Proceedings of 2nd International Conference on ...

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Proceedings of 2 International Conference on Economics and Social Sciences ICESS-2014

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2 International Conference on Economics and Social Sciences ICESS-2014

Proceedings 2nd International Conference on Economics and Social Sciences (ICESS 2014) Bangkok, Thailand Febuaray1-2, 2014

ISSN:2307-7549

Organized by

International Foundation for Research and Development (IFRD)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014)

Preface Dear Distinguished Delegates and Guests, The Conference Committee warmly welcomes our distinguished delegates and guests to the second International Conference on Economics and Social Sciences (ICESS 2014) held on February 1-2 in Bangkok, Thailand The ICESS-2014 is organized by International Foundation for Research and Development (IFRD). The conference is aimed at discussing with all of you the wide range of problems encountered economics and social sciences. The ICESS-2014 is organized in collaboration with Yildirim Beyazit University, Turkey, Shinawatra International University, Thailand, PERTRE ANDERI of IASI, Romania and National Academy of Management, Ukraine where researchers from around the world presented their work. The conference committee is itself quite diverse and truly international, with membership around the world. The proceeding records the fully refereed papers presented at the conference. The main conference themes and tracks are Economics, Social and Devleopment Sciences. The conference aims to bring together researchers, scientists, engineers and practitioners to exchange and share their experiences, new ideas and research results about all aspects of the main conference themes and tracks and discuss the practical challenges encountered and the solutions adopted. The main goal of the event is to provide a scientific forum for exchange of new ideas in a number of fields that interact in depth through discussions with their peers from around the world. The conference has solicited and gathered technical research submission related to all aspects of major conference themes and tracks. All the submitted papers have been peer reviewed by the reviewers drawn from the scientific committee, external reviewers and editorial board depending on the subject matter of the paper. Reviewing and initial selection were undertaken electronically. After the rigorous peer-review process, the submitted papers were selected based on originality, significance, and clarity for the purpose of the conference. The conference program is extremely rich, featuring high-impact presentations. The high quality of the program guaranteed by the presence of an unparalleled number of internationally recognized top experts. The conference will therefore be a unique event, where attendees will be able to appreciate the latest results in their field of expertise, and to acquire additional knowledge in other fields. The program has been strutted to favor interactions among attendees coming from many diverse horizons, scientifically, geographically, from academia and from industry. We would like to thank the program chairs, organization staff, and members of the program committee for their work. We are grateful to all those who have contributed to the success of ICESS-2014 especially our partners. We hope that all participants and other interested readers benefit scientifically from the proceedings and find it stimulating in the process. Finally, we would like to wish you success in your technical presentations and social networking. We hope you have a unique, rewarding and enjoyable time at ICESS-2014 in Bangkok. With our warmest regards, Conference Committee February, 1-2, Bangkok Thailand

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ICESS-2014 Conference Committee Conference Chair John Walsh, Ph. D., Shinawatra International University, Bangkok, Thailand Conference Co Chair K R Rao, Ph. D, International Foundation for Research & Development Conference Convener Thanet Wattanakul, Ph. D., Khon Kaen University, Nong Khai Campus, Thailand Members Sisira R. N. Colombage, Ph. D., Monash University, Victoria, Australia Alexandru Trifu, Ph. D., University, Petre Andrei, Iasi, Romania Nek Kamal Yeop Yunus, Ph. D., Univerisiti Pendidikan Sultan Idris , Perak, Malaysia Dileep Kumar, M., Ph. D., University Utara Malaysia, Malaysia Rishidaw Balkaran, Ph. D., Durban University of Technology, South Africa R K Uppal, Ph. D., DAV College, Punjab, India Ayhan Kapusuzoglu, Ph. D., Yildirim Beyazit University, Turkey Nasina Mat Desa, Ph. D., Universiti Sains Malaysia, Penang, Malaysia M. Saman Dassanayake, Ph. D., University of Colombo, Colombo, Sri Lanka Katalin Jackel, Ph. D., Budapest Business School, Budapest, Hungary Wei-Bin Zhang, Ph. D., Ritsumeikan Asia Pacific University, Japan Susantha Herath, Ph. D., St. Cloud State University, USA Somnath Sen, Ph. D., University of Birmingham, United Kingdom Kevin Feeney, Ph. D., American University in Bulgaria Zulnaidi Yaacob, Ph. D., Universiti Sains Malaysia, Penang, Malaysia Johan de Jager, Ph. D., Tshwane University of Technology, South Africa José G. Vargas-Hernández, Ph. D., University of Guadalajara, Mexico Izah Mohd Tahir, Ph. D., University Sultan Zainal Abidin, Terengganu, Malaysia Chux Gervase Iwu, Ph. D., Cape Peninsula University of Technology, South Africa Pratibha Samson Gaikwad, Ph. D, Shivaji University of Pune, India Hamdan Said, Ph. D., Universiti Teknologi Malaysia (UTM), Malaysia

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2nd International Conference on Economics and Social Sciences (ICESS-2014)

Table of Contents Description

Pages

Preface

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Conference Committee

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Table of Contents

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Papers

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The Role of State-Trait Anger and Anger Expression Styles Life Satisfaction and Self-Esteem in Predicting Physical Abuse and Emotional Abuse and Neglect, Ayşe Rezan CECEN-EROGUL, Şalibe Bilge TÜRK Assessing the Needs of People with Disabilities in the Emirate of Abu Dhabi, UAE, Eman Gaad Muslim Business Women in an Islamic State: Between Ideals and Reality,Ilhaamie Abdul Ghani Azmi, Mohamed Dahlan Ibrahim Analysis of Passenger Transportation Demand: Case Study of the Customs House, the ThaiLaos Friendship Bridge, Nong Khai Province, Sakkarin Nonthapot, Thanet Wattanakul The Effect of Top Management Support and Internal Control of the Accounting Information Systems Quality and Its Implications on the Accounting Information Quality, Sri Dewi Anggadini Chinese Economic Development and Leadership Strategy: The Challenges of Creating Competitive Advantage,Kinfu Adisu The impact of Climatic Factors on Knowledge Management Effectiveness, case study: Iranian Government Organizations, Abbas Mardani, Ehsan Kish Hazrat Soltan, Mahdi Mohammad Bagheri, Ali Af. Asgari, Amir Ali Khalili Multidiscipline Approach to Water Resource Management, Nattakorn BONGOCHGETSAKUL, Pongsak SUTTINON, Kotomi UEMOTO, Seigo NASU Nation-state: What is the good of it?, Ahmet Nuri Yurdusev Rationalizing the Choice of Housing on Cultivable Land: Is Cash-return the only Determinant? Zobayer Ahmed, Pronab Kumar Saha The Impact of Service Delivery Method to Increase the Volume of Sales in Restaurants that Service Fast Food, Marzouq AL-Qeed Spillover Effects on Relative Demand For Skilled Labour In Malaysian Manufacturing Industries, Norhanishah Mohamad Yunus, Rusmawati Said, Wan Azman Saini Wan Ngah Assessing Risk and Risk Mitigation Strategies of Small Coffee Growers: A Study in Kodagu District in Karnataka, India, Deepika M G, Amalendu Jyotishi A Conceptual Framework for Antecedents and Consequence of Organizational Learning Capability, Azharuddin Hashim Determining of Misconceptions by Means of Tree-Tire Test about the Unit Human and Environment, Erol TAŞ, Evşen AYMEN PEKER, Murat ÇETİNKAYA An Examination of the Causal Relationship between Budget Deficit and Inflation: A Case Study of Lao PDR, Phouthanouphet Saysombath, Phouphet Kyophilavong Investigating the Relationship between Assets and Stock Returns of Listed Companies in the Food Industry of Tehran Stock Exchange Market, AlirezaFazlzadeh, Abbas Talebbeydokhti Does ASEAN-Korea FTA Reduce Poverty in Laos? The Roles of FDI and Trade Facilitation Jeong-Soo OH, Phouphet KYOPHILAVONG

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1 5 12 17 22 30 34 42 49 51 60 62 68 80 85 91 96 99

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) One Village One Product (OVOP) in Japan to One Tambon One Product (OTOP) in Thailand: Lessons for Grassroots Development in Developıng Countrıes, Nguyen Thi, Anh Thu The Relationship between Firm Strategy, Capital Structure and Firm Performance, Abbas Talebbeydokhti, Alireza Fazlzadeh Validation of a Turkish Language Version of the Resistance to Change Scale, Aylin Aktaş Alan, Ece Ömüriş, V. Rüya Ehtiyar, Cem O Guzeller* Mediating Role of Supply Chain Integration on Relationship between Information Sharing, Knowledge Sharing and Flexibility Performance,Ali Af. Asgari, Abu Bakar Abdul Hamid, Azam Haghkhah, Mahdi Mohammad Bagheri, Abbas Mardani, Effect of Volatility Changes on Emerging Stock Markets: The Case of Jordan, Marwan Mohammad Abu Orabi The Opinions of Elementary Students from Different Cultures about the Nature of Science, Mustafa Dogru, Fatih Şeker, Tuna Gencosman Factors Influencing Educational Adjustment among English Medium Students in Kottayam Diocese, Kerala, India: A Path Analytic Study, Parvathy Varma and Marykutty .K.L University-Industry Relations and Technological Capabilities Building In Turkish Automotive Industry: A Technological Regime Based Approach, Cem Okan TUNCEL, Çağatan TAŞKIN The Big Five Personality Influences Against Purchasing Impulsive: Survey on Mallvisitors in Bandung city, Raeni Dwi Santy SE., M.Si The difference between consumers’ and manufacturers’ gender classification of perfumes Anna Lindqvist Not working while at work: resistance, adjustment and the in-between, Roland Paulsen Supervisory Support as an Antecedent for Transfer of Training, Vangeli Gamede Analyzing the Characteristics of Spatial Configuration in Rural Villages Using Space Syntax : Focused on Busu Region, Boeun Gun, Korea, Hye-Mi, Woo, Joong-Shuk, Youn, Young Un, Ban, Jong In, Baek, Na Rae, Choi, Yu Mi, Kim Assessing the Impact of Social Networking Sites on the Study Habits of University Students of Bangladesh, Abu Naser Mohammad Saif, Ishpeea Momota Alternative Spatial Layout Plan for Building an Innovation Cluster Using Space Syntax: Focus on Chungbuk Innovation City, Yong Un Ban, Jae Ho Jung, Kyung-Min Han, Jong In Baek, Na-Rae Choi Analyzing the Determinants to Affect the Satisfaction Level of Greenway Users, Han, KyungMin, Kim, Yu-Mi, Ban, Yong-Un Factors Influencing Wheelchair Accessibility in Newly Built and Old Districts, Jong In, Baek, Yu Mi, Kim, Young Un, Ban, Tae Soon, Kim Cultural Dimensions’ Influence on Self Service Technology in Retail Settings of India and Indonesia, Deblina Saha Vashishta, B. Balaji Students’ Assessment of B-School Education, Manikandan. D, Prithiviraj. D Comparison Analysis of Urban Spatial Configuration between Seoul and Pyongyang City Using Space Syntax, Ban Yong Un, Lee Tae Ho, JuGi Hun Development of Transportation Justice Index in Korea, Yong Un, Ban, Cheol Hee, Son, Jong In, Baek, Na Rae, Choi A Study on the Development of Definition and Planning Indicator for Green Industrial Park Ban, Young Un, Jeong, JiHyeong, Lee, Tae Ho, Jeong, Hun Kun Implementation Of Cooperatives’ Principles On Ranked-Cooperatives, East Java 2012, Wıwıek Harwıkı, Ruswıatı Suryasaputra The association between the Socioeconomic Status and the magnitude of HiV/Aids in Kinshasa Christian Ayikwa, Johan W De Jager, 3Ben J van Rensburg Statistical models for Mobile telephony growth in Oman, Ahmad, M. I*, Alsaadi, M. K, Almamri, A. Unexpected Quarterly Earnings Announcements, Firm Size, and Stock Price Reaction, Sana Tauseef

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Sustainable Local Economic Development: The Role of Informatics in Determining Municipal Revenue Management, Michael Twum-Darko Advertisement Reading Manner: A Reception Study, Atılım Onay Status of Divine Word Colleges in Region 1, Philippines , Maria Veronica,Callanta-Fontanilla, Ed. D. Natural Disasters, Family Expenditures and Food Demand, Eny Sulistyaningrum, Ian Walker, Kwok Tong Soo A Public Sector Recruitment Policies: Efficiency, Effectiveness and Consequences, Obianuju E. Okeke-Uzodike, Pepukayi Chitakunye Global Governance and Turkey’s Position in the Post-Global Crisis Period,Zehra Vildan SERİN, Beyza Oktay Good Agricultural Practises in Turkey and Consumer Behaviours: Logit Regression Analysis O.Karkacıer, Akdeniz, S. Karabaş, O. Sav,Akdeniz Entrepreneurship Aspects of Teaching and Learning: Levels of Practice Instilled by Lecturers and Existing Achievements of Students in Private Institutes of Higher Learning, Rosima Alias, Nora Dato’ Yahya Hybrid input-output model for water management, Pongsak Suttinon, Seigo Nasu, Takeo Ihara, Nattakorn Bongochgetsakul, Kotomi Uemoto The Impacts of Liberalization in Casino-based Economy: The Case of Macao, Pi-Feng Hsieh, SuMan Wang Level of Development and Size of Government Spending: The Impact on Entrepreneurial Entry of Opportunity-driven and Necessity-driven Female vs. Male Entrepreneurship, Thanyaporn Soontornthum

