zero. Theexistence of autocorrelation and heteroscedasticity were tested and no variances weredetected. In the light of these test result, when the alternative cost of rural areas in termsof minimum wage was examined, an inverse relationship was found between alternativecost of rural minimum wage and the share of agriculture in GNP for a significance levelof 5%. The result of these models is that the changes in alternative rural returns affectrural returns considerably and accelerate the migration to urban areas. In terms ofwages, since it is not possible to balance the investment, infrastructure and economicpolicy returns of urban areas with rural areas, migration will be continuing in thefollowing years.5. ConclusionIn this study, the basic assumption that the higher alternative cost of living inrural area under imperfect markets is considered to be the reason for migration fromrural areas to urban areas. When there is no Perfect Competition Market, there will notbe a market-clearing wage and the market price will be different from the shadowprice of labor. For reasons such as market rigidity, land ownership and urban laborrigidity, unions, and legislations infinite elasticity of labor supply in rural areas may beprevented. All these reasons increase the alternative cost of rural areas and may lead tothe continuation of migration from rural to urban areas. By taking this theoreticalframework as a basis, the motive for migrating from rural to urban areas in Turkey is agradual increase in alternative cost of living in rural areas. This situation was tested byconsidering different alternative costs of rural areas.The relationship between rural return and the three different return typesdefining alternative cost of rural areas, namely ACRAMW, ACRAMI and lastlyACRAPMI was tested for period 1990-2006 and it was observed that any increase inalternative costs of rural areas causes a decrease in rural return by 3% for a significancelevel of 5%. Since calculation errors and unforeseen mistakes can be made in ruralreturn estimations, the share of agriculture in national income was taken as a dependentvariable and it was put into a regression analysis in terms of three alternative costs.Even though the result did not change, the model which was considered from the macroeconomic growth in terms of the agricultural shares in national income and alternativecost in terms of minimum wage in rural areas had the highest explanatory power. Whencoefficients of these variables were statistically taken into account, a 1% increase inalternative costs in terms of minimum wage in rural areas causes a decrease of morethan 0.5% in share of rural return in national revenue. An inverse relationship is valideven though it is limited in terms of macro growth. Therefore, in terms of models thatwere developed, wages in urban areas inversely affect rural return.Since calculation errors and unforeseen mistakes can be made in rural returnestimations, the share of agriculture in national income was taken as a dependentvariable and it was put into a regression analysis in terms of three alternative costs.Even though the result did not change, the model which was considered from the macroeconomic growth in terms of the agricultural shares in national income and alternativecost in terms of minimum wage in rural areas had the highest explanatory power. Whencoefficients of these variables were statistically taken into account, a 1% increase inalternative costs in terms of minimum wage in rural areas (other alternative costs weretested and no significant relationship was found) causes a decrease of mo re than 0.5%124

Business Statistics – Economic Informaticsin share of rural return in national revenue. An inverse relationship is valid even thoughit is limited in terms of macro growth. Therefore, in terms of models that weredeveloped, wages in urban areas inversely affect rural return.The reasons for migration from rural areas can be the attraction ofurban wages, the divergence of urban labor markets from the competition, and thedecrease in agricultural incomes due to the liberalization of agricultural politics.Therefore, factors such as rigidity in labor market, minimum wage, incompleteinformation that diverting the labor market from equilibrium can encourage migration.Furthermore, when wages are considered, the factors such as constant investments inurban areas, infrastructure investments, education, and population reduce the alternativecost of living in rural areas. Therefore, the solutions that increase wage discrepanciesbetween rural and urban areas, policies that increase these differences and adviceencouraging people to stay in rural areas are not rational.REFERENCES1. Gupta, M.R. Shadow wage rate in dynamic Harris-Todaro model,Oxford Economic Papers, New Series, Vol. 38, No.1, 1992, pp.131-140.2. Harris, J.,R.,Migration, unemployment and development,Todaro M.,P.American Economic Review, 60, 1970, pp.126-144.3. Heady, C., J. Shadow wages and induced migration, OxfordEconomic Papers, New Series, Vol. 33, No. 1., 1981.4. Heckman, J. J. Shadow prices, market wages, and labor supply,Econometrica, 42(4), 1974, pp. 679-94.5. Independent SocialScientists2008 intersection in Turkey, politics, economics andsociety, İstanbul: Yordam Press, 2008, pp.169-172.(In Turkish)6. Jacoby, H. G., Shadow wages and peasant family labor supply: aneconometric application to the peruvia Sierra,Review of Economic Studies 60, 1993, pp. 903-921.7. Koskela, E.,Schoeb, R.Tax progression and efficiency wages: partialequilibrium analysis, Helsinki Center of EconomicResearch Discussion Papers, 2007, pp.1-3.8. Koutsoyiannis, A. Modern micro economics, Palgrave Macmillan; 2ndRevised edition, 2003, p.500.9. Koymen, O. Capitalism and peasantry, landholders, bosses,Istanbul: Yordam Press, 2008, pp. 135-142.(InTurkish)10. Le, K.,T. Shadow wage and labor supply in agriculture: newestimation method, University of Virginia, workingpaper, 2007, p.2.11. Little, I.,Project appraisal and planning for developingMalcom,D.,countries, Nueva York: Basic Books, 1974.Mirless, J., A.12. Mazumdar, D. Rural-urban migration in developing countries inhandbook of urban, Economics Volume II, edited byE.S Mills, Elseveir Science Publisher, 1987.125

Revista Tinerilor Economişti (The Young Economists Journal)13. Ozgur, B. A look to the aftermath of direct income paymentssystem, Mediterranean Journal of Economics, (9),2005, pp.33-51. (In Turkish)14. Sabot R. H. Migration and the Labor Market in DevelopingCountries, Boulder, CO: Westview, 1982, pp. 13-63.15. Sahin, A.,Saracoglu, M.The Function of Rural Development Politics onMigration from Rural to Urban Fact in Turkey,EKEV Academic Journal, Year:10,Number:28,2006,e p.209. (In Turkish)16. State Institute of General Agricultural Census, Ankara, 2001.Statistics17. Stiglitz, J., E. The structure of labor markets and shadow prices inLDCs, ed.18. Tumertekin, E. Internal migration in Turkey, Istanbul: GeographicalInstitute of the University of Istanbul, 1968, pp.57-58. (In Turkish)126