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2nd International Conference on Economics and Social Sciences (ICESS-2014)

PAPERS

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The Role of State-Trait Anger and Anger Expression Styles Life Satisfaction and Self-Esteem in Predicting Physical Abuse and Emotional Abuse and Neglect *Ayşe Rezan CECEN-EROGUL1, Şalibe Bilge TÜRK2 1Mugla Sıtkı Kocman University, İstanbul, 2Abdurrahman Köksaloglu Ortaokulu, MEB [email protected] Abstract: Child maltreatment is a common problem for all societies all over the world. The aim of the study to investigate the role of state-trait anger and anger expression styles life satisfaction and self-esteem in predicting physical abuse and emotional abuse and neglect. The sample consisted of 450 adolescents and to collect data “Childhood Trauma Questionnaire”, “ State-Trait Anger Expression Inventory”, “Rosenberg Self Esteem Scale” “Satisfaction of Life Scale” have been applied to the students. The findings of this study indicated that there were moderate positive significant correlations between physical abuse, emotional abuse- neglect and trait anger, anger in, anger out and significant negative correlations between physical abuse, emotional abuse-neglect and anger control life satisfaction, self-esteem. The stepwise regression analysis results indicated that life satisfaction, trait anger, self-esteem and anger in scales scores contributed meaningfully and anger out, anger control scores did not contributed meaningfully to physical abuse. The results revealed that life satisfaction was the best predictor of physical abuse and it’s scores account for 17% total variance F (1, 450) = 94.414; p water demand, water supply > drainage capacity Normal condition: water supply > water demand, water supply < drainage capacity Drought: water supply < water demand Water demand is predicted by using the inter-regional I-O table that integrated with water usage as a special row, for example, figure 5 (Pongsak& Seigo, 2012). For the water demand in the future, changing of population, growing of GDP (national plan), and changing of agriculture area are considered as a social scenario. Figure 5: Inter-regional IO table integrated with water account in Yoshino river basin in Shikoku Island, Japan

YSN RoJ

Total output

Exports

0

1

0

0

0

1

0

0

0

0

0

-0

2

0

8

0

4

1

12

0

8

6

5

7

-10

40

T

0

0

0

0

0

0

0

0

0

0

0

0

1

3

0

5

41

11

1

-1

77

Yoshino river basin [YSN]

The rest of Japan [RoJ]

A

M

T

S

A

M

T

S

Imports

RoJ

A

M

10^11JPN

Intermediate input

Final demand

YSN

Intermediate demand Economic part:

S

0

4

0

11

0

A

0

1

0

0

16

76

0

13

0

43

1

-23

128

M

0

9

0

5

26

1,414

6

642

19

935

557

-581

3,032

T

0

0

0

0

0

8

5

42

0

26

0

0

81

S

29

3,782

174

-109

6,124

0

5

0

8

18

598

21

1,597

Value added

1

13

1

47

68

919

48

3,818 Note: A is agriculture; M is manufacturing;

Total input

2

40

1

77

128

3,032

81

6,124

Water demand: MCM

470

345

236

21 54,196 10,557 13,764 1,756

T is tap water; and S is service

246 11,514

Water drainage capacity of a city is a kind of flood hazard map (showing flood level at each area), figure 6, for each discrete water supply (runoff flow rate). The flood hazard map is calculated from GIS data of ground elevation, water and road network, land-use, existing flood control infrastructures, etc. When data of land-use change or construction of new flood control infrastructure from city development plan exists, the drainage capacity of the city in the future can be predicted. ICHARM (2013) is one of the organizations that developed a famous flood simulation system.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Figure 6: Example of flood hazard map, ICHARM (2013)

Economic damage (Japanese Yen) per each water user sector due to drought (m3/year) is calculated by the following equation.

Where Decon is economic damage during period of time t, says a year. and are water demand and supply of sector i in daily basis, respectively (m3/s). is economic damage factor of sector i (Yen/m3). n is number of water user sectors. Economic damage factor for each sector can be acquired from inter-regional IO table that is integrated with water account. In the drought condition where demand has to be deducted to fit within available water supply, value added as the economic production indicator reduces proportionally. The reduction of value added per amount of water demand then calculates the economic damage factor. In the flood event, the economic damage is evaluated directly by overlapping the flooding zone in flood hazard map and land-use map, which yields flood level and inundated area of each sector. Analyzing on the inter-regional I-O table again will results in how many the economic activities have ceased by the flood, the summation of deducted value of value added is an amount of economic damage. Citizen satisfaction is a 5-level index (the most negative to the most positive level) that evaluates the satisfaction of citizen on water resource on three aspects: water utilization, flood control, and water environment. Figure 7 shows a consciousness logic model for citizen satisfaction on water resource, which is constructed based on the recognition map generated by interviewing(Kotomi & Seigo, 2011). Each box in the figure is evaluated by the 5-level index, while the leftmost elements are the satisfaction of citizen and the rightmost elements are input to the human mind. Based on this logic model structure, questionnaires are made to several hundred people to find the relation and strength of each element (using Gaussian Kernel method). The logic model map is divided into 5 levels from the rightmost column and leftmost column where the input information started from the rightmost elements. The later columns from the rightmost are knowledge, recognition, intermediate outcome and final outcome as the satisfaction. Each element in column level is linked be several arrows having balancing weights that obtained from the Kernel method. Giving 5-level index to the input elements will calculate (weighted summation) again the 5-level index to the output element the adjacent left column level linked by weighted arrows. The 5-level index from the leftmost column level is evaluated as a final satisfaction indicator.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Figure 7: A consciousness logic model for citizen satisfaction in water

OUTCOME: Recognition

OUTCOME Medium term Can use safe water OUTCOME Final or long term Strategic objective

Satisfaction in water utility

Knowing the price of adaptation measures awareness

Benefit related to water


OUTCOME Final or long term Strategic objective

Satisfaction in Flood control

Satisfaction from using water as much as I want Satisfaction from using water anytime I want

Burden understanding

Benefit: health Public confident

Understanding of public act

Recognition of benefit between each area

Knowledge from the past shortage

Recognition of water quantity

Recognition of CC effects

Recognition of water Shortage crisis

Knowledge level about WR

Recognition of Common profit

Information level of saving water counter measures

Feeling of burden and trouble

Utility awareness

Public confident

Awareness to protect


Benefit : drinking water

Moral awareness

OUTCOME Medium term satisfaction of reliable life

Moral consciousness Consciousness of the utility

OUTPUT: Knowledge WR concerning

OUTCOME: Recognition Benefit feeling of flood control

Public confidence

Understanding of public act

OUTPUT: Knowledge

Knowledge of past flood Recognition of CC

Recognition of other area benefit

Understand the act

Recognition of other area comparison

Knowledge of effect of flood control

Recognition flood crisis

Reduce damage from self protection

Recognition of altruistic contributn

Burden understand of flood protection

Feel cooperation

Understand the act

INPUT: Information, adaptation plan Content and effect of policy and measure 1. Support stable supply 2. Guarantee of suitable management and maintenance 3. Water quality control

Experience of water shortage Information providing 1. Climate change 2. Water resource, drought 3. Relation of U/S and D/S (data accuracy and uncertainty) Effects from policy 1. Saving water 2. WR counter measures 3. WR distribution etc.

INPUT: Information, adaptation plan Flood experience

Information sharing 1. Climate change 2. Flood frequency, peak, damage (past and prediction) 3. Up and downstream connection (data accuracy and uncertainty) Effects from policy and measure 1. Flood protection structure 2. Anti –flood control measure 3. Other effects

Public confidence OUTCOME Final or long term Strategic objective

Satisfaction in water environ.

OUTCOME Medium term Satisfaction to preserve envi

Satisfaction of envi’s enjoyment

OUTPUT: Knowledge

Feeling of creature

Different experience with the past

Feel river as friend

Recognition of CC

Recognition other Area benefit

Understand envi

Feel like own envi

Understanding between u/S and D/S area

Moral consciousness

Universal envi recognition

Understand present water envi situation

Consciousness of the utility

Recognition commu benefit

Understand envi protection project

Feel cooperation

Recognition of envi protection effort

Satisfaction of living environment


OUTCOME: Recognition Feeling with WR

Public confidence

Understand the act

INPUT: Information, adaptation plan True experience of envi change

Information sharing 1. Climate change 2. Forest and environment 3. Water quantity and flow prediction 4. Relation between areas （data accuracy and uncertainty） Effects from policy and measure 1. Environment protection measures 2. Dam and flood control structure measure 3. Environmental creation Information sharing for environmental protection

Policy options: The water resource policies for drought and flood events are different. In drought event, water policy is made for 2 purposes. 1. To increase water supply side: e.g. construct pond, dam, desalination plant, etc. 2. To decrease water demand side: e.g. promotion of using water saving equipment, 3R, education, etc. Either option or both will finally results in reduction of water shortage. On the other hand, the water policy for flood control has the purpose only to increase the drainage capacity of the city, for example by construction of river bank, water directing canal, etc., which has effect on reducing the flood level and inundated area. System core: The range of component 2 and 3 in figure 3 is calculated based on a given policy. In order to find the best policy that give the highest economic benefit (lowest impact and damage), highest citizen satisfaction, or lowest cost, all the single options or its combination have to be evaluated one by one and sort out for some best scenarios as candidate policies. The system core in the figure 3

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) finds all possible combinations from available water management options and set to the effects evaluation component, see figure 3. The effects evaluation component will evaluate the economic impact, citizen satisfaction and give back to the system core, sorted and stored. System Design: The concept to calculate economic impact, citizen satisfaction, cost for a given water resource policy is described in the section 2. In this section, we will discuss about generation all possible combination of options and evaluate effect and impact of each policy to find some candidate policies that are considered to be the best solution under a given constraints and scenarios. The concept of the policy is really simple. The followings are the procedures for an individual policy evaluation. Pick some options to form a set of policy 1. Calculate water demand and water supply 2. Calculate water shortage amount, or flood hazard map (can be pre-calculated) 3. Evaluate economic damage 4. Evaluate satisfaction 5. Calculate other policy specific parameter, e.g. cost On the other hand, there is another important element needs to be considered here, the policy generation. The concept is to find all possible combination of options as a huge set of policies, and each of them is evaluated by the procedures mentioned above. Figure 8 shows the overall calculation layers (loops) of the system framework. Based on a given target area (the outermost loop) and social scenario (the second loop), all possible policies are generated. For each generated policy, the parameters in the above procedures are generated for every points (daily basis) in time axis and every CGMs. The CGMs loop represents an uncertainty in water supply, while the social scenario loop represents an uncertainty in water demand. After the calculation in the time loop is ended, economic damage, satisfaction and other policy specific parameters are evaluated for each GCM input. Once all GCMs results are calculated, statistically data are taken, and the candidate results are stored. Since the calculation tasks is very intensive and required to be finished in almost realtime, the most modern calculation technology called GPGPU is introduced to solve such a complex problem. The GPGPU is newly introduced in year 2005 for the task of massively parallel computing(David& Wen-mei, 2012). All loops other than the time loop that are suitable for massively parallel computing, are assigned to GPU, while the rest tasks are assigned to GPU. The characteristics of the tasks assigned to GPU are summarized as in the followings. Tasks in time loop on time axis are independent, simple arithmetic calculation and routine. All result can be stored in the device memory without transferring back to CPU unless all calculation is ended. Data necessary for calculating in GPU from the start to end can be transferred to device memory at once at the beginning of the calculation. All effective results can be store in device memory until the end of the whole calculation. Figure 8: Overall calculation layers and task distribution between CPU and GPU

All necessary data is transferred from host memory to device memory Area loop Social scenario loop Policy generation loop GCMs loop Time loop • • •

Calculate water demand & supply Calculate water shortage Calculate water deduction

• • •

Evaluate economic damage Evaluate satisfaction Calculate other policy specific parameters

• •

Result summarizing Candidate results sorting

Result data is transferred back from device memory to host memory CPU tasks

GPU tasks

3. Conclusion This paper presented a general conceptual design for the simulation tool to help the governors to find a solution for water resource policy making in multi-regions under effects of climate change. It is an integration of various disciplines from natural science to social science. The system has been developed as a prototype model at the Kochi University of Technology (Japan) under a financial support from Ministry of Education, Culture, Sports, Science and Technology of Japan (MEXT), which showed a high potential to be implemented in the real study area in year 2014. Since water is the shared resource among all regions having different economic and agricultural activities, background, awareness, alertness and experience of the citizen, it is the most important to find a single united solution to satisfy all people in terms of maximizing benefit in both economic and citizen satisfaction.

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Acknowledgement: This research is subsidized by the Japan Ministry of Education, Culture, Sports, Science and Technology. The project name is “Research program on climate change adaptation”, RECCA. References Asif M.B., Nasu, S., and Takagi, M. (2011). Multispectral Remotely Sensed Models for Monitoring Suspended Sediment: A Case Study of Indus River Pakistan. J Water Resour and Arid Environ 1(6), 417-427. CMIP3 (2013). CMIP Coupled Model Intercomparison Project, http://cmip-pcmdi.llnl.gov/cmip3_overview.html. David, K. & Wen-mei, H. (2012). Programming Massively Parallel Processors (2nded), Morgan Kaufmann. Gerald, A.M, Curt, C., Thomas, D., Mojib, L., Bryant, M., John, F.B.M., Ronald, J.S., and Karl, T. (2007). The WCRP CMIP3 Multimodel Dataset: a new Era in Climate Change Research. American Meteorological Society, 1383-1394. ICHARM (2013). Global Centre of Excellence for Water Hazard and Risk Management, http://www.icharm.pwri.go.jp. IPCC (2007) Climate Change 2007: Climate Change Impacts, Adaptation and Vulnerability, Summary for Policy Makers. Jaranilla-Sanchez, P.A.,Koike, T., Nyunt, C.T.,Rasmy, M., Hasegawa, I.,Matsumura, A., andOgawada, D. (2013). Hydrological Impacts of a Changing Climate on Floods and Droughts in Philippine River Basins. JSCE, Annual Journal of Hydraulics Engineering JSCE, Vol.69 (4), I_13-I_18. Kotomi, U. & Seigo, N. (2011). The Structure of Satisfaction for Water Resources for Citizen. Journal of Social Management System, SMS11-8798. Nyunt, C.T., Sanchez, P.A.J.,Yamamoto, A., Nemoto, T., Kitsuregawa, M., and Koike T. (2013). Bias correction method for climate change impact assessments in the Philippines.Annual Journal of Hydraulics Engineering JSCE, 9 (4), I_19-I_24. Pongsak, S. & Seigo, N. (2012). Regional Virtual Water of the Shikoku Island: Inter-Regional Input-Output Table.Journal of Social Management System, SMS12-9627. Pongsak, S., Seigo, N., Takeo, I., Nattakorn, B., and Kotomi, U. (2013). Water Resource Management in Shikoku Region by Inter-Regional Input-Output Table.The Applied Regional Science Conference, Vol.25 (2), 107-127. Rasmy, M., Koike, T., Jaranilla-Sanchez, P.A., Nyunt, C.T., Hara, M., Fujita,M., and Kawase, H. (2013). Identifying Gaps and Opportunities between Statistical and Dynamical Downscaling Approaches Over Shikoku Island. Annual Journal of Hydraulics Engineering JSCE, Vol.69 (4), I_133-I_138. Sven, H. & David, E. (2012). Global Climate Risk Index 2013. Germanwatch. Wang, L., Koike, T., Yang, K., Jackson, T.J., Bindlish, R., and Yang, D. (2009). Development of a distributed biosphere hydrological model and its evaluation with the Southern Great Plains Experiments (SGP97 and SGP99). Journal of Geophysical Ressearch, 114 (D8): D08107. Wang, L., Koike, T., Yang, K., and Yeh, P. (2009). Assessment of a distributed biosphere hydrological model against streamflow and MODIS land surface temperature in the upper Tone River Basin. Journal of Hydrology, 377(1-2),21-34.

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Nation-state: What is the good of it? Ahmet Nuri Yurdusev Middle East Technical University Ankara, Turkey [email protected] Abstract: This paper takes the issue with the "nation-state" and asks if anything is good of it. To begin with, nation-state is defined as a kind of polity that emerged in the modern period. Nation-state is explained vis-a-vis earlier polities in terms of its four primary characteristics namely territoriality, sovereignty, centrality and nationality. In order to elaborate on those four primary characteristics, the paper specifically compares nation-state to empire. The paper then questions the prevalent modern idea that nation-state has created more welfare and freedom. It concludes with the argument that, in comparison to pre-modern empires, modern nation-states have not brought more freedom and welfare to their peoples. Keywords: nation-state, empire, territoriality, sovereignty, welfare, liberty 1. Introduction It has been a prevalent view in the modern literature, especially in the literature of politics and international relations, that the nationstate is preferable to the earlier forms of political organization as the nation-state has yielded more freedom and wealth for their citizens.1 In this paper, I shall question this widespread view through a comparative analysis of nation-state versus empire. In order to have a comprehensive view of nation-state I shall first discuss the issue of politics and polity. Then, nation-state as a particular type of polity is to be defined and it will be located in the modern period. Next, I shall analyse empire as another type of polity and it will be located in pre-modern period. Finally, these two polities will be comparatively examined from the point of individual freedom and welfare. Politics and Polity: The word politics is derived from the Greek word politikos meaning relating to polis (city) or citizens. It basically refers to the governing or ruling the affairs of the city/society. In any society, if the society is to exist for a considerable period of time, then, there emerges a problem of collective decision making and acting according to those decisions. Naturally, if the members of a society do not make collective decisions and act accordingly, they cannot go on being together as a society. This means that each society has a problem of governing or ruling and thus politics. Politics may, then, be defined as all those activities and processes through which a group of human beings (a society) reach collective decisions which are implemented as common policy. Politics involves voluntary/wilful and peaceful activities. When, for example, a man dictates a rule by way of using violence, this is not collective decision-making and ruling. Similarly, as Aristotle said, master and slave relationship is not politics as the slave does not have willful participation. When the political activity is regularly and repeatedly done in a particular way, i.e. when it is institutionalized, we have polity or body politic. Polity is then institutionalized governing or ruling relationship. Political activity may be institutionalized in a variety of ways depending upon time and circumstances. This paves the way for different types of polities in different places and periods. For instance, in Ancient Greece, politics was institutionalized in such a way that resulting polity was called polis. In ancient Rome it was called res publica. In other times and places we find their peculiar polities. In medieval Europe, we find polities such as manors, princedom, kingdoms, Papacy and Holy Roman Empire. In the Middle East and South Asia we have sultanates and emirates. In Central Asia and China, we saw beyliks and Khanates. In Japan there were daimyos and shoguns. Of course, this is not an exhaustive list. In history, there have been other types of polities in different societies according to their needs and conditions. Nation-state is thus one of these policies that has emerged in a particular place and a particular period. As it is conventionally held, nation state emerged and developed in Western Europe from the fifteenth century onwards and in time it has become a world-wide polity, so that today almost all societies are organized in the form nation-state. Even the papacy assumed the form a state with Vatican. Nation-State as modern polity: That the nation state is a modern polity, that is it emerged and developed in modern period, can be discerned from the emergence and usage of the words nation and state as we understand them nowadays. According to Oxford English Dictionary, the word “state” as a political organization came into usage around 1500 and the word “nation” first appeared from 1330 onwards. Indeed both the word state as a form of polity and nation as a community of individuals became prevalent after 17 th century. Thomas Hobbes, for instance, did not use the word state in his Leviathan, published in 1651, known to be one of the most comprehensive early accounts of the modern theory of the state. By the nineteenth century, nation-state had come to be defined by four primary characteristics namely, territoriality, sovereignty, centrality and nationality. A nation-state is a territorially defined and consolidated polity. It is defined by a clearly and horizontally demarcated territory. Of course, earlier polities had too existed in a particular geographical zone of the Earth. Yet, nation-state has, unlike the earlier polities, come to be identified with a clearly demarcated and exclusive territoraility. The principle of territoriality constitutes the basis of the principle of sovereignty and nationality. A nation-state has sovereignty over a definite territory; anything or anybody that happens to be in that territory is bound by the sovereignty and authority of the state. The people living in that territory are entitled to some common rights and obligations without regard to their ethnic or religious character, or personal wishes. A nation-state thus imposes some degree of uniformity upon the people; hence the principle of nationality. Sovereignty is in practice exercised by the central political institutions and the state as the totality of public bodies is the final arbiter and authority; here comes the principle of centrality. In sum, then, a nation-state is a polity defined by territoriality, sovereignty, nationality and centrality. Empire as a pre-modern polity: Empires or imperial systems such as the Chinese Empire, the Roman Empire and the Ottoman Empire were not like this. An empire is, to borrow Tilly’s definition, ‘a large composite polity linked to a central power by indirect rule.’ The

1

For a typical advocate of this view, see Roger Scruton, England and the Need for Nations, 2nd edition (London: Civitas, 2006)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) relationship between the central or imperial ruler and the linked units of the system is based upon the principle of allegiance. The imperial ruler ‘exercises some military and fiscal control in each major segment of its imperial domain, but tolerates two major elements of indirect rule: 1) retention or establishment of particular, distinct compacts for the government of each segment; and 2) exercise of power through intermediaries who enjoy considerable autonomy within their own domains in return for the delivery of compliance, tribute, and military collaboration with the center.’2Imperial systems are then composite polities, not consolidated polities. They are not territorially consolidated because they were never territorially demarcated. In the imperial systems, territory was not the defining element; this was allegiance. It is thus not surprising that the Ottoman Sultans, for example Suleiman the Magnificent, were unlikely to have been able to identify the exact boundaries of their empire, though the fact that they were constantly changing was a subsidiary reason for this. Suleiman knew that his Empire comprised the lands of the Crimean Khanate, the principalities of Moldavia and Wallachia, the lands of the Emirs of Hijaz and Yemen, and the Beyliks of Tunis and Algiers. But if he had wanted to know their exact boundaries, it would have been necessary to ask the Khanates, Princes, Emirs and Beys. What was important for the imperial center was the continuing allegiance of those local rulers. Empires are not territorially demarcated because they claim to rule the whole world, in other words, for them the whole Earth potentially constitutes their territory. If some parts of the world are not under their rule and not alleged to them, it is a temporary situation. One day or another, they are bound to fall under their imperial domain. There was then no need for territorial demarcation or boundary delimitation. The meaning and tone of the letter of the Sultan Suleiman the Magnificent to the King Francis I in the early sixteenth century and of the Chinese Emperor, Qianlong, to the King George III in the late eighteenth century indicate clearly the claim of imperial systems to rule the whole Earth and thus universalism and self-sufficiency. Imperial systems are potentially universal and self-sufficient polities. Let us read it first in the Sultan’s letter: I, who am Sultan of the Sultans of East and West, fortunate lord of the domains of the Romans, Persians and Arabs, Hero of creation, Champion of the earth and time, Padishah and Sultan of the Mediterranean and the Black Sea, of the extolled Kaaba and Medina the illustrious and Jerusalem the noble, of the throne of Egypt and the province of Yemen, Aden and Sana’a, of Baghdad and Basra and Lahsa and Ctesiphon, of the lands of Algiers and Azerbaijan, of the regions of the Kipchaks and the lands of the Tartars, of Kurdistan and Luristan and all Rumelia, Anatolia and Karaman, of Wallachia and Moldavia and Hungary and many kingdoms and lands besides; Sultan Suleiman Khan, son of Sultan Selim Khan.3. In the letter of the Sultan, the French king is merely addressed thus: ‘You, who are Francis, king of the land of France’. For himself, however, the Sultan lists the territories and lands that are linked to him and then gives it up. This is partly because they are countless and partly because it is just a matter of time before he rules the whole Earth. Similarly, the Chinese Emperor speaks of his Empire as ‘the Celestial Empire… ruling all within the four seas’ and ‘vast territories’, while Britain is just described as a country that ‘lies in the far oceans’ and inclines ‘towards civilization’. The emperor expressly names the King, together with all other kings and rulers, as his vassal.4The wording, tone and meaning of both letters makes it obvious that they thought of their imperial rule as universal and self-sufficient. In both China and the Ottoman Empire, the rulers, like the Roman emperors, were conceived to be rulers of the Universe. Unlike nation-states, empires were not centralized polities. Nation-state is a centralized polity in the sense that all individuals directly linked to the central political body. In imperial systems, there are intermediary rulers who are autonomous in their own domains.Governmental tasks such as administration, taxation and preservation of order and stability were carried out by the central imperial government and the local intermediary rulers together. In the imperial systems, we do not see a uniform collective identity such as that of nationality as seen in the nation-states of today. As a diverse system, an empire encompasses a variety of identity units. We certainly see a supreme identity, a loose universal identification which brought some degree of uniformity as expressed in the allegiance to the emperor. These allegiances, together with identification with the Dynasty, formed a universal identity for all subjects, but this identity was not uniform, it was universal. On the otherhand, we see multiple identities in terms of religion, ethnicity and locality. Unlike the uniformity and exclusivity of nation-states, empires were cosmopolitan systems combining both universality and locality. 2. Conclusion: nation-state versus empire Given the fact that nation-states have an exclusive territoriality and a consolidated government, they have much more authority and grip over their citizens in comparison to empires. Thus they leave much less room to their citizens for freedom and welfare.