YearsMonthly averagewage per personin manufacturingindustryMinimum wage1+inflation1-unemploymentrateMonthlyaveragewage perperson inpublicmanufacturing industryTable 1. Different Alternative Cost of Rural AreasMonthlyMonthlyaverage realaverage realwage perwage perMinimumperson inperson inreal wagepublicmanufacturinmanufacturingg industryindustryBusiness Statistic – Economic InformaticsAlternative costof Rural Areasin terms ofManufacturingIndustryAlternativeCost of RuralAreas in termsof PublicManufacturingIndustryAlternative Cost ofRural Areas interms of MinimumWage1990 1362836 1752367 304000 1,647 827465,6952 1063975,106 184578,0206 0,92 1904746,739 1156494,681 200628,28331991 2939080 4112001 575000 1,6989 1729989,994 2420390,253 338454,294 0,918 4479303,922 2636590,689 368686,59471992 4744469 7224802 1071000 1,7417 2724044,899 4148132,285 614916,4609 0,915 7895958,47 4533477,907 672039,8481993 8013748 12251366 1886000 1,696 4725087,264 7223682,783 1112028,302 0,911 13448261,25 7929399,323 1220667,731994 13262291 22623565 3056000 2,064 6425528,585 10961029,55 1480620,155 0,914 24752259,3 11992373,69 1619934,5241995 23047714 34942564 5603000 1,9573 11775258,77 17852431,41 2862616,87 0,924 37816627,71 19320813,21 3098070,2061996 40163963 57587093 12023000 1,9496 20601129,98 29537901,62 6166906,032 0,934 61656416,49 31625162,33 6602683,1181997 77359730 123402839 24688000 1,9137 40424167,84 64483899,78 12900663,64 0,932 132406479,6 69188733,66 13841913,771998 141027253 223185184 40605000 1,84 76645246,2 121296295,7 22067934,78 0,931 239726298,6 130286031,8 23703474,521999 252009038 429276711 85838000 1,5911 158386674,6 269798699,6 53948840,42 0,923 465088527,6 292306283,5 58449447,912000 402974000 615522500 114300000 1,5225 264679146,1 404284072,2 75073891,63 0,935 658312834,2 432389382,1 80292932,222001 879375020 161621240 152196000 1,515 580445557,8 106680686,5 100459405,9 0,916 176442401,7 116463631,5 109671840,52002 715387000 237802500 128875500 1,4397 496900048,6 165175036,5 89515524,07 0,897 265108695,7 184141623,7 99794341,212003 923250000 139650000 200955370 1,2544 736009247,4 111328125 160200390,6 0,895 156033519,6 124388966,5 178994849,92004 1030250000 237150000 433575000 1,105 932352941,2 214615384,6 392375565,6 0,897 264381270,9 239259068,7 437430953,92005 1162000000 189225000 488700000 1,0774 1078522369 175631149,1 453591980,7 0,897 210953177,3 195798382,5 505676678,62006 1103000000 215175000 531000000 1,1001 1002636124 195595854,9 482683392,4 0,901 238817980 217087519,3 535719636,42007 1512000000 259000000 562500000 1,1221 1347473487 230817217,7 501292219,9 0,882 293650793,7 261697525,8 568358526Source: Calculated by the author using Turkish Statistical Institute (TSI) and Central Bank of the Republic of Turkey127

Revista Tinerilor Economişti (The Young Economists Journal)700000000Wage600000000500000000400000000300000000200000000100000000Alternative cost ofRural Areas in terms ofManufacturing IndustryAlternative Cost ofRural Areas in terms ofPublic ManufacturingIndustryAlternative Cost ofRural Areas in terms ofMinimum Wage01990 1992 1994 1996 1998 2000 2002 2004 2006AnnualFigure 1: Alternative CostsYearsTable 2. Alternative Costs of Urban AreasAgricultural Agricultural Share ofProduction Growth Agriculture Employment inValues Rate (%) in GNP (%) AgricultureAgriculturalReturns1990 6672 078,5 7,0 16,4 8691000000 1372501991 91913101,0 -0,6 16,2 9211500000 1415751992 156051192,7 4,3 15,9 8718000000 145141,66671993 293733744,1 -0,8 14,6 7861500000 141333,33331994 57267 842,0 -0,6 15,4 8812500000 1720001995 1163076 914,0 1,3 14,5 9080000000 163108,33331996 2350374597,0 4,6 14,2 9259000000 162466,66671997 3925650028,0 -2,2 12,9 8837000000 1594751998 8809970804,0 9,6 13,7 9039000000 153333,33331999 11300776507,0 -5,6 13,6 8855500000 132591,66672000 17002973501,0 3,8 13,2 7769000000 1268752001 20389344763,0 -6,0 13,4 8089000000 1262502002 31537336905,0 7,5 13,3 7458000000 1199752003 41562744271,0 -2,4 12,3 7165000000 104533,33332004 47630198 241,5 2,0 11,5 7400000000 92083,333332005 49069171028,0 5,7 11,3 6493000000 89783,333332006 52050392706,1 2,9 11,0 6088000000 91675Source: Calculated by the authors using Turkish Statistical Institute (TSI) and Central Bank ofthe Republic of Turkey (CBR)128

Business Statistics – Economic InformaticsTable 3. Estimated Different Alternative Costs of Rural AreasModel 1VariablesModel 2 Model 3 Model 4 Model 5ConstantC(2)C(3)C(4)3.023848(1.816359)*0.028245(0.010044)*-0.000505(0.010095)*-0.782461(0.141609)*1.056400(1.693699)*-0.030037(0.0133856)*0.001305(0.096339)*0.954773(0.126371)*1.478642(1.697808)-0.0031264(0.013031)*0.001340(0.093428)*0.919714(0.126391)*16.60145(7.696275)*-0.444811(0.182969)*0.286330(0.664406)*0.278671(0.302475)*21.39240(6.152749)*-0.531994(0.158573)*-0.070400(0.033180)*0.106303(0.252565)*R 2 0.917749 .0901841 0.907683 0900255 0.926344Adjusted R-Squared 0.897187 0.877301 0.884603 0.875319 0.907931F statistics 44.63184 36.75021 39.32887 36.10230 50.30686Autocorrelation 2.142733 2.241416 2.230714 1.032848 2.285398Log-likehood 22.21643 20.80189 21.29276 -10.83279 -8.407061Note:*Statistically significant at the 5% level129

Revista Tinerilor Economişti (The Young Economists Journal)UNEMPLOYMENT ISSUES IN BARAOLT REGIONAssist. Ph.D Kulcsár ErikaUniversity “Babeş-Bolyai”Faculty of Economics and BusinessAdministrationsCluj Napoca, RomaniaEconomist Sütő GáborAbstract: Many methods of multivariate analysis are based on metricvariables. In the case of questionnaire-based surveys qualitative datausually prevail, measured nominally or ordinal. This paper contains thediscriminant analysis from data recorded from a sample of 100respondents, with regard to: whether they have a job or not, number offamily members and the importance of having a job according to thespecialization graduated.JEL classification: C32, M31Key words: variable, ANOVA, level of significance, the discriminant function, Wilks λIntroductionThe discriminant analysis based on primary data obtained from carrying aquantitative marketing research in Baraolt region. The basic feature of these methodsconsists of the existence of one or more dependent variables and several independentvariables.In the case of the discriminant analysis the following categories of variableoccur:- a nominal dependent variable measured with two categories (NO, YES)- 2 independent variables: one representing a proportional scale and an intervalscale.Through the discriminant analysis we can determine what distinguishes personswho have a job from those who do not have a job according to the number of familymembers and the importance attributed to accepting a job according to thespecializations graduated.Processing of the primary date – Discriminant analysisThe sample was composed of 100 persons more precisely the questionnaireswere completed by 50 people without a job and by 50 people who work. As shown inthe table no.1 those who responded to the variables that make up the starting point ofthe discriminant analysis are 82 respondents, 39 unemployed and 43 employed.Although in our opinion it would have been more logical that the averagenumber of unemployed family members to be smaller we got just the opposite and thenumber of family members for the working respondents is 2.83 (3 persons) while withthe unemployed respondents it is 4.38 (4 persons). For the unemployed persons it ismore important to find a job according to the specialty graduated than for those who130