2Charles

Tilly, ‘How Empires End’ in K. Barkey and M. von Hagen (eds), After Empire: Multiethnic Societies and Nation-Building, The Soviet Union and the Russian, Ottoman, and Habsburg Empires (Boluder: Westview Press, 1997), 3. 3Quoted in Geoffrey Lewis, Turkey, third edition (London: Ernest Benn, 1965), 24. 4The full and complete translation of Emperor Qianlong’s letter to King George III is supplied in Alain Peyrefitte, The Collision of Two Civilizations: The British Expedition to China in 1792-4, trans. Jon Rothschild (London: Harvill, 1993), 288-292.

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Rationalizing the Choice of Housing on Cultivable Land: Is Cash-return the only Determinant? *Zobayer Ahmed, Pronab Kumar Saha School of Humanities, Sylhet International University * [email protected] Abstract: Society faces numerous problems due to high population growth where housing along with other settlements is a notable concern. Horizontal expansion of housing on cultivable land in rural area reduces the availability of land for cultivation. The study is a combination of both quantitative and qualitative in nature based on primary data, carried out in a village in Comilla, an eastern district of Bangladesh during April 2012. The study finds that the households receive returns both in cash as well as in kind from new homesteads made on cultivable land. The cash benefit received by households at new place is Tk. 156238.14 on an average per year in 2011 price and on an average the cash investment per year in 2011price (inflation adjusted) for housing is Tk. 213108.1818 (weighted average). This clearly indicates a cash loss from housing on cultivable land from household’s perspective. However, statistically the cash investment for housing in rural area is not significantly different from the cash return received by the households at 5% level of significance. Thus it becomes an important question whether the household’s choice of making new home on cultivable land is a rational choice or not. Further, the amount of money each household spent for housing could have been used for a higher cash return through some alternative investments. The study reveals, households derive positive utility (non cash returns) from new homes notwithstanding cash loss and other investment options forgone. The study further argues that if the government or any authority is to take some steps regarding the declining trend of cultivable land in rural areas, the perspectives of the households must be considered with great attention. Keywords: Horizontal Expansion, Housing, Cultivable Land, Non-cash, Return 1. Introduction Bangladesh is a country blessed with a number of natural and other resources though it is one of the densely populated countries in the world, in which 93.51% of the total areas are comprised of rural areas where 81.27% of total population inhabits (Barakat et al. 2007). According to a later statistics 72% of total population live in rural areas (CIA – The World Factbook 2012) and about 47% people do not have any shelter. Society faces numerous problems due to high population growth where housing along with other settlements is a notable concern. With the increase of family members, households are expanding their homesteads and this expansion is horizontal that leaves us with gradually decreasing agricultural lands in rural areas. Traditionally, Bangladeshi people in rural areas used to live in a Bari5. Even though space availability for horizontal expansion is limited, people forced to do so considering high cost associated with vertical expansion. On the contrary, it is observed that people in urban areas usually expand their Bari vertically because the cost of vertical expansion is cheaper compared to the cost of land required for horizontal expansion. High growth rate of population in Bangladesh has created enormous pressure on land. In addition to that, land-use patterns are radically changing and adversely impacting country’s agricultural land, forest, water bodies and wildlife habitat (Rahmatullah 2007). Making new homes on cultivable land limits the use of land for agro production. According to 2011 estimates, the growth rate of population in Bangladesh is 1.67% which stood 76 th among the countries in all over the world (United Nations 2011). This high population requires huge amount of food every year. If such horizontal expansion trend is continued, it is expected that the food security of the country will become more vulnerable. Some of the studies further suggested that the land in rural areas under agriculture should not be used for any other purpose (Barakat et al. 2007). Existing literature deals with different aspects of housing in rural areas. However, very few of them considered housing from an indigenous perspective. Most of the studies devoted to analyze the socio-economic impacts of housing on cultivable land. However, at micro-level, the amount of cash forgone by a household for making homestead on cultivable land is significant. The benefit households derive from new homestead cannot offset such cash forgone. As a result, a question arises, the rationality behind the cash loss for housing. The current study has concentrated on utility derived by household and the economic efficiency gain as well as non-economic loss of horizontal expansion of housing. Horizontal and Vertical Expansion of Housing: Housing nowadays is considered as one of the major problems in the rural areas. With the increase of population all basic needs are required at higher amount including adequate space within households. In response to the problem of inadequacy of living space, villagers build new households on agricultural and other productive lands, which is known as horizontal expansion of housing. Land resource is limited in supply though people seek an immediate solution of housing problem through horizontal expansion. Apparently this expansion solves the problem in rural areas but leaves with some newly generated problems at the same time. The alternative way to expand living space is vertical expansion, which means increasing number of floors upward. Particularly it is very common in urban areas of Bangladesh, e.g. Dhaka, Chittagong, etc. Lots of high rise buildings are considered as vertical expansion of Bari in such areas. Implications for Rural Housing in Bangladesh: High growth rate of population and rapid urbanization in Bangladesh have created enormous pressure on country’s agricultural land and ecological balance (Rahmatullah 2007). People in rural areas build new homesteads on agricultural and other productive lands and its characteristic is regular and gradually increasing. Horizontal expansion of housing in rural areas is solving the part of the problem on the one hand but is again causing less agricultural production and few other inauspicious problems on the other hand e.g. climate change, deforestation, desertification and the loss of biodiversity. In addition, the availability of land per capita is decreasing, implying a further pressure on land. As a result, sustainable land use has become an 5

A Bari is a homestead which normally includes houses to live, a yard, a backyard for women to use, and a small pond or two. It is usually dominated by patriarchal system. When the sons of the family reach adulthood, they get married and build few small rooms adjacent to the rooms occupied by the parents. Over the period of time, the entire household area becomes highly congested.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) important policy issue in Bangladesh. The present housing conditions and patterns in rural Bangladesh and the trend of shrinking cultivable land through horizontal expansion of housing has a great implication on the economy (Rahman 2008). For proper land utilization the government could introduce a land management act with a land zoning system and a ceiling for housing in rural Bangladesh, as well as strengthen the housing facilities for disadvantaged people in a planned way (Rahman 2008). When new residence is built in new homestead it puts pressure on the surrounding land. Sometimes new resident needs new pond, which grasps some more agricultural land. Owner of the land cannot cultivate the land properly due to homestead wastage on the land. The shadow of trees of the household reduces productivity of land as well (Rahman 2012). The picture is not completed yet. The domestic animals of the household sometimes damage the crop of the land. These multiple negative impacts decrease the overall production and some impacts are long lasting too. Considering the situation, Jamil and his colleagues refer vertical expansion if horizontal expansion is not feasible (2006). The role of real estate companies is very essential in this regard but however, it is a matter of regret that such companies are not interested to expand their business in rural areas concerning the difficulties and profit gain compared to the urban areas. Some researchers suggested finding some alternative ways of rural housing. Because, after agriculture, housing is the most important vehicle for the use of land due to increase in population, number of households, and increase in rural to urban migration, requiring enhanced quantum of land for housing (Rahmatullah 2007). Some of the studies further suggested that land in rural areas under agriculture should not be used for any other purpose. Both unplanned and misuse of land are evident in Bangladesh. Barakat et al state, about 25% acquisition of land remains unused or used in unproductive purposes. This type of misuse of land should be stopped. Size of land covered under irrigation has to be fixed on the availability of underground water. It will prevent desertification as well as ensure proper utilisation of natural resources like water. Acquisition of land under irrigation has to be stopped strictly. Agricultural land with two or three cropping intensity or potentiality should be prohibited for non-agricultural uses such as private construction, housing, brick field etc. Non-agricultural Khas lands should be used on priority basis for nonagricultural development activities. Only in absence of alternatives, minimum amount of less fertile agricultural lands could be used for non-agricultural purposes (2007). Even in existing government policy related to making homes on arable land is not strictly implemented. A national policy paper related to the issue says, ‘rural people would be discouraged to build new homes on arable land’ (National Housing Policy 2008). Thus existing literature deals with different aspects of housing and other settlements in rural area. However, none of these considered housing from an indigenous perspective. There might be some other facts behind constructing homes on cultivable land that people rationalize their decision based on. Perhaps people are compelled to do this sometimes. In order to take some policies to minimize horizontal expansion of housing in rural areas, government might consider native perspective as the present study anticipates. Otherwise the policy might be tough to be implemented. Research Problem and the Rationale of the Study: Housing on agricultural land in rural areas of Bangladesh is a common phenomenon. According to National Housing Policy 2010 (rough) the article 5.8.2 says that the housing on agricultural land will be discouraged. Once a house is built on agricultural land, the land goes out of crop production forever although it generates some other opportunities for the household. Consequently, a intimidation is created on the food security of the country. Many countries in the world especially Philippines has already imposed a restriction on the horizontal expansion of housing on agricultural land (14 November 2009, The Daily Jaijaidin). But in Bangladesh, people can build new home at any place in the rural area without facing any legal ceiling. Although it generates loss of food grains and other crops, loss on environment and bio-diversity from a macroeconomic perspective; at micro level households do not consider such loss. They however derive some other returns both in cash and in kind from new homes. A pilot survey conducted in April’2011 reveals that people rationalize it in a number of ways. Thus non-agricultural use of agricultural land creates individual benefit at the cost of society as a whole. The social and economic cost of building new homestead on agricultural land or using agricultural land for non-agricultural purpose should be assessed in a systematic way. Knowledge about the households’ perceptions regarding housing on cultivable land is a key determinant in formulating public policy to protect cultivable land. The current study has tried to address all these issues. Economists define utility not only in terms of money the person receives but also in terms of satisfaction one gains from an activity. As a pilot survey reveals, rural people mull over housing not only as a basic need but also a matter of prestige, an instrument of happiness, a place for entertainment. Thus economic loss to the society as a whole due to new homestead might be offset by the satisfaction the household derives by staying at new home. A study to find how people rationalize their activities in this context is immense need at present in Bangladesh. Research Objectives and Hypothesis The research has the following objectives1. To compare between the cash return and cash investment of housing. 2. To find how people residing new homes rationalize the economic loss of cultivable land. Moreover, the research has aimed to test the following hypothesis:  The cash benefit received by households from housing on cultivable land is less than the cash foregone for housing. Mean Test as mentioned by M. Nurul Islam (2008: 350) has been exercised to test this hypothesis. H0: µ1= µ2 H1: µ1≠ µ2 2. Methodology The study is a combination of both quantitative and qualitative in nature. It is principally based on a semi structured questionnaire and key informant technique, used to collect primary data. The area has been chosen from eastern part of Bangladesh, which is a village named Narayanpur under Manohargonj upazila in the district Comilla. High concentration of current research problem in the area worked as rationale of choosing this village beside the convenience of the researcher. A large number of new homesteads were built on agricultural land in last 20 years in the village as well as the surrounding villages (information provided by key informant-1). This period

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) was selected as the Mouza6 map of the village prepared latest during the period of 1993 to 1998 through BS (Bangladesh Survey). Two key informants have been taken of which one is local surveyor (Key informant-1) and other is an educated person of the village graduated from Victoria College; a government approved old institution in Comilla under the National University (Key informant-2). All 29 households were interviewed who built new Bari on agricultural land after the year 1998 in this particular village. 3. Results and Discussions Cash Investment in Housing: We have estimated the present value of the investment in housing, using inflation adjustment. To compare with the cash returns received in the current period, such adjustment is done. In order to adjust the inflation I have used the 12 month average rate of inflation published by Bangladesh Bank (Table-1). The local inflation rate could be a better reflection of the reality in this connection. However, local inflation is neither calculated nor available in published format. The necessity of using 12-month average inflation is a vital one in this case. Households invested money for different expenditure of housing at different time periods. For instance, if a household had shifted in 2000, the household might have spent for land purchase in 1998, earth filling in 1999 and shifting re-fixing in 2000. Thus in order to compare the values in 2011 price we must adjust the inflation. I have used the inflation rate given in Table-1 to fine-tune the prices although it does not reflect the true local inflation. It is worthwhile to mention, local inflation as well as the rate of inflation in case of land price might be diverse from the 12-month average inflation. Table 1: 12-Month Average Inflation from 1996-97 to 2010-11 Period 12- Month Average Inflation 1996-97 3.67 1997-98 10.46 1998-99 9.30 1999-00 2.68 2000-01

1.39

2001-02 2002-03 2003-04

1.63 3.46 6.92

2004-05

7.91

2005-06

7.76

2006-07 2007-08

8.11 12.28

2008-09

7.19

2009-10

8.53

2010-11 11.34 Source: Bangladesh Bank Statistical Dataset (available at Bangladesh Bank website) Table-2 gives the inflation adjusted average expenditure by household for new homestead. Household spends for Land Purchase (if not owned), earth filling, shifting from earlier home and re-fixing at new homestead, gardening, making new house, tube-well, shed for either cattle and poultry or both, electricity connection and some other expenditures. Table-2: Inflation Adjusted Average Expenditure by Household for New Homestead (In Thousand Taka) Land Earth Shifting Gardening Making Tube Shed for Electricity Purchase Filling and ReNew House -well Cattle and Connection fixing Poultry 234.05

259.18

58.79

10.11

591.49

5.96

8.91

13.93

Others

Total

43.74

982.24

Each household spends an amount of Tk. 234053.31 for land purchase according to 2011 price adjusted by inflation and an amount of Tk. 259183.46 for earth filling, on an average. The maximum expenditure goes for making new house at new homestead which stood at Tk. 591491.83 on an average after inflation adjustment. Moreover, the expense stood at Tk. 58795.17 and Tk. 10110 on an average for shifting & re-fixing and gardening respectively. On the other hand, it took Tk. 5968.57 for tube-well, Tk. 8917.52 for making shed for cattle and poultry, Tk. 13935.72 for electricity connection and Tk. 42741.62 for other expenditures in 2011 prices. Finally, each household typically spends an amount of total Tk. 982247.36 for new housing on cultivable land at 2011 prices.