Business Statistics – Economic Informaticshave a jobs. Although we expected that the values obtained to show the oppositeresults.The statistical significance was tested using the variance (ANOVA)Table no. 1 Averages of independent variables in the groupsGroup StatisticsDo you have a job?NoYesTotalHow many membersdoes your f amily have?According to thegratuated specializationHow many membersdoes your f amily have?According to thegratuated specializationHow many membersdoes your f amily have?According to thegratuated specializationValid N (listwise)Mean Std. Dev iation Unweighted Weighted4.38 1.016 39 39.0003.54 1.570 39 39.0002.86 .990 43 43.0002.37 1.648 43 43.0003.59 1.257 82 82.0002.93 1.705 82 82.000Table no. 2 ANOVA tests results for equal averagesTests of Equality of Group MeansHow many membersdoes your family have?According to thegratuated specializationWilks'Lambda F df 1 df 2 Sig..629 47.276 1 80 .000.882 10.714 1 80 .002F values in the table no.2 have higher values, being higher than the valuesobtained from the table of the Fisher‟s distribution law according to these degrees offreedom. This is highlighted by the minimum significance levels that can acceptalternative hypothesis corresponding to the two variables, which are smaller than 0.05.Therefore, both variables have a significant discriminating power. “Number offamily members” has a greater discriminating power as the coefficient λ (Wilks‟Lambda) is lower and the value F is greater than for the variable “According tospecialization graduated”.In the table no.3 the correlation coefficient between independent variables iscalculated. Analyzing the obtained values we can see that the conditions that theindependent variables are not to be collinear is respected.Since the dependent variable has only two categories a single discriminantfunction is obtained. The table below (no.4) reproduced the value of the discriminantfunction (“Eigenvalue”), representing the sum of squares between groups and sum ofsquares within the groups at the level of the discriminant function, this value it is 0.872.131

Revista Tinerilor Economişti (The Young Economists Journal)Table no. 3 Correlation between independent variablesPooled Within-Groups MatricesCorrelationHow many membersdoes your f amily have?According to thegratuated specializationHow manymembersdoes yourf amily hav e?According tothe gratuatedspecialization1.000 -.200-.200 1.000Function1Table no. 4 The value of the discriminant functionEigenvaluesCanonicalEigenvalue % of Variance Cumulativ e % Correlation.872 a 100.0 100.0 .683a. First 1 canonical discriminant functions were used in theanalysis.The testing of the significance of the discriminant function power is madebased on Wilks λ coefficient, which must have a value as close to zero. 25Table no. 5 Testing the discriminant function significance.Wilks' LambdaTest of Function(s)1Wilks'Lambda Chi-square df Sig..534 49.546 2 .00022As outlined in the table no. 5, the value 49. 546 > 5. 99 so thecalc0.05;2alternative hypothesis is accepted according to which the function obtained has asignificant discriminatory power. This is also observed in the level of minimumsignificance value that can accept the alternative hypothesis: 0.005

Business Statistics – Economic InformaticsThe discriminant function is:y = -4.411+0.937x1 0.360x2where:y = discriminant function („Function 1”)x1- independent variable 1 („Number of family members”)x2- independent variable 2 („According to the graduated specialization”)The coefficients can be converted to standardized values, corresponding to thevalues of the normal distribution law.Table no. 7 Standardized coefficients of discriminant functionStandardized Canonical Discriminant Function CoefficientsHow many membersdoes your f amily have?According to thegratuated specializationFunctionBased on the standardized coefficients the correlation between the discriminantfunction and the independent variables is calculated, which is ranked by size of thosecoefficients 26It can be seen from these results (table no. 7) that the number of familymembers has a greater discrimination power than the other independent variable,because of the strongest association with the discriminant function.Table no. 8 Correlations between independent variables and the discriminantfunctionStructure MatrixHow many membersdoes your family have?According to thegratuated specialization11133.939.580Function.823.392Pooled within-groups correlations between discriminatingvariables and standardized canonical discriminant f unctionsVariables ordered by absolute size of correlation within f unction.The system also provides the average scores of the groups based on the squareof the distances as compared with the centroids group 27 (table no.8).Based on these scores the cutting score is calculated representing the average ofthe two scores in the table no.9 weighted by the size of the groups.Thus, the separation score is determined by the formula:0.962 39CS 1 0.879 4326 Cristinel C. - Marketing information system. Marketing data analysis and processing.Applications in SPSS, Publisher Infomarket, Braşov, 2006, p. 24427 Malhotra N – Marketing research, Akadémia Press, Budapest, 2005, p. 653

Revista Tinerilor Economişti (The Young Economists Journal)Table no. 9 Average scores for both groupsFunctions at Group CentroidsDo you have a job?NoYesFunction1.969-.879Unstandardized canonical discriminantf unctions ev aluated at group meansDepending on this score we can classify the respondents forming the twogroups:- if a respondent has the discriminatory score below zero, then it belongs to thegroup people who are unemployed since that group has negative discriminatory scores.- if a respondent has the discriminatory score greater than zero, it will belong tothe group of people who have a job.The discriminatory score means the value of the discriminant function obtainedby multiplying the coefficients of the discriminant function to the values of theindependent variables of a person and adding them to the constant valueBased on the discriminatory scores the groups to which each respondent shouldbe part of are determined. Finally, a centralization of the percentage of the personsbelonging to the predicted group results, in terms of existence or lack of a job.Table no. 10 Summary of the classification of respondents according to thepredicted groupsClassification Results b,c Predicted GroupMembershipDo you have a job? No Yes TotalOriginalCount No36 3 39Cross-validated a Count No36 3 39Yes7 36 43% No92.3 7.7 100.0Yes16.3 83.7 100.0Yes7 36 43% No92.3 7.7 100.0Yes16.3 83.7 100.0a. Cross validation is done only f or those cases in the analy sis. In crossvalidation, each case is classified by the functions derived from all cases otherthan that case.b. 87.8% of original grouped cases correctly classified.c. 87.8% of cross-validated grouped cases correctly classif ied.In the table no. 10 it is noted that in the case of the respondents who do nothave a job, following the classification, 3 of respondents ought to be part of the groupof those who have a jobs. Therefore, from the 39 respondents of the „original” analyzedgroup who were not employed 36 respondents (92.6%) are classified correctly with the134

Business Statistics – Economic Informatics„predicted” group, while 3 of the respondents, (7.7%) ought to be a part of the groupwho has jobs if we were to take into account the discriminatory score.In the case of the other group, 7 cases (16.3%) do not meet the classificationbased on the discriminatory score. These respondents, according to the classification,would not have to have a job, but they have it for real.In the end, the conclusion is that a percentage of 87.8% of the cases correctlyclassified, the results of a cross validation of the model showing the same structure ofthe classification.REFERENCES1. Cristinel, C. Marketing information system. Marketing data analysis andprocessing. Applications in SPSS, Infomarket Press,Braşov, 20062. Malhotra, N Marketing Research, Akadémia Press, Budapest, 2005135

Revista Tinerilor Economişti (The Young Economists Journal)A MODEL OF ANALYSIS OF THE E-LEARNING SYSTEM QUALITYAssoc. Prof. Ph.D Costel IonaşcuAssoc. Prof. Ph.D Berceanu DorelUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: The wide proliferation of the e-learning formation systembecome a true fact. The infrastructure delivered by the internet networkpermitted the decreases of the exploitation costs in favor of the beneficiaryof formations. Like in the case of the classic system of formation aquestion about how to measure the its quality is raised. It is veryspecialized environment with the same actors like in the classic system toobut with different type of interactions. Can we say that in both system theresults are similar and their quality is the same. This paper reveal a modelthat can be used when try to evaluate the quality of this kind of systemusing specialized indicators for every aspect that can be measured.JEL classification: I21, C80Key words: e-learning system, quality, indicators, beneficiary of formation e-learning activities, e-learning materials1. IntroductionThe necessity of continuous formation was highlighted many years ago. Thepossibility of achieve new competences which generate important advantages becomemore attractive especially when the variation from work market are stronger andfinding a workplace become more and more difficult. The classic way used forformation suppose some rigidity when we try to adapt to the structure of formationprogram. This is one of its disadvantages. To eliminate this many formation alternativeswas found that assure good correlation with the present‟s conditions. E-learning wasone of this formation alternatives. This new alternative form of training had properconditions of development when information and communication technology permittedcheap, real time and complex communications, in other word affordable to anyone. Thepossibility offered to the beneficiary of formation to manage their time using a verypersonal and flexible manner was another advantage that convinced many to use thisalternative.The later software development had permitted the increase of assistance levelaccorded to the beneficiary of training, including the possibility to personalize the wayof providing formation to different individual characteristics aiming the goal toincrease the efficiency of learning process [1].In the classic formation system, the transfer of knowledge is based oninteraction between beneficiary of formation and a specialized personal in providing the136

Business Statistics – Economic Informaticsknowledge. The efficiency of formation process can be measured using the results ofthe intermediary and final evaluation tests. The same alternative exist in the e-learningsystem too. Beside that, because of the fact that in this kind of system there are manymore types of data recorded automatically, regarding to the parameters of the formationprocess, that can be used to precise measure of the quality and efficiency of formationsystem using modern methodology from statistics and data mining for example. Thisanalyze can reveal the best alternatives of particularization of the e-learning system tothe individual characteristics of the beneficiary of formation and to increase the qualityof formation process.The evaluation of the e-learning system quality can be done by using a neutralperspective and by using the perspective of the beneficiary of formation or theperspective of formators (figure no. 1). First perspective can be used to evaluate theentire e-learning system. The second perspective can be used to evaluate the maincomponents of the e-learning system often used by the beneficiary of formations and bythe formators.For measuring the e-learning system quality we must be focused on evaluatingof the following main components: the e-learning infrastructure the e-learning formators the e-learning materials the e-learning activitiesThe perspectiveof the formatorsQuality of the e-learning systemTheneutralperspectiveThe perspectiveof the beneficiaryof formationFigure 1. Perspectives used to evaluate the quality of the e-learning system.2. The quality of e-learning infrastructureThe e-learning infrastructure include all the integrate hardware and softwaresubcomponents which provide support for the formation services. The quality of e-137

Revista Tinerilor Economişti (The Young Economists Journal)learning infrastructure is determined by the quality of both software and hardwaresubcomponents.Regarding the quality of the hardware subcomponent, this can be measured usingthe series of the technical parameters provided by existing specialized standards, butthe software subcomponent presents many peculiarities. It is not a question only abouthigh performance of hardware but more about the connectivity and accessibility of it.E-learning formatorse-learningsupportactivitiese-learning systemHardware subcomponentSoftware subcomponente-learningmaterialse-learningactivitiesBeneficiary ofe-learningFigure 2. The structure of the e-learning systemThe quality of the software subcomponent can be evaluated through the qualityof the provided services and must aim the following:- the management of the beneficiary of formation. For an evaluation of this we canuse a survey which can reveal:o the existence of the possibility to manage the beneficiary of formationon both side activities and financial;o the existence of the possibility to organize the beneficiary of formation138

Business Statistics – Economic Informaticsin virtual groups at different level (individual, virtual class, virtualcampus etc.);o the possibility of monitoring the activities of the beneficiary offormation aiming the goal to better adapt the e-learning system to theindividual characteristics of them.- the management of formation materials. For evaluating this we can use a surveythat can include questions like:o what are the capabilities supported by the system in managing the e-learning materials?o what are the limits for storage the e-learning materials? It‟s veryimportant because in the e-learning system, beside the journal of useractivities, the learning materials is the component that will increase itssize very rapidly.o what are the possibility to structure the documents using various criteria?A good idea would be to make the evaluation from the perspective of theformators because usually they must insert the materials in the e-learningsystem.- the accessibility of the e-learning materials. This can be measured usingindicators like:o the numbers of the e-learning materials that a beneficiary of formationcan access simultaneously;o the minimum number of necessary operation for accessing a formationmaterial;o the access speed to the formation materials (the minimum/average/maximum necessary time for all operation for viewing an e-learningmaterial, the minimum/average /maximum necessary time to download ae-learning material )- the availability of the formation interface. This can be evaluated by identifyingthe following:o the possibility of choosing the language – one of the most importantbarrier of e-learning systemo the structure of the commandso the possibility of using natural input/output devices like touch screen,vocal interface.- The number and the types of the offered services, like:o The existence of the communication service (critical service). This canpermit the communication between beneficiaries of formation andformators, between beneficiaries of the formation. The type of thecommunication services is also important. It can be text only, text andaudio, text, audio-video. The capabilities of this service is critical for thee-learning system. It can permit only sequential interaction or real timeinteraction between the users of the e-learning system.- The existence and the type of self-evaluation service (using multiple choicesquestions or interactive)- The existence and the types of providing formation materials services (criticalservice). This service can provide only printable content, play only multimediacontent of interactive multimedia content.- The existence and the type of the examination service (critical service). It is139

Revista Tinerilor Economişti (The Young Economists Journal)similar with the self-evaluation service.- The existence and the types of the virtualization services. It can provide forexample only virtual board, virtual class, virtual campus [3] [6].- The existence and the types of learning assistance services. This kind of servicepermit:o the identifying of the learning profile for the formation beneficiaries;o the adaptation of the e-learning system to the profile of formationbeneficiaries;o the management of the learning path for the beneficiaries of theformation.A good quality for infrastructure means:- a hardware that can support high and complex level connection;- a software component that can deliver all services for every actor of e-learning;- a system with a natural interface and easy to use for everybody;- a system with very prompt reaction to the demanding of the users;3. The e-learning formatorsIn the case of e-learning system the requests that the formators must fulfill aredifferent from the classic formation system requests. In the first case all the interactionbetween the beneficiaries of the formation and the formators it is realized through the e-learning system. For this reason, besides of the professional competences the formatorsmust have the competences for using ICT and the components of e-learning system. Asimple task like answering to a question or presenting a demonstration, an example cansolicit the formators more that in the classic formation system. They must have alsoabilities in working with very heterogeneous groups of people (different geographicallocations, different ages, different cultural background etc.) [2].The quality of the formators must be evaluated by focusing on:- the professional competences of the formators- the pedagogical competences- the abilities in using ICTAll of this can be evaluated by using specialized tests and by the specialistsfrom the field.4. The e-learning materialsUnlike the classic formation system, in the e-learning system, the formationmaterials have a different conception based on idea that the interaction between theformators and the beneficiary of the formation it is not a direct interaction and it ispossible only through the e-learning system. Because of that the e-learning materialshave a higher level of details and many practical examples to make possible theassistance of the beneficiary of formation without the presence of the formators. Takingadvantages of the ICT the e-learning materials can have a various characteristics [4]like:- level of interaction with the beneficiary of formations:o noninteractive (for example print format)o partial interactive (for example audio-video playable format)o highly interactive (for example multimedia interactive format)- delivery format:o print only format140