Mouza was the lowest revenue collection unit during the Mughal period. In the 20th century, mouza became popularly synonymous with the gram or village, which is indeed a social unit. However, in the 19th century and earlier, mouza was identified both as a social and revenue unit. Within a mouza there could be thus more than one village. And, at the same time there could be even one village belonging to two contiguous mouzas. 6

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Cash Benefit Received by Household from New Home: Households receive both cash and non-cash benefits from new homesteads. However, the value of non-cash benefits is subjective. Table3: Cash benefits received by households at new home on an average (2011 price) (In Thousand Taka) Other Garde Capital Gain from Expenditure n Fishing Vegetables Fruits Live stocks Poultry Land (per year) Saved 4.65

12.54

3.55

3.49

15.05

3.32

131.55

12.00

Total 156.23

Households receive some cash returns at new home given in Table-3. They derive cash reimbursements from gardening, fishing, vegetables, fruits, live stocks, poultry, capital gain from land, other expenditure saved etc. Table-3 illustrates, cash returns accrued to households on an average from different sources at new home. The maximum benefit is received from capital gain from land assets which stood at Tk. 131553.38 in 2011. This price is calculated from the current market price of per unit of land in the particular region of new homestead. This is a better reflection of the local inflation against the use of national inflation rate. The rationale for applying 2011 price instead of 2012 is very clear. Since the census was conducted during the period of April-May’2012 and there were 7-8 month remaining of that year, price information was not available for the then period. Buying price of a particular land is subtracted from current (2011) price to obtain the capital gain of that land. This is because of there is variations in land prices at different locations of the same village. As a result local price gives a more accurate picture of the inflation as well as capital gain than the national inflation rate as used in calculating the value of investment (Table-1 and Table-2). Comparison between Cash Return and Cash Investment: The data indentify that there is a gulf of differce between cash returns and cash investment per year in 2011 price. Figure-1 shows a comparison between avarage cash benefits and cash investment per year in 2011 price received by each houehold from their new homestead. The difference stood on an average at an amount of Tk. 56870.04 per year for each household which is roughly 26.68% of the average investment by households for new housing. On an average, the cash benefit received by household at new place is Tk. 156238.14 per year in 2011 price and the cash investment per year in 2011price for housing is Tk. 213108.1818 (weighted average). This clearly indicates a cash loss from housing on cultivable land from household’s perspective. Figure1: Comparison between cash benefit and cash investment per year in 2011 price

250000 200000

213108.1818

150000

156238.14

100000 50000 0 Inftaltion Adjusted Average Expense (Per Year)

Average Cash Benefit (Per Year)

Table 4: No. of households receives profit and loss from new homestead No. of Households Recieves No. of Households Recieves Loss Missing No. Profit from New Homestead from New Homestead Households 2

26

1

of

Total No. of Households 29

Moreover, Table-4 shows that out of 29 households almost every households (actual number is 26 out of 29) receives cash loss from new housing. Only two households receive cash profit from new housing and another one household who shifted in 2012, yet to receive any cash benefit is shown as missing in Table-4. From the findings of Figure-1 it is clear; each household derives a cash loss on an average from the housing on cultivable land. Thus it becomes an important question whether the households’ choice of making new home on cultivable land is a rational choice. Moreover, whether the decision is based on cash return from new homestead or something beyond cash benefits, is also one of the concerns of the study. Testing the Hypothesis: Mean Test: In order to test whether the difference between two values, expenditure and cash return are significantly different, I have used Mean Test as described by M. Nurul Islam (2008). H0: µ1= µ2 H1: µ1≠ µ2 From our study using z statistic, the calculated value of z stood 1.29, which is smaller than the critical value of z (1.96) at 5% level of significance. Thus we cannot reject the null hypothesis. Hence, statistically the cash investment for housing in rural area is not significantly different from the cash return received by the households.

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Alternative Investments Available to the Households (Opportunity Cost): The amount on money households invested for new homesteads could have been used, for some other alternative purposes. They could receive a higher cash return per year from alternative sources than the housing. The situation is given in Table-5. In order to find the opportunity cost of investment in housing, I had to face some methodological complexities. Households were asked, about the available alternative investment opportunities without investing for housing. There are three types of answers from the respondents. The best available alternative investment for most of the households was investment in land assets. This is because, the value of land in the village increased substantially during the last two decades. The weighted average of capital gain from land purchased by each household is 259.61% per year in 2011 price (Table-5). Another alternative investment for the households was to make fixed deposit with the bank. For this, I used the compounding interest rate on a ten year fixed deposit of local bank (Agrani Bank) available for the households. Table 5: Alternative Investment Return (Opportunity Cost) (In percentage) Other Investment Return-1 Other Investment Return-2 (10 years fixed (Purchasing Land) deposit with bank) 259.61

16

Other Investment Return-3 (Sending family member to overseas employment) 100

The rate is roughly 16% per annum. Moreover, some of the respondents answered, they would have sent at least one of their family members for overseas employment, if they had not invested for housing. The weighted average of the return from overseas employment stood 100% per year. All the available investment opportunities before the households show positive cash return from the investments. Nonetheless, only two of the households received positive cash returns from investment in housing (Table-4). Thus it becomes also an important question, whether the choice made by most of the households for housing was a rational one. Sources of Pain at New Home: During the interview, the households were asked about the sources of pain at new home. Table-6 shows the frequency and the percentage of respondents given different answers. Out of twenty-nine respondents, six of them did not answer in this regard. Moreover, ten of them mentioned security problem at new home like theft and robbing. This security problem includes mental dissatisfaction to live in an isolated home, as I came to know during the interview with the respondents. Other four respondents mentioned their problems with the neighbours at new home. These neighbours include the land owners of the surrounding cultivable land. Neighbours often raise objection, regarding the damage induced by the new homestead. Such objection often leads deterioration of the social relationship between the households involved in this connection. It sometimes requires collective measures to solve the problem. Table 6: Problems Faced by Households at New Home Problems at New Home Frequency Missing 6 Security 10 Neighbours 4 Communication 1 Others 3 Both Security and Neighbours 1

Percent 20.7 34.5 13.8 3.4 10.3 3.4

Cumulative Percent 20.7 55.2 69.0 72.4 82.8 86.2 100.0

No Problem Faced So Far

4

13.8

Total

29

100.0

Although data from Table-6 shows that only one respondent mentioned his problem regarding transport and communication. A good number of new homes do not have connection road in close proximity main road. During the rainy season, the isolated home seems to be a small island. Boat becomes the only mode of transportation for the dwellers of that home. Three other respondents mention some problems other than security, communication and neighbours. One of the respondents faces problems generated from both security and neighbours. In contrast, more than one-tenth (13.8%) of the respondents answered that they do not face any problem at their new home. Incidence of Theft or Robbing at New Home: Figure-2 shows the incidence of theft or robbing faced by the respondents at new home, which is a major symbol of security problem. Nearly three-fifth (59%) of the households faced incidence of theft or robbing at new home. Rest of the households did not face such problem yet. Thus it is clear from the figure; security problem is a big problem for majority of the households staying at new home Figure-2: Incidence of Theft or Robbing at New Home

No 41%

Yes 59%

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) . Problems with Neighbours at New Home: After shifting to new homesteads, households face some problems with their neighbours. Such problem often leads to conflict that requires collective effort to bring a solution. Incidence of Conflict: The study found that there are evidences of conflict with the new neighbours. The nature of the conflict includes ownership of land, crop damage by livestock and poultry, shadow created by the trees of new homestead on surrounding lands etc. Figure 3: Incidence of Conflict with Neighbours at New Home

One of the respondent kept silence while answering the question. More than one-tenth of the households answered affirmative in this regard (Figure-3). However, nearly four-fifth of the households said that no conflict was arisen with the neighbours at their new home. Payment as Compensation: One-tenth of the households had to pay compensation while collective efforts were taken to solve the conflict with neighbours (Figure-4). Most of the compensations were in cash rather than in kind. Figure 4: Payment as Compensation

Transport and Communication Problem: Some of the households made their homes at such an isolated place where transport and communication is the major problem. They do not have any connection road with the nearby main road. During the rainy season they have to depend on boat as a medium of transportation. The new homes become some small islands during the rainy season. Availability of Connection Road with Nearby Main Road: Some of the households failed to build a connection road between their new homes and the nearby main road. This is because the home is far away from the main road and the household does not have that much financial capability to make a road through the paddy fields. Moreover, few of the households faced severe problems at their earlier home, they did not think about a connection road while shifting. Building a new homestead at elsewhere was the major concern. The study has come across that nearly one-fifth of the households do not have a connection road with the main road at new home (Figure-5). Rest of households have connection road with the main road. Among them, a good number of households have built their homes beside the main road. As a result they do not require building a separate connection road. Figure 5: Availability of Connection Road between New Home and Main Road

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Availability of Electricity: Lack of availability of electricity at new home is another source of sufferings. As it is shown in Table-7 that more than one-third (34.5%) of the households had electricity connection at their earlier home but the number decreased to less than one-fourth (24.2%) at the new home. Table 7: Availability of Electricity New Home

Earlier Home

Result Yes

Frequency 7

Percent 24.1

Result Yes

Frequency 10

Percent 34.5

No Total

22 29

75.9 100.0

No Total

19 29

65.5 100.0

Rationalization of Choice: Households’ rationalization becomes an important question after looking at the above discussions. Despite all the economic losses, opportunity costs as well as a number of pains, why the households made new homesteads on cultivable land. Is the choice of housing on cultivable land a rational one? How they view the costs and the pains at new homes. Whether they think they have done a good job by shifting to a new homestead. Moreover, the reasoning to make new home is consistent or not. Reasons for Leaving the Opportunity Costs for Housing: We found from Table-5, households did not go for alternative investments despite a higher positive return. During the interview I asked the respondents why they did not go for such alternative investments. The answers are summarized in Table-8. According to the Table-8, although 20 households out of 29 are missing, the result gives an important insight about the rationalization by households, regarding their choice for housing on cultivable land. While talking with the respondents during the interview, I found them describing their necessity for a new home was the first priority among all other demands before shifting to new homesteads. One of them told me- ‘Brother, we were almost suffocated at the previous home, the people around us, the environment; nothing was congenial for living there.’ Further, the future betterment of their children was such a consideration that has multiple impacts on human life. At one stage of life, after earning a level of money, people want to achieve power, honour and dignity in his society. This is a rational choice widely used throughout the world. For some rich households, building new homestead meant asserting their identity. However, they could pass their life in their erstwhile homestead comfortably. They built new homesteads only to satisfy their ego. They shifted to a new homestead even leaving some cash profitable investment options. Safety is another concern to all the human beings. One of the households said shifting to new homestead was to ensure safety (Table-8). Table 8: Reasons for Avoiding Alternative Investment Reason Frequency Missing 20 Shifting Home was First Priority 5 Children’s Future Consideration 1 Both Shifting and Children’s Future 1 Honour and Dignity 1 Safety 1 Total 29

Percent 69.0 17.2 3.4 3.4 3.4 3.4 100.0

Cumulative Percent 69.0 86.2 89.7 93.1 96.6 100.0

Sources of Pleasure: Moreover, households rationalize their choice through their entertainment and pleasure. As we know throughout the world, people spend millions of money for their mental satisfaction through entertainment and different recreational activities. I found similar cases are prevailing here. Households unearth a more comfortable life at new homesteads; free from anxiety, chaos and quarrelling. The new home is full of silence, calm, open space, gentle breeze, freedom of choice, better natural environment. The households can bring their children up according to their own ideology, rather than being socialized in a cumbersome environment at earlier home. To conclude, it is clear from the above discussions, each household maximizes his/her non-cash benefits from new home. Such non-cash benefits are also termed as ‘utility’ (satisfaction) by the ordinal school of thought in economics. However, the non-cash benefits accrued to the households cannot be measured in number. Acknowledgement of Society’s Problem: It was tried to uncover, how the household view the problem stemming from the horizontal expansion of housing, accrues to the society as a whole. During the interview, the respondents were asked if they think, housing on cultivable land would cause a problem for the society as a whole. Since it is already established throughout the study, housing on cultivable land decreases the availability of land for cultivation in rural areas and creates a future threat on the food security of the country. As illustrated in Figure-6, more than two third (76%) of the respondents acknowledge the problem faced by society as a whole due to horizontal expansion of housing. Figure 6: Acknowledgement of Negative Impacts on Society