Business Statistics – Economic Informaticso audio onlyo video onlyo multimedia interactive [7].- specific target devices:o for using on personal computerso for using on mobile device like PDA or smart phones.- reusability: a component of an e-learning material can be used in other e-learningmaterials [8].In the e-learning system the quality of formation materials must be focused at leaston:- a specific format- the level of assistance assured for the beneficiary of formation- a specific educational contentFor the first type of characteristics the quality of e-learning materials can beevaluated against standards for e-learning like SCORM 2004 [5].For the second and the third type of characteristics the quality can be evaluated fromthe perspective of the specialists from the corresponding domain and from theperspective of beneficiary of formation [9]. Both can be evaluated by using specializedsurvey.A high quality of the e-learning material can be defined by:- a multiple and flexible levels of assistance for beneficiary of formation.- an interactive content that can easy interact with the beneficiary of formation andactive also in a sense that can provide a base to obtain informations about thelearning activity realized by the beneficiary of formation. For instance, one ofthe possibility for obtaining informations is to have e-learning materialsintegrated into a concept map.- a high level o reusability for its contents- small storage size. When the e-learning materials are very compact it is veryeasy to transport them. The size of the e-learning materials can have directinfluence on the performance of the e-learning system.A survey from the perspective of beneficiary of formation can include questions like:- How much you can understand from this material?- What kind of the presentation form do you prefer for the e-learning materials?- How much effort you must realize to learn the content of this e-learningmaterial?- How much the e-learning materials help you to pass the exams?5. The e-learning activitiesIn a typical e-learning system there are two main types of activities (figure no. 2):1. e-learning support activities2. e-learning activities of beneficiary of formationThe first type of activities takes place between the formators and the e-learningsystem. This type of activities may include:- creating the content for the e-learning materials;- uploading the e-learning materials into e-learning system;- assisting the beneficiary of formation in the e-learning activities;- communicating with the beneficiary of formation- analyzing the progress of each beneficiary of formation and adjusting the141

Revista Tinerilor Economişti (The Young Economists Journal)learning path;The second type of activities may include the following categories of activities:- learning activities- evaluation;- communication between beneficiary of formation or between them and the formatorsThe evaluation of the e-learning activities can be done by using indicators thathighlight the size the structure and the intensity of each of them.E-learning support activities can be measured by using indicators like:- minimum/average/maximum time for creating a component of an e-learning material- minimum/average/maximum time for creating all component of an e-learning material- minimum/average/maximum time for uploading a component of an e-learningmaterial- minimum/average/maximum time for uploading all components of an e-learningmaterialLearning activities of beneficiary of formation - this type of activity include allactivities that involve the use of the e-learning materials (like on-line studying,downloading, interaction with the interactive e-learning materials), evaluation activities(like self-evaluation and exams), communications activities.For evaluating learning activities we can measure for each beneficiary of formation,at level of different groups of beneficiary of formation, at level of each e-learningmaterial or at level of e-learning material‟s components a series of indicators like:- on-line session duration- time structure of on-line session: % from session duration used for on-linestudying; % from session duration used for downloading the e-learningmaterials.- minimum/average/maximum time for on-line studying- minimum/average/maximum time for downloadingFor evaluating the evaluation activities we can use:- the minimum/average/maximum number of self-evaluation at level of eachbeneficiary of formation and each e-learning material or each component of eache-learning material- the minimum/average/maximum number of correct answers at level of eachbeneficiary of formation and each e-learning material or each component of eache-learning material- the number of self evaluations unfinished in time- the minimum/average/maximum time used for each question from selfevaluationat level of each beneficiary of formation and each e-learning materialor each component of each e-learning materialThe same indicators can be used for evaluating the exams.For all this indicators we can study the trend too.We can determine many correlations between them to find out more informationabout the e-learning system. All above indicators can be used as starting point fordetermining other compound indicators that can accurate and complete measure thequality and efficiency of an e-learning system.142

REFERENCES1. Chen, C.-M.,Lee, H.-M.,Chen, Y.-H.2. Seale, J.,Cooper M.Business Statistics – Economic InformaticsPersonalized e-learning system using Item ResponseTheory, Computers & Education 44 (2005) 237–255E-learning and accessibility: An exploration of thepotential role of generic pedagogical tools, Computers &Education (2009), doi: 10.1016/j.compedu.2009.10.017(accepted papers)Beyond formal learning: Informal communityeLearning, Computers & Education 43 (2004) 35–47Characterising effective eLearning resources, Computers& Education 50 (2008) 757–771.3. Cook, J.,Smith, M.4. Littlejohn, A.,Falconer, I.,Mcgill, L.5. Gonzalez-Barbone, Creating the first SCORM object, Computers &V., Anido-Rifon, L. Education 51 (2008) 1634–1647.6. Thompson, T. L., Community building, emergent design and expecting theColla, T,unexpected: Creating a quality eLearning experience,MacDonald, J. Internet and Higher Education 8 (2005) 233–2497. Cochrane T. Developing interactive multimedia Learning Objectsusing QuickTime, Computers in Human Behavior 23(2007) 2596–2640.8. Valderrama, R. P.,Ocan, L. B.,Sheremetov, L. B.9. Jara, M.,Mellar, H.Development of intelligent reusable learning objects forweb-based education systems, Expert Systems withApplications 28 (2005) 273–283Quality Enhancement for E-Learning Courses: The Roleof Student Feedback, Computers & Education (2009),doi: 10.1016/j.compedu.2009.10.016 (accepted papers)143

Revista Tinerilor Economişti (The Young Economists Journal)MARKETING EVOLUTION: E-MARKETING - QUALITATIVE AND QUANTITATIVE RESEARCHTECHNIQUESAssoc. Prof. Ph.D Ciora Liviu IonAssoc. Prof. Ph.D Popa SorinLect. Ph.D. Buligiu IonUniversity of CraiovaFaculty of Economics and BusinessAdministrationCraiova, RomaniaAbstract: E-marketing is a generally accepted concept, due to itsadvantages compared to other marketing mechanisms: it is faster, moreefficient, more intelligent and less expensive. The option for e-marketing isalso enforced by its flexibility with which it addresses potential clients.Moreover, e-marketing is the environment which leads to quick results,allowing complex calculus in order to analyze request and marketevolution as pertinent as possible. Access to new market segments andgaining the existing clients’ trust and loyalty through the products’ qualityand price is mostly due to the e-marketing campaigns.JEL classification: M15, M31Key Words: e-marketing, market research, Internet, e-marketing campaignsClassic marketing. Promoting policyIn the current economic practice and theory, the term marketing is used moreand more frequently. From the etymologic point of view, it comes from English andrefers to buying and selling.It can be defined like this: “Marketing is analyzing, programming andcontrolling the resources of different producer companies, their politics and productionand distribution activity with a view to satisfying the demands of different consumergroups and gaining profits.The definition given by the American Marketing Association-AMA is asfollows: “Marketing is the activity, set of institutions, and processes for creating,communicating, delivering, and exchanging offerings that have value for customers,clients, partners, and society at large”.Marketing emergency must be analyzed in close connection to the evolution ofthe commercial function and the changes in the traditional reports between companies‟functions.Managers have made great efforts to build efficient organization andcommercial structures, capable to sell mass production. Such a project impliesimportant changes such as: adapting distribution cycles to the new demands, improvingcommunication procedures and survey techniques. The technique of distribution byimplementing the self-service system revolutionized the system and led to tacklingcommercial problems in a different manner. This led to the conclusion that it is no144

Business Statistics – Economic Informaticslonger commercially viable to create products that are imposed on the customer, theinversion of the process being more efficient: first the potential clients are consulted inorder to learn their demands, and then the products demanded by them are created,accompanied by various services. Thus, sales are no longer a coercion activity, sinceclients are offered a product in agreement with their demand; in other words, there hasbeen a transition from a producer-oriented market towards a seller-oriented one, theconsumer being the one who stands at the center of this commercial world. There isthus an economic democracy, but on the other hand, these commercial techniques andproceedings led to clients‟ manipulation, taking advantage of the clients‟ weak points,serving the managers‟ appetite for domination.A modern company, with marketing vision, must apply a series of methods thatfocus on the following aspects:- Investigating the market;- Identifying a market;- Adapting to the market in an operative way;- Influencing the market;The methods applied should be based on the following beliefs:- All the activities and programs should be consumer oriented;- The purpose of the activities should be profitable sales, and not salesfor the sake of volume;- Offering a large variety of products (goods, services, ideas) to satisfycustomers;- All the activities should be in accordance with the company‟spossibilities;- Marketing activities should be part of the system/company‟s activitiesThe developing of the marketing process takes place only if:- Two or more parties have unsatisfied needs;- Each party wants and can satisfy its needs;- Each party has something to trade;- There is a means of communication between the parties.When a business is initiated, the starting point is the market. Marketing helpsthe company to know the market, and market knowledge is vital for the permanentadaptation of the product/service or business to the market changes. A good marketingpositioning implies the permanent obligation of knowing the market, in order to adaptthe company to the environment changes, with the help of its management and in orderto act with maximum efficiency, in order to satisfy the customer. With a view toadapting, market knowledge is a reactive process, but in order to take action, marketingmust be proactive. Thus, the decisions and proactive managerial behavior is based onmarketing specialists‟ previsions. Any business must start from the market. Marketmonitoring and signal analysis are compulsory for the marketing department, actuallyrepresenting the very reason for its existence. With the aim of taking strategic decisions,for the business/company‟s development, decision metrics must be employed, such asSWOT, BCG (Boston Consulting Group), PM (products and markets) etc.Promotion politics implies combined efforts to influence the buyers‟ opinion infavor of their own goods and services or ideas, reported to a certain market.Promotion is the most visible component for the consumer, and new theoriesconsider it “communication policy”, since it often describes the entire field of“company communication”, in order to increase sales.145

Revista Tinerilor Economişti (The Young Economists Journal)Sale communication, according to marketing management approach, includesthe following elements:1) Advertising and publicityPublicity is any kind of impersonal communication referring to ideas, goods orservices, usually by means of mass media, the most frequent publicity forms beingprinted ones, audio and/or video.Taking into account the fact that advertising is not only a means of uninterestedinformation, one can state that advertising is a voluntary form of communicationsubordinated to a commercially objective. This is not objective information, but rather aplea for a product or a company, in order to achieve sale.The advertising specialist makes use of a series of special information fromsurveys, motivations analysis, etc. and function of these, they must place the buying actin a very rich context from the psychological and social point of view.Defining the role of advertising within the global marketing strategy is not sucha difficult task as long as the company understands to struggle to defend its products‟image as well as the company‟s public image.From a managerial perspective, advertising has the same general objectives as,for example, promoting, informing, convincing, recalling.Concisely speaking, advertising objectives are: knowing about the product‟sexistence, knowing the product‟s characteristics, building the company or product‟simage, causing immediate purchase, post-sale communication to remind about thebrand or the product to faithful customers.For some products, the need for information I low, since buying them does notrequire supplementary information, eventual brand problem may occur.For other products, though, the need for information is great. This categoryincludes:- New products;- Products with a great technical complexity;- Products with high purchase risks.When the product‟s quality is suspicious, it is obvious that advertising cannotmake it a success. The consumer is tricked into buying it only once. This does not manhat all products subjected to advertising are good quality, even though the product wasinitially purchased following advertising actions; this will not happen twice. Moreover,due to the unfortunate experience, that specific category of buyers may refuse anyproduct belonging to the same brand in the future, consumers growing suspicious.There is also the situation of quality products which do not enjoy appropriateadvertising, and consequently sales do not increase. The advantage offered by theproduct‟s originality must necessarily be exploited by the advertising specialist.The main advertising media are: The press: daily, periodic, specialty (for professionals); Television ; Display; Radio; Cinema.Apart from the products specific to these media (clip, spots) other printedproducts can be used, such as calendars, products catalogues, fliers, prospect,brochures, leaflets etc.It is difficult to quantify the impact of advertising on the increase of sale146

Business Statistics – Economic Informaticsvolume or the improvement of the company‟s image, since advertising is only one ofthe numerous factors which can cause sale increase, and its effort is difficult to isolate.If the objective of advertising is to reveal a product‟s definite advantage, or tocreate a positive attitude towards a certain brand, then advertising efficiency can bemeasured by a market survey (by help of a questionnaire). The subjects can be askedhow much they memorized of the transmitted message and what is their attitudetowards the proposed brand.Advertising efficiency can be measured on two levels: On a cognitive one (studying the increase in sale volume) ;On affective level (methods devised by psychologists with the purposeto measure customers‟ preferences and attitudes).2) Personal salePersonal sale is a relatively expensive form of promotion, but a very efficientone.Personal sale is a person-to-person type of communication presenting thefollowing advantages: Each party can state their opinion on the spot, and non-verbal means suchas gestures, mimic etc. can sometimes be decisive; One can establish relationships that later can be developed, allowing a moreprecise focus than advertising; requires an answer; the impact is greater than that of advertising;Its main disadvantage consists of the limitation of the total number of contacts,and total costs are higher than in the case of advertising.The most important aspects referring to personal sale management are:‣ recruiting the best sale agents;‣ keeping he best sale agents;‣ quality of instruction;‣ establishing new services for clients;‣ knowing the products‟ technical qualities and their disadvantages as well;‣ reputation with clients.Personal sale must be conceived as mutually advantageous long-termrelationship with the client and not necessarily as a short-time means of boosting salevolume.Nowadays some companies use category sale that is each sale agent specializesin certain lines of products.For important clients, this type of sale is supported by a team of financial,production and distribution specialists, thus possible adaptations of he company‟sresponse to the client‟s needs being possible.The company must analyze the unique role played by personal sale in themarketing mix, so that the client‟s needs should be satisfied in the most efficient way.Sale agents can fulfill one or more f the following functions in a company: market research (finding new clients and pursuing new relationships) targeting (dividing limited time resources between effective clients) communicating (information about products and services) selling (mastering the art of negotiating and selling) offering services (offering services and consultancy to clients) gathering information (thus performing market analysis)147