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However, a less proportion (17%) did not acknowledge the negative impacts of housing on the society as a whole. According to them, few homes on cultivable land can increase the agricultural outputs. Key informant-2 told me in this connection that the purpose of the interview was not clear to those particular respondents who answered negative, to this question. They thought, affirmative answer of such question might be used against them, as evidence by any other government authority. As a result they refused to acknowledge the negative impacts borne by the society in general. Even another 7% of the respondents kept silence, when they faced the question. This gives a critical insight of the rationalization of the choice, made by households. Although majority of the respondents acknowledged the negative impacts on the society as a whole, none of them had any regret in this regard. They feel their own returns are maximized despite a loss accrued to the society. Households’ individual non-cash returns are maximized at new homesteads despite the cash loss and the loss of alternative opportunities, even the loss accrues to the society as a whole. 4. Conclusion and Recommendations Although the study was based on a village from Bangladesh, it gives a number of insights regarding the issue of rural housing. In Narayanpur and the surrounding villages, every year a number of new homes are built on agricultural land. On an average, 1.93 homes are built in each year in the village for the duration of 1998 to 2012. The study finds that the households receive benefit both in cash as well as in kind from new homesteads made on cultivable land. Apart from this, some of the benefits accrue to the society as a whole. For instance, few cultivable lands were used to remain cultivable fallow for years after years before new homesteads were made to the adjacent areas. This is because; many of the lands were far away from the human settlement area as well as from water sources. After new homesteads were made on cultivable land, all the nearby land came under cultivation. However, such cultivation has been possible only for couple of homes in the village. The data indentify that there is a gulf of difference between cash returns and cash investment per year in 2011 price. The results of the study clearly indicates a cash loss from housing on cultivable land from household’s perspective. However, statistically the cash investment for housing in rural area is not significantly different from the cash benefit received by the households at 5% level of significance. Thus it is clear that the households derive a cash loss on an average from the housing on cultivable land. Thus it becomes an important question whether the households’ choice of making new home on cultivable land is a rational choice. Furthermore, household spends for new homestead despite the alternative profitable investment opportunities. Among the alternative investments, the best available alternative investment for most of the households was investment in land assets, the major opportunity cost of investment in housing. This is because the value of land in the village increased substantially during the last two decades. Another alternative investment for the households was to make fixed deposit with the bank. For this I used the compounding interest rate on a ten year fixed deposit of local bank (Agrani Bank) available for the households. The rate was 16% per annum. Moreover, some of the respondents answered that they would have sent their family member for overseas employment if they had not invested for housing. The weighted average of the return from overseas employment in the current study stood 100% per year. Thus it becomes also an important question whether the choice made by most of the households was a rational one. The household faces some psychological, social, cultural sufferings at new homestead that is difficult to measure in number. Despite cash loss, loss of opportunity cost and a number of sufferings at the new home; household still rationalizes the choice of building new homestead. While talking with the respondents during the interview, I found them describing their necessity for a new home was the first priority among all other demands before shifting to new homesteads. In my study I also found, for some rich households, building a new homestead meant asserting their identity. However, they could pass their life in their erstwhile homestead comfortably. They built new homesteads only to satisfy their ego. It is clear from the above discussions; each household maximizes his/her non-cash returns from new home. Such non-cash returns are also termed as ‘utility’ (satisfaction) by the ordinal school of thought in economics. The noncash returns accrue to the households cannot be measured in number. Although majority of the respondents acknowledged the negative impacts on the society as a whole, none of them had any regret in this regard. They feel their own returns are maximized despite a loss accrued to the society. Finally, it can be said that if the government or any authority is to take any step regarding the declining trend of cultivable land in rural areas, the socio-economic background of the households must be considered. The tendency towards making new homestead on cultivable land can be weakened through some counselling measures from the concern authority. NGOs can play vital roles in this regard. Reference Ahmed, M. Iqbal, (2008). Inflationary Trend in Bangladesh and Impact on High Food Commodity Prices, Dhaka: Unnayan Onneshan - The Innovators Ahmed, Z, (2012). .Formation of Rural Settlements and Its Implications for the Availability of Cultivable Land: A Study from Bangladesh [Draft] Dhaka: Department of Development Studies, University of Dhaka Ahmed, Z. and Marzuk, A,O Horizontal Expansion of Housing in Rural Areas of Bangladesh: Does Population Growth Matter? Proceedings of the First UUM COB Qualitative Research Conference, Kuala Lumpur, (2012). ISBN 978-983-44592-4-6 America. (1995). PS: Political Science and Politics, 28 (4), pp. 664–683. Barakat, A., Ara, R., Taheruddin, M., Hoque, S. and Islam, N. (2007). Towards a Feasible Land Use Policy of Bangladesh, Dhaka: HRDC Doxiadis, C. A. (1969). The Future of Human Settlements, in Tiselius and Nilssa, S. (Ed.), Place of Value in a World of Facts, Stockholm: Almquist and Wiksell, pp. 307–338. Food and Agriculture Organization (FAO) (2003). Trade Reforms and Food Security Conceptualizing the Linkages, Rome Govt. of the Peoples Republic of Bangladesh A Synthesis of Agricultural Policies in Bangladesh, (2006). Agricultural Sector Review, Vol III, Dhaka: Ministry of Agriculture Govt. of the Peoples Republic of Bangladesh (1977). Bangladesh District Gazetteers: Comilla, Dacca: Bangladesh Govt. Press Govt. of the Peoples Republic of Bangladesh (2011). Bangladesh Economic Review, Dhaka: Finance Division, Ministry of Finance Govt. of the Peoples Republic of Bangladesh (2008). Draft National Housing Policy 2008, Dhaka: National Housing Authority, Ministry of Housing and Public Works Granovetter, M. S. (1973). The Strength of Weak Ties, The American Journal of Sociology, 78 (6), pp. 1360–1380.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Hafiz, R. (2000). Financing Housing and Increasing Affordability of the Rural People in Bangladesh, Bangladesh: BUET Hasan, M., Ullah, M. S. and Gomes, C. D. (2000). Rural Housing in Bangladesh: An Inquiry in Housing Typology, Construction Technology and Indigenous Practices, in Seraj, S. M., Hodgson, R. L. P. and Ahmed, K. I. (Ed.) The Proceeding of H&H Conference 2000, Dhaka & Exeter Hossain, S. Philippine e Grameen Bosoti, (2009). The Daily Jaijaidin, [online] Available at: http://en.wikipedia.org/wiki/Bangladesh [Accessed last on 21/02/12] Hunter, W. W. (1974)..A Statistical Account of Bengal, Vol: VI Chittagong Hill Tracts, Chittagong, Noakhali, Tipperah, Hill Tipperah, Delhi: DK Publishing House Islam, M. N. (2008). An Introduction to Research Methods, Second Edition, Dhaka: Mullick Brothers Islam, S. (2006). .Banglapedia : National Encyclopedia of Bangladesh, Dhaka: Asiatic Society Jamil, G. M. H. and Ahmed, M. (2006). Housing for Low Income People in Bangladesh: Problems and Prospects. The Cost and Management, 34 (5), pp. 25–33.and Khanam, S. (2004). Increasing access to housing for low income people in Bangladesh through income and employment generation, Barcelona: World Urban Forum Loton, S. H. (2004). Low-Income Communities: Facing the problems of adequate housing in Bangladesh agenda: Emerging issues, Canada: Centre for Urban and Community Studies, University of Toronto Mandal, R. B. (1979). Introduction to Rural Settlements, New Delhi: Concept Publishing Company Mital, S. and Sethi D. (2009). Food Security in South Asia: Issues and Opportunities. Working Paper no. 240. Indian Council for Research on International Economic Relations. Rahman, M. A. (2012). Impact of Foreign Remittance on Land Holding and Land Relation in Rural Area of Bangladesh: A Case Study the Jirtoly, Village in the District of Noakhali [Draft] Dhaka: Department of Development Studies, University of Dhaka. Rahman, M. H. and Manprasert, S. (2006). Landlessness and its Impact on Economic Development: A Case Study on Bangladesh, Journal of Social Sciences, 2 (2), pp. 54–60. Rahmatullah, (2007). Broad Land Use Planning of Entire Bangladesh: A National Priority for Sustainable Development, Dhaka: Bangladesh Serafeim, P. and Dionysios, M. (2009). Informal Housing in Greece: a Quantitative Spatial Analysis, Theoretical and Empirical Researches in Urban Management, Vol. 4, 2 (11), Greece: University of Thessaly, pp. 7–33. United States Agency for International Development, (1999). Food Security Indicators and Framework for Use in the Monitoring and Evaluation of Food Aid Programs, Washington