Revista Tinerilor Economişti (The Young Economists Journal) distribution (when the company owns a limited number of productsthey decide to which clients they are sold)3) Special promotion techniques – with the aim of stimulating short-timesales.The American Marketing Association defines sale promotions as thosemarketing activities – others than personal sale, advertising and publicity – whichmotivate the costumer to purchase and the distributor to be efficient, such as:presentations, exhibitions, demonstrations, as well as other techniques different fromthe routine ones.There are other types of activities, such as: employing specialist to displayproducts in shop windows and stores, interior/exterior designers, sampling,competitions, exhibitions and fairs, sales, prizes, discounts etc. which, from thefinancial point of view, imply extra costs, apart from destined for advertising. Thesecosts have a tendency to increase, which proves that these techniques are used more andmore.Promoting sales does not represent substitute for promotional programs, but thesupplementation of promotional activities, a secure means of building the clients‟favorable attitude.Unlike advertising and personal sale, which are used continuously and targetlong-term sales, sale promotions represent an activity taking place from time to timeand targets short-term sale increase.But there are activities such as leasing, consultancy and engineering, which canbe included in the special promotion techniques and can build a long-time relationship.Their importance is great because they are special instruments for building image.When comparing advertising and sale promotion, one can say that in the case ofadvertising, due to the messages, the customer is pushed towards the product, while inthe case of sale promotion, the product is pushed toward the customer; in both casesthese techniques must lead to sale increase.4) Public relationsAdvertising must be informative, convincing and suggestive.Its main objective is changing demand on the market, in favor of its ownservice/product, by using a series of specific techniques.Advertising, personal sale, sale promotion and public relations are instrumentsemployed by marketing specialists in order to plan strategies and communicationcampaigns.Advertising a new product or service can be more efficient when applyingpromotional mix.Promotional factors refer to the product (for example quality, wrapping, shape,band, promotional prices) or the quality of he commercial (title, text, slogan,illustration, coloring, label) and their role is to draw the customers‟ attention andstimulate their interest.The stages of elaborating a promotion mix are:‣ Selecting specific objectives;‣ Identifying and selecting relevant target segments or target clients;‣ Identifying and selecting the components of the promotional mix;‣ Their optimal integration, that is allotting each specific objective toeach relevant segment and to each element of the promotional mix.Designing the components of the promotional mix, within a specific structure148

Business Statistics – Economic Informaticsrepresenting the direction given by the two moments, the initial and the final one,represents the company‟s promotion strategy.A few general observations refer to the following: Designing the promotional mix depends first of all on:- The nature of the product/service;- The stage in the lifecycle of the product/service;- The chosen market segment or segments (respectively targetpublic/publics). Not all promotion instruments can be used simultaneously, due to the highcots and their interchangeable character Promotion instruments are rarely used separately; No promotion instrument is superior to another, so none should be ignored;according to circumstances, the importance of one may increase for a shortperiod of time, since each instrument has both advantages anddisadvantages.Building a promotion strategy implies taking into consideration differentpromoting activities as a whole, the creator‟s task being to determine the type ofactivities that will accomplish the promoting objectives of the company. That is whyjust one activity cannot answer to all the objectives.A strategy implies allotting the necessary founding and efforts to differentpromoting activities.Any company must possess its own promoting program. This program muststart by establishing objectives.Generally speaking, one can say that the objective of promotion can becommunicating the necessary information to the costumer in order to take a decision,together with simulating sales.Public relation and free advertising are extremely helpful in attracting attentionand knowing about the existence of a solution to a given problem on the market, andpotential buyers are more receptive to some promoting instruments than others.Similarly to taking marketing decisions, promoting decisions must be based onunderstanding the company‟s position on the market.For example, a dispersed market (for example pre-packaged products) needs asmall number of contacts – advertising being the most appropriate, while on ageographically dense market, the personal sales approach is necessary.The nature of his product also affects the methods used in their promotion.For example, when the product has a high unitary value, there is a focus onpersonal sale.The stage of the product‟s lifecycle also influences promoting methods.When introducing a new product, the marketing mix must supply theinformation, which must draw attention on the product. In this stage, advertising isdominant. The product must also be displayed and pushed down the distributionchannel, by means of personal sale, exhibitions, fairs, etc.When the product reaches the maturity stage, the promotion mix shifts towardssale promotion.During the decline stage, new products substitute the old ones, which arefinally abandoned. In this stage raffles, games with prizes, competitions, championshipsare frequently used as specific promoting instruments; promoting expenses will besignificantly reduced and then completely eliminated.149

Revista Tinerilor Economişti (The Young Economists Journal)The apparition of the Internet allowed the development of a new type ofmarketing – e-marketing.For marketing, the impact of the Internet has led to major changes in companyculture, the disappearance of classical hierarchic model leadership, a spectacular changeof the relationships between partners, radicalization of information and contact betweenpartners, and shortage of economic cycles.The Internet provides a series of obvious advantages for marketing: it allowscompanies o increase and intensify their presence on the market, offers possibilities formarket development and increasing sales, contributes to improving services for clients,allows companies to change a potential client into an active one, facilitates informationtransfer and their rapid update, significant economy, increased safety, equalopportunities, information flow control.Globalization and information society cause a radical change of marketingobjectives, form a highly homogenous activity with mass addressability marketingbecoming a highly heterogeneous, fragmentary activity, target markets oriented.Products are offered everywhere on special e-commerce sites, on a globalmarket, buyers can be anywhere in the world, the distribution process is controlled byvirtual sales. Nowadays most producers, intermediaries and marketing specialist havesites using direct marketing.E-commerce allows more than any other solution or technique successfulclient-oriented marketing. Successful marketing does not happen only as a consequenceof understanding specific instruments and the way in which they are used. The Internetis an instrument and a technology, as well as a world in itself, a specific culture.E-commerce allows the fulfillment of marketing specialists‟ dream – individualmarketing – that is adapting the product to each individual customer. The client mustonly be led to surf the site and specify the characteristics of the chosen product. All thewishes and the path on the producer‟s site shall be monitored and recorded: what Webpages were visited, how much time was spent on a page, what advertisements caughthis/her attention etc. Companies use such information to change the characteristics oftheir own offers and to customize user interfaces as marketing means. Based on theinformation gained extremely fast and with low costs, the company suggests otherproducts which may interest the client, function of previous acquisitions of client withsimilar profile. Additionally, the data bases thus created can be used for a more efficientorganization of selling campaigns, for identifying new targets on a certain market.E-marketing exhibits the following specific features: direct and interactivecharacter, being a more active environment than classical media, internet promotionsattract clients toward a product/service, internet marketing facilitates a permanentexchange of detailed specific information, internet marketing offers other informationand opportunities, there is no real obstacle referring to the size, scope and level oftransactions via the internet due to marketing research; it is an instrument forglobalizing research in marketing, in its customized global marketing variant it provesto be a viable alternative fir he future.Its characteristics are unique compared to other types of marketing; it isrelational, and confrontation is replaced by relationship; it is interactive, dialogueoriented and open; it is direct, being directly oriented towards the client, withoutintermediaries; it is based on information representing the vehicle of IT networks; it isglobal, but it focuses on individual clients, it is fast, it has low transactional andcommunication costs, operates in a world without distances and does not have a closing150