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The Impact of Service Delivery Method to Increase the Volume of Sales in Restaurants that Service Fast Food Marzouq AL-Qeed The World Islamic Sciences & Education University, Amman -Jordan Abstract: Service essential and important factor for organizations that operate in this area because of its importance lies in bringing many new customers and maintain both cases . The study focused on restaurants that serve fast food in Jordan. The study showed that there is the impact of the service provider to increase sales volume by the results of the study as the most important no statistically significant effect for ways to provide service to increase sales in the fast - food restaurants. Keywords: Jordan , service, sales volume, fast restaurants 1. Introduction That the process of service delivery includes things that are very important as the policies and procedures followed by the institution of service to the beneficiary , also include this process on the activities of " The Protocols " , such as the possible flow of activities, and freedom of action or choice granted to those in charge of providing the service, and how to direct beneficiaries and motivate to participate in the process of providing the service. And reflects the quality of those services to increase the market shares of the institutions of a service nature and contributes significantly to the survival of the institution and its continuity in the work and competition , significantly contributes to the appropriate give it a competitive advantage that contributes to its success. The leading fast-food restaurants in the delivery of service so that multiple those roads and so see the competition taking place in that sector vital and important . The highlight specify the restaurants sector in Jordan making fun of the importance and impact of an adult, this sector was marked by strongly that competition which required a study of methods and processes to provide those services .That attention is now winning marketing services has helped in the development of that area significantly increased in the enrichment and highlight it making fun of great importance to the survival of the institution and increase its growth , so scientists have to rely marketing a service to blend helps in the development of that area. Problem of the study: The process of providing the service in the restaurants of the basic pillars in restaurants because of their impact on customer satisfaction and multiple those ways and for different restaurants and those restaurants face intense competition, which calls them the best choice for service operations. After reviewing the research and scientific studies have been available inventory problem in the study to answer the following questions: 1 - What is the impact of service delivery methods to increase sales? 2 - What is the impact of the appearance of the service providers to increase sales? 3 - What is the impact of the methods of treatment by service providers to increase sales? 4 - What is the impact of attention to hygiene by service providers to increase sales? 5 - What is the impact of speed in providing the service to increase sales? importance of the study: In practice operations are providing the service of the most important pillars approved by the restaurants in their performance and doing in customer service because of its clear impact on customer satisfaction, and therefore this research can be an important reference for the fast food restaurants in terms of practical application and the opinion of customers to the levels and quality of service Introduction of different themes. But from a scientific because it offers a new addition in service delivery processes and their direct impact on increasing sales, in addition to the lack of a sufficient amount of studies on this subject, But this is this search start a new operation in the field of marketing services and how to provide service in the form and the type that customers want . Objectives of the study: The study aims to achieve the following points: 1 - know the effect of the appearance of the service providers to increase sales. 2 - detection and identification of the impact of methods of treatment by service providers to increase sales. 3 - Know the role of hygiene by service providers to increase sales. 4 - Statement of the importance of speed by service providers to increase sales The main hypothesis: There are no statistically significant effect for ways to provide service to increase the volume of sales in the catering sector. Sub assumptions: 1. There are no statistically significant effect for the appearance of the service providers to increase declined to sales in the catering sector 2. No statistically significant effect of the speed of service delivery to increase the volume of sales in the catering sector 2. Methodology The researcher based on the descriptive analytical approach , where they are covering the theoretical side by referring to books and periodicals, articles, electronic , while the side cover field by designing the questionnaire serve the objectives of the study, where they were distributed to target groups in order to get the answers of respondents , which is under test hypotheses , and then use the appropriate statistical methods , hypothesis testing purpose programs will be relying on ( statistical package for social sciences (SPPS) and access to the findings and recommendations.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) . Methods of data collection: The researcher electronic articles and periodicals, books and field side by designing a questionnaire serve the objectives of the study, and then analyze those articles and questionnaires in order to determine which pillars of the study. Theoretical framework: The definition of marketing : It has been proved that the definition of "old" Marketing is a narrow definition in understandable and range where suggests that marketing begins his role after the completion of the production process by focusing on the flow of goods and services finished , it has failed the definition of " old" showcasing the important role of marketing in the analysis of consumer needs , and information designed to ensure that your goods and services provided by the organization will comply with the expectations and needs of the buyers. Has known the American Society of marketing as " the performance of business activities that deal with the flow of goods and services from the producer to the consumer or user " It could be argued also that marketing begins where it ends , it is an integrated system and continuously begin studying the needs and desires of customers and end studying their reactions towards the goods and services provided them. Marketing Services: Occupies the marketing of services in the increasingly important nowadays , which needs to be integrated marketing efforts , based on the requirements and desires of the customer service seekers in different markets. And derives marketing services importance of increasing demand as a result of several factors, the most important - the emergence of new products associated with many services to facilitate the functionality of its services such as the computer, and communications, ... etc. and high personal income for many members of the community - , pay a lot of installations to search for a company specializing or hiring specialists to perform such services. Service concept: Service can be defined as " an intangible activity , which is primarily intended to satisfy the wishes and requirements of customers , so This activity is not related to the sale of a commodity or service ." According to this definition, both services include professional services , such as law , accounting , health services , and also to financial services , such as banking services , transportation , housing , hygiene, and educational services , etc. . Fast food restaurants :Characterized by each era distinguish it from other things , and those features are evaluated as the Provisions of the benefits , and what sets him apart from the damage , and the extent of its changes harmony with the principles of public health , and the variables of our time spread widely restaurants , particularly fast food restaurants. Among the reasons for this deployment, changing lifestyles and hours of work and rest usually led to the spread of eating in restaurants , especially those that offer junk food. The definition of junk food : Know meal fast as meal containing foods noodles such as sandwiches, shawarma , burgers, falafel , pancakes, pizza and chicken pieces fried, with a soft drink or a glass of juice and chips , and the most important characteristic of fast food they do not contain fruit and salads, and it is eaten in a hurry. 3. Results Has been reached with the following results: The main hypothesis: There is a statistically significant effect for ways to provide service to increase sales in the catering sector . Sub assumptions: There is a statistically significant effect for the appearance of the service providers to increase sales in the catering sector. There is a statistically significant effect of the speed in providing the service to increase sales in the catering sector There is a statistically significant effect for cleaner service providers to increase sales in the catering sector. No statistically significant effect of treatment methods by service providers to increase sales in the catering sector. Recommendations 1 - Do training courses to help workers in the field of service to increase their efficiency. 2 - More attention in ways that the transaction between the service providers and customers and try to propagation methods of courtesy and flattery . 3 - To the attention of the external service provider to fit with your customers and increase the acceptance of him. 4 - Increase studies relating to the same subject matter of what is a significant impact on the performance of the restaurants . 5 - Choose those with the efficiency of the fast - food restaurants to provide the service and expertise to the requirement that position of great sensitivity and psychological impact on customers. 6 - Enhance the level of cleanliness , as shown by the study of great interest to customers which of the elements that reflect positive to have. References Tai, Hamid Abdul Nabi , Bashir Abbas ( 2012 ) Marketing Services , publisher Yazouri .Amman. Obaidat , Mohammed, ( 2009 ) book marketing services , Dar ketab for publication and distribution,Amman. Sumaidaie , Mahmoud Jassim , Joseph , Rdaina Osman ( 2011) book marketing services , Yazouri Publishing House ,Amman.. Obaidat , Mohammed , Dababneh , Samir ( 2006 ) , a book marketing health and pharmaceuticals , Dar Wael for publication and distribution. ,Amman. Swidan , Moses system , Smith , Bashir (2006 ) book origins marketing , Dar al - Hamid to publication and distribution,Amman. Al - Qahtani and Abu Rumman ( 2005 ) Strategies for the development of the market in fast food restaurants , University of MU'TAH, Jordan Bassiri , Alian (2006), the factors that determine the level of customer satisfaction on their visit to the fast food restaurants, unpublished Master thesis Tat , Hoon ( 2007 ) consumer intentions to buy at fast food restaurants a field study on undergraduate students . Khatib F., Awwad M., (2003), “Measuring Of Service Quality Of Marketing Information System Technology”, Mutah Lil- Buhuth WadDirasat, 18,(1). Kotler, Philip (2012). Marketing Management, Upper Saddle River, New Jersey: Prentice-Hall, Inc. Lovelock, C. & Wirtz, J. (2004). Service Marketing People, Technology, Strategy, United States of America, Hamilton Printing Co. Alpha

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Spillover Effects on Relative Demand For Skilled Labour In Malaysian Manufacturing Industries Norhanishah Mohamad Yunus1, Rusmawati Said2, Wan Azman Saini Wan Ngah2 1University of Science Malaysia, Malaysia 2University of Putra Malaysia, Malaysia [email protected] Abstract: The purpose of this study is to investigate the impact of FDI and trade on demand for skilled labour in Malaysia. Using 3-digit levels panel dataset from 50 manufacturing industries, the results of generalized method-of-moments system estimator reveal that only FDI is important in promoting demand for skilled labour. There is no evidence in the case of import of intermediate input. Keywords: Technology Spillovers; FDI; Trade; Skilled Labour; SYS-GMM 1. Introduction A plethora of studies have been documented the spillover effects of FDI and trade act as a main channel of technology diffusion and thus, demand for skilled labour. It covers both macro and microeconomic evidence including at industry level studies (Acemoglu, 1998; Coe & Helpman, 1995). In line with the theory of spillover effects reveal that there are complementarities between technology spillovers and demand for skilled workers (Nelson & Phelps, 1966). The technology spillovers not only introduced and creation a new technology to domestic, but also its spread and utilization of spill over and induced organisational improvement, which fostered the restructuring process and increased both the demand and supply of skills (Bruno, Crinò, & Falzoni, 2006). As alluded in the endogenous growth literature, the direct importing of intermediate input from developed country as a one of the mechanism of spill over contributes for skill upgrading that embodied in terms of idea, product and knowledge-imitation (Nelson & Phelps, 1966). The quality of imported inputs from developed country may be better than their domestic and it allows firm to access to new products or new varieties of existing products (Grossman & Helpman, 1991). Theoretically, the spillover effects of MNCs contribute to the initial knowledge by introducing in new technologies and product to domestic firms. In line with the Evolutionary theory, Blomström and Kokko (1998) outlined four ways how the effect of technology spillovers from foreign affiliates might be influence the host country: (i) through training effect that cause the movement of highly trained and skilled staff from foreign firms to domestic firms; (ii) through what is referred us to “demonstrationimitation effect that arising from arm's length relationships between MNCs and domestic firms which enables the domestic firm to learn and adopt superior production technologies and managerial and organizational skills; (iii) through “competition effect” from domestic firm when competition from MNCs force domestic rivals to upgrade production technologies and techniques in order to remain productive and competitiveness and iv) through “linkage effect” which is relates to export spill over thereby, the domestic firms can learn to export from MNCs. Given that foreign ownership is may associated with skill-biased technology, and consequently, it tends to raise the advantages of skilled workers than unskilled workers. It was due to skilled workers in foreign firms are more effective in bargaining, hence, it may causes a relative expansion of skill intensive sectors, improve the relative position of skilled workers and increase wage inequality(te Velde, 2002). Nevertheless, the way of inward FDI in influencing of human capital development in particular, for skill upgrading on the supply side is much less clear whether at micro- and macro-levels (Slaughter, 2002). With regards to the Malaysia’s situation to enhance number of skilled workers towards high income country, Malaysia recognized the process of upgrading knowledge and skill can be linked with foreign technology spillovers through the channel of FDI and trade (EPU & Bank, 2007). Since the 1980s, MNCs have been as a main source of investment that contributes to trade, capital formation and productivity and act as a catalyst in job creation and improvement of labour quality (Ariff, Yokoyama, & Kenkyūjo, 1992). The number of FDI inflows rose sharply in Malaysian manufacturing industries since 2004 from RM 45.7 billion to RM RM61.6 billion in 2010 and United Nations Conference on Trade and Development (UNCTAD) ranks Malaysia as a top host country for FDI in 2011-2013. Despite Malaysia among the major recipient country of world FDI, but the benefit of FDI spillovers upon skill upgrading is remained ambiguous. This issue is particularly important for country like Malaysia as the volume of FDI inflows keeps on increasing over time recently. As argued by Albuquerque (2003) a high FDI does not necessarily mean the economic is growing in strength. Hence, it raises a lot of questions regarding the real benefits that Malaysia is able to reap from their presence. From the literature investigating the effects of technological change on relative skilled demand, it is well known that not only technological change itself is important, but that there are significant effects of spill over from the channel of FDI and trade to explain demand for skilled labour (Araújo, Bogliacino, & Vivarelli, 2009). The impact of FDI on demand for skilled is still absent from the empirical literature and still under scrutiny particularly in developing countries and at industry level (Feenstra & Hanson, 1995). Similar case in Malaysia, the relationship between the employment and FDI is not very huge as a whole especially in the long run and it becomes an issue of current interest. This might be due to the fact that FDI can cause the skilled-biased technological change in the country and as the result impacts demand for skilled labour still relatively minimal in Malaysia (Pinn et al., 2011). Hence, we extend such work by adding foreign direct investment as a spillover channels to foreign trade to identify the possible of spillover effects of FDI to exist in the Malaysian manufacturing sector, and thus increase demand for skilled labour. In addition, the estimation of labour demand usually requires a panel data analysis is rare in the industry level work (Hansson, 2005). In addition, many previous studies show a positive results of technology spillover effects, but these results suffer from aggregation bias or failure to control for endogeneity due to limited panel data at industry level and difficulty to find instrumental variables (Keller, 2004). Consequently, using the panel data at industry level, we investigate the impact of technology spillovers through the channel of trade and FDI on relative demand for skilled labour at industry level in manufacturing sector. It allows us to expunge the endogeniety problem in labour demand function which tend to overstate the effect of spillovers. The remainder of this paper organized as follows. In the second section, we provide the theoretical background and related empirical literature. The third section discusses the data description and

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) variable concepts. In the fourth section, we present the empirical methodology. The results of the econometric exercises are reported in section five. These results include the robustness test of the results in relation to the inclusion econometrics technique of estimator. Concluding remarks are made in section six.