Business Statistics – Economic Informaticstime being available 24 hours a day.Although it may take a while until companies will adapt their conventionalmarketing strategies to the interactive model, they are forced to take into considerationthese new marketing techniques.E-marketing is an online strategy for promoting web sites, a plan of promotingis own web site through exclusively online means, aiming at attracting as many clientsas possible and maintaining them as much as possible, with minimal costs and maximalprofits. The essential stage of each e-marketing plan is optimizing web sites, especiallyfor search engines and web directories. Marketing and advertising strategies areabsolutely necessary to gain success on the Internet.The Internet provides a promoting environment which can be used foridentifying prospects, collecting information for these prospects. Online promoting ofthe content can be adjusted to the client‟s current or past behavior, to the behavior orknowledge previous to acquisition, or a combination of the three. The traffic of acertain web site can be increased by increasing the number of new users arriving on thesite or by offering more pages to the already exiting ones. Interactive publicity impliesthe viewer directly, controlling how much information is received.The interactive bidirectional communication capability of the Internet,combined with its increased acceptance worldwide, attracted advertising specialists.Promoting a web site is as important as building it. Thus, if the users do knotknow about its existence and its benefices, its utility is almost zero.The means by which web site promotion can be achieved are, mainly, thefollowing: traditional mass media means, publicity banners, search engines anddirectories, newsgroups, mutual links, affiliated programs, web ring.An efficient image promotion of the company through modern means providedby this new means of marketing communication means much more than a simpleaccounting of the daily number of access entries. First of all, it means an effectiveopportunity to achieve marketing research, in order to achieve market analysis by usingonline data from users.Market research in e-MarketingMarket research is a process that aids business decisions. It involvessystematically gathering, recording and analyzing data and information aboutcustomers, competitors and the market.Research can be based on primary data and information, or secondary data andinformation. Primary research is conducted when data or information are gathered for aparticular product or hypothesis. This is where information does not exist already or isnot accessible, and so needs to be specifically collected from consumers or businesses.Surveys, focus groups, research panels and research communities can all be used whenconducting primary market research.Secondary research uses existing, published data and research as a source ofresearch. It can be more cost effective than conducting primary research, and theInternet opens a wealth of resources for conducting this research. However, the datawould have originally been collected for solving problems other than the one at hand,so might not be sufficiently specific. That being said, secondary research can be usefulin identifying problems to be investigated through primary research.Research can also be classified as qualitative or quantitative. Qualitativeresearch can be classified as exploratory. Qualitative research aids in identifying151

Revista Tinerilor Economişti (The Young Economists Journal)potential hypotheses, whereas quantitative research puts hard numbers behind thesehypotheses. Qualitative research seeks to find out what potential consumer perceptionsand feelings exist around a given subject. This research can often be used to advise thedesign of quantitative research, which relies on numerical data to demonstratestatistically significant outcomes.The Internet is a useful tool for both primary and secondary research, and canbe used to gather both qualitative and quantitative data. In fact the communities on theWeb can be viewed as one large focus group, regularly and willingly sharing theiropinions on products, markets and companies. Today, organizations transacting onlinehave a wealth of research information freely available to them, and sophisticated toolsfor gathering further data.Market research should produce information that leads to actions.Qualitative and quantitative research techniques of e-MarketingQuantitative research gathers data that can be statistically analyzed todetermine results. Data must be formally gathered, and should be collected to test ahypothesis as opposed to determine a hypothesis.Qualitative data can be more difficult to quantify. Typically, because base sizesare smaller and not necessarily representative of the market under investigation (as itcan be more expensive and time consuming to gather and analyze the data), qualitativedata cannot be taken as quantified. It is however valuable in aiding a researcher ininterpreting the market perspective. It is possible to combine approaches, producingdata that can be used both qualitatively and quantitatively.Table no. 1QUALITATIVES RESEARCHAssumptions Reality is socially constructed Subject matter is most important Variables are complex, interowen, difficult to measure Insider’s point of viewPurpose Context of issues Interpretation Understand perspectivesApproach Ends with hypotheses for further research Inductive Searches for patterns Seeks complexity Makes minor use of numerical indicesResearcher role Personal involvement, partial EmpatheticQUANTITATIVES RESEARCHAssumptions Social facts have an objective reality Method is most important Variables can be identified andrelationships can be measured Outsider/s point of viewPurpose Generalisation Prediction Explain causesApproach Begin with hypotheses Deductive Analyses components Seeks consensus, the norm Reduce data to numerical indicesResearcher role Detachment, impartial ObjectiveSource: http://www.gifted.uconn.edu/siegle/research/Qualitative/qualquan.htmFor example, many tools that can track brand name mentions are outlined. Thisdata can then be analyzed qualitatively, where the researcher can examine the mentionsand use their judgment to determine sentiment, or quantitatively, where mentions canbe assigned numeric values across a range of categories which are used to generate areputation score.152

Business Statistics – Economic InformaticsWhen both qualitative and quantitative research are used, usually qualitativeresearch takes place first to get an idea of the issues to be aware of, and thenquantitative research tests the theories put forward in qualitative research.The table no. 1 aims to look at the main differences between quantitative andqualitative research.ConclusionsThe rapid development of e-marketing was and still is at high levels, in all itsfunctional aspects, in contrast with the research and advertising process in traditionalmarketing. Through the e-marketing approach, the fundamental aspects of marketinghave not changed. The present article is focused on the strategic approach of e-businessand the functional one, through appropriate analysis: resources, demand, competition.Planning an e-marketing campaign must take into consideration, apart from aconsiderable quota on the market, profit and profitability rate involved. Investmentprofitability and business value boosts and leads to evolutions and changes in e-business. Efficient e-marketing campaigns, which fulfill their goals and allowquantification of the company actions‟ impact on the market, represent the key tosuccess in business today.E-marketing instruments and strategies represent a solid support for dialoguebetween management and clients, allowing them to express their opinions andproposals in different ways. E-marketing is oriented towards a better understanding ofthe clients, their needs and their specific way of action, towards personal and directorientedcommunication. E-marketing approach is a personal one, centered on theclient‟s profile.REFERENCES1. Danciu, V., Marketing. Metodologie şi practică., Editura Dacia EuropaGrigorescu, A. Nova, Lugoj, 2000.2. Kotler, P. Marketing - Management – Analysis, Planning and Control,Prentice Hall, Englewood Cliffs, NJ, 19903. Meghişan, G., Bazele marketingului, Editura Economică, Craiova, 2004.Nistorescu T.4. Roche, M. Marketing. Best practices., The Drzden Press, New York,20005. Rohner, K. Ciber-Marketing, Editura ALL, Bucureşti, 19996. *** Report of American Marketing Association – A.M.A.153

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