2. Literature Review The importance of technology spillovers are presently attracting considerable attention in theoretical and empirical works as an effective channel in increasing demand for skilled labour (Acemoglu, 1998; Coe & Helpman, 1995). According to Acemoglu (1998), international trade and FDI play a key role contribute for skill upgrading through spill over of skill-biased from industrial countries to developing countries. The mechanism of spill over from one country to another countries in line with the models of endogenous growth have been extended from the Romer’s closed-economy framework to an open-economy setting. Consistently with the theory of endogenous growth has stressed the importance of investigation upon the role of spillover effects from the channel FDI and trade, recently there are an increasing number of study investigation on both of spillover effects upon skilled labour demand over the last two decades of the 20th century in the some kind of country (Liu, Siler, Wang, & Wei, 2000). This is because the empirical work examine the effect of FDI coupled with trade on demand for skilled labour are still absent from the literature including in the United States (US), even though the presence of foreign-owned affiliates in US have grown at least twice as fast as trade over the last decade(Blonigen & Slaughter, 2001). For instance, a recent study by Fernandez & Fajnzylber (2004) examine the effectiveness of technology spillovers on demand for skilled labour through the channel of importing of intermediate inputs, exports and FDI in Brazil, China and Malaysia. The result found that the effect of import of intermediate input and FDI significantly positive on demand for skilled labour in Brazil and Malaysian firms. In contrast, both intermediate input and FDI are negative effect on skilled labour in China. The negative effect of FDI and intermediate input due to the China’s production towards more on unskilled labour-intensive goods and thus, the effect of skill-biased technology diffusion from both channels has reduced. While exports are negatively associated with demand for skilled workers in China and Malaysia, and to a lesser extent in Brazil. This results are consistent with international sales leading to a greater degree of specialization according to the countries' comparative advantage in unskilled labour intensive goods. Fajnzylber & Fernandes (2009) continued their study in 2009, but they only focus on Brazil and China. However, similar result found in 2004 which is the import of intermediate and FDI are statistically positive, but export show a negative effect in influencing demand for skilled labour in Brazil and China. The overall finding reveals that FDI and technology licensing act as an effective channel for the diffusion of skilled biased-technology in fostering demand for skilled labour in 2004. While in 2009, the presence of FDI in Brazilian and Chinese firms lead to increase the demand for the workers in managerial, engineering and technical occupations and for workers with college education. The result also asserts that the presence of FDI lead to increase the number of skilled workers about 59% in Brazil and 51% in China when FDI is measured based on wage bill shares. While FDI is measured as an employment share, the number of skilled workers only increased by 38% and 29% respectively in Brazilian and Chinese firms. The overall changes of skilled labour demand in both Brazilian and Chinese firms are mostly due to variability across firms within industries rather than to variability between industries. Similar study conducted by Bruno et al. (2006) in Poland, Czech Republic and Hungary found that the presence of FDI statistically positive and significant in Poland, but insignificant in Hungary and very small negative effect in the Czech Republic. Consistent with the standard neoclassical trade theory, similar result perform in Poland, Czech Republic and Hungary that show export of final good lead to decrease the share of skilled labour about 3% to 4%. Turning out to the empirical study on the effect of international trade on demand for skilled workers. A study by Duranton (1999) found that the fragmentation of intermediate goods are more effective influencing the labour demand instead of final goods. The producing of final good needs the for advanced production technology will resort to trade to acquire the high quality intermediates abroad due to the scarcity of skilled labour locally rather than the intermediate goods. The differences of the technology used in production also lead to fragmentation at an international level. It may be reflected in different requirements for labour skills, thereby causing a new international division of labour. However, Robbins (1996) argued that imports of skill-biased embodied in capital goods such as machineries, intermediate inputs, components and even final goods contribute to increase skilled labour demand in several developing countries such as Argentina, Chile and Colombia over the last two decades. The effect of capital goods act as a benchmark for local production through adaption or adoption of modern technology from advanced countries (Meschi, Taymaz, & Vivarelli, 2011). Data Description: The main data sources used in this study were obtained from the Malaysian Department of Statistics (DOS) based on a manufacturing survey on industries for the variables, namely; Research and Development (R&D) investment, value added, physical capital stock (gross fixed capital formation), depreciation value of physical capital stock, number of workers in foreign firm as well as number of employment by job position. While, the dataset contains import of intermediate and capital goods are gathered from Malaysia’s official external trade and it compiled by the Department of Statistics, Malaysia. These data are published at the two-digit Standard International Trade Classification level in, inter alia, the Department of Statistics’ publication, Malaysia External Trade Statistics. These data, which are classified according to the three digit Standard International Trade Classification (SITC) level, have then been matched to the three-digit Malaysian Industrial Classification System (MSIC), 2000. The present study focuses on manufacturing sector for several reasons, firstt, technology spillovers through the FDI channel has been associated with the manufacturing sector for a long period of time. In Malaysia, manufacturing sector viewed as a main sector contributed to the largest proportion of FDI and also remained the leader sector attracting FDI inwards to Malaysia, Secondly, the manufacturing sector continues to be an important economic sector and it is targeted to grow at about 5.6 percent per num during the Third Industrial Master Plan (IMP3) period, and to contribute about 28.5 percent to GDP by 2020. The study covered the period of 2000-2008. The period was chosen because FDI inflows and import of capital and intermediate goods was considered large during this period particularly after launching the Eighth Malaysian Plan ( 2000-2006) and Ninth Malaysia Plan (2006-2010). (EPU, 2006). Limitation of coverage was due to the industrial classification system (previously known as the Malaysia Industrial Classification (MIC), 1972: revised in 1979). After 2008, the MSIC code was revamped by DOS ain balanced panel data between industries and variables, this study applies a sample of 50 three digit levels of manufacturing industries. In this study, employment is refers to the number of paid employees (full-time) per year and is split into two broad categories: Non-production and production workers to represent the skilled and unskilled workers respectively (Hollanders & Ter

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Weel, 2002; Meschi et al., 2011). However, the non-production and production workers itself has been divided into skilled and unskilled workers7. For these reasons, following Hollanders and Ter Weel (2002), skilled workers in this study are refers to high-skilled worker in non-production category: legislators, senior officials and managers, professionals, technicians and associate professionals. While unskilled workers category are those involved in technical workers and work physically in the production process and non-professional work. They are: elementary occupations and plant & machine operators and assemblers as well as clerical and related occupation. We measure skilled workers as a share from total employment, not total cost. It allows us to estimate the equation in production function under the assumption that there are only exist two variable factors of production, namely, skilled and unskilled labour (Hollanders & Ter Weel, 2002). 3. Methodology The purpose of this section is to estimate the impact of both technology spillovers through the channel of FDI and trade on firm-level skilled labour demand for the period of 2000-2008. We follow Hollanders and Ter Weel (2002) approach that construct a translog model to the relative demand for skilled labour. We assume the employment share of group s is a function s= f(lnx1, lnx2…lnxs ). Then, by expanding this function in a second- order Taylor series around the mean of the respective x’s and interpreting the derivatives as coefficients, and thus will obtain: + + + (5.0) Where; s is the employment share of skilled labour and the group of x’s one might think of are: capital stock (Kit), value added(Yit), stock of technology (TECH) such as from R&D intensity, number of patents and spill over from one country or sector to other and relative wages for skilled and unskilled workers . In particular, the function in explaining the share of skilled labour in industry i in year t is: =

+

+

(5.1)

where, Kit is physical capital stock, Yit is value added, TECHit is stock of technology and are the wage term for skilled and unskilled workers. Capital and technology stocks are assumed to be quasi-fixed (see, e.g. Adams, 1999). As a command practice in many empirical works, we using the perpetual inventory method (PIM) to measure physical capital and technology stock (local R&D stock) as suggested by (Griliches, 1980). The formula for physical capital and local R&D as follows. (5.2) (5.3) where and are the depreciation rates for physical capital and R&D stock with 5% and 15% respectively as utilized by (Adams, 1999). He assumed that rates of depreciation does not change the estimation results substantially. and refer to gross fixed capital formation and R&D investment. We assume that capital and output grow at the same rate, the initial level of the capital investment and R&D investment are determined using the following formula : = ( )/( + 0.05) and =( )/( + 0.05). As well documented, stock of technology comes from two sources, one is the local R&D and the second one from international technology through the participation in international trade and from inwards FDI (Hollanders & Ter Weel, 2002). In line with the empirical work of Coe and Helpman (1995), we using R&D investment as a proxy for local R&D. To capture the effect of local R&D on demand for skilled labour, Machin and Van Reenen (1998) have suggested to lagged of R&D expenditure as a 1- year lag in all specification8. Thus, domestic R&D is measured as a proportion of value added with 1- year lagged. There was a positive and significant correlated with the degree of skill upgrading and R&D intensity in almost every specification and it indicates the changes in the technology stock and employment structure (Hansson, 2005; Hollanders & Ter Weel, 2002; Machin & Van Reenen, 1998). We using trade and FDI as a main channel of technology spillovers Following Meschi et al. (2011), the spillover effects from trade is measured as a share of imported input (total import of intermediate and capital goods) to import of total input at sectoral level. While spillover effects from the channel of FDI is measured based on share of employment in foreign firms from total employment (parents and affiliates). To examine whether FDI as a route of technological change to allow workers to assimilate knowledge over time, we consider using the quadratic effects technique that has been applied by (Figini & Görg, 1999; Taylor & Driffield, 2005). However, there are problem to estimate the equation (5.1) related to relative wages term. Wages are endogenous and the estimation and interpretation the result should be done meticulously. We also follow Meschi et al. (2011) to drop the wage term by using lagged dependent variable. The most important of using the lagged dependant variables is to expunged the problem of endogeniety by taking

7 Non-production category: high- skilled worker are: legislators, senior officials and managers, professionals, technicians and associate

professionals. Low-skilled workers : Clerks, service workers, shop and market sales workers. Production category: high-skilled workers are: skilled agricultural and fishery workers, craft and related trade workers. Low-skilled workers are: plant and machine operators and assemblers, elementary occupations (Hollanders & Ter Weel, 2002). Note here: This is not a standard definition of skill levels in Malaysia. Based on the Malaysian Standard Classification of Occupations (MASCO) 2008, only elementary occupations are regarded as unskilled, with agricultural and fishery workers; craft and related trade workers; and plant and machine operators and assemblers generally regarded as mid-skilled. Given this ambiguity, we do not include clerical in the skilled group in our analysis. In Malaysia case, there is no panel data provided by DOS at industry level in manufacturing sector for high-skilled workers in production category and low-skilled workers in non-production category (except for clerical).

8

Katz and Autor (1999) expected that high R&D activities involve the employment of high skilled workers. Through measure stock R&D as a proportion value added is enabled to estimate in level and first differences, rather than using merely R&D expenditure in level equation into a differenced equation.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) action as an instrument. Lagged share of skilled workers, was always instrumented and in some of the specifications firm wages and capital stocks were also treated as endogenous. Hence, the equation for estimation becomes the following: = (5.4) Where: i is industry and t is time index, Sit refers to the share of production workers from total employment (Berman, Bound, & Griliches, 1994). is lagged share of skilled workers, is physical capital stock; is value added; is local R&D per value added. is share of import of capital and intermediate goods to Malaysia’s total import in manufacturing sector. FDI is denotes share of workers in foreign company to total employment in manufacturing industry. FDI2 as a route of technological change of learning process. ηit is an unobserved the industry specific effect and εit is the error term. 4. Empirical Results The present study employs the Generalized Method of Moments (GMM) technique as proposed by Arellano and Bover (1995) to estimate the demand function the labour productivity function during the period of 2000-2008. The data covers 50 industries in the manufacturing sector. The advantages of the GMM estimator, whether DIFF-GMM or SYS-GMM, are to limit the number of instruments. Both estimators limit the number of instruments and have their advantages for the control of unobserved heterogeneity and simultaneity, especially as both problems are present in the OLS estimator. In the present study, the application of the SYS-GMM is more appropriate than the DIFF-GMM since the number of time series observations is small (450 observations) and consists of a short panel (N=50). The analysis begins by estimate the labour demand model by using SYS-GMM at one and two-step variants as shown in Table 1. The results in column (1) and (2) reveal that at one-step estimator, all the endogenous variables insignificantly influence demand for skilled except lagged dependent variable. While at two- step estimator, the result reveals that only dependent variable, value added and FDI has a significant effect upon demand for skilled. The two-step estimates of the standard errors tend to be downward biased (Arellano and Bond, 1991; Blundell and Bond, 1998). Trade, local R&D intensity as well as capital statistically failed to achieve significant at both variants. However, the results are tabulated in Columns (1) and (2) suffer a problem of instruments proliferation due to generate a very high number of instruments proliferation. It indicated by Hansen test p value that equal to 1 or very close to 1, as seen as a warning. We do not failure to reject the null hypothesis for over identifying restriction implies that the instruments are endogenous and statistic is insignificant. Hence, the power of the Hansen test to detect instruments joint-validity can be weakened (Roodman, 2009). Due to the generating of too many instrument, we reduce the number of instruments by collapsing the instrumental variable matrix as suggested by (Calderon, Chong, & Loayza, 2002) and the result are tabulated in column (3) to column (5). To control the possibility endogeneity of value added and physical capital that simultaneously impact the labour demand, both capital and value added variables will be lagged when estimating in levels (Machin & Van Reenen, 1998) as shown in column (3). However, the result is largely unaffected because there are still exist simultaneity between value added and physical capital in spite of we experimented with longer lags (in our case we lagged at T-4) and only the variable FDI and FDI2 statistically significant influencing demand for skilled labour. Table 1: SYS- GMM Estimates: Demand for Skilled Labour, 2000-2008 1

2 SYS- GMM

Variable One -Step coeff. Lagged Share of Skilled Labour Value added physical Capital Share of Imported Input FDI FDI² Local R&D

AR(2) Test Hansen/ Sargan Test (p-value) No. of Sample Instrument

s.e

3

4 SYS- GMM (Collapsing Technique)

Two- Step coeff

s.e

5

Two- Step coeff

s.e

coeff

0.779 0.061(0.000)*

0.789

0.0765 (0.000)* 0.242

0.251 (0.339)

0.550

-0.013 0.011 (0.239) 0.031 0.021 (0.162)

-0.022 0.033

0.012 (0.086)** 0.016 0.021 (0.123) 0.005

0.037 (0.651) 0.072 (0.937)

-0.032 0.029

0.004 0.012 (0.743)

0.011

0.013 (0.403)

0.008 (0.920)

-1.933 2.293 (0.389) 1.003 1.157 (0.389) -0.020 0.014 (0.144)

-2.893 1.453 -0.024

8.000

2.562 (0.264) -5.430 1.289 (0.265) 2.790 0.011 (0.034)* -0.055

s.e 0.151 (0.000)*

coeff

s.e

0.488

0.187 (0.009)**

0.019 (0.092)** -0.031 0.029 (0.306) -0.007

0.018 (0.097)** 0.033 (0.069)**

0.049

0.057 (0.390)

-0.008

0.040 (0.831)

3.094 (0.079)** _ 1.591 (0.080)** _ 0.041 (0.187) -0.024

_ _ 0.011 (0.034)

-9.390 4.700 -0.053

2.562 (0.076)** 1.289 (0.073)** 0.053 (0.048)*

0.668

0.677

0.990

0.659

0.636

1.000

1.000

0.955

0.298

0.556

94

94

27

23

27

All variables are transform into natural log * denotes significant at 5% ** denotes significant at 10%

For robustness check and simultaneously examine the significant effect of FDI on demand for skilled workers, first, we do not lagged both physical capital and value added as practiced in column (3) and then, dropping the variable FDI from the model and the result as indicated in column (4). We found that excluding the FDI variable from the model, only lagged share of dependent variable and value added are significant. The next step, we re-estimated the model by including the FDI variable into model as shown in column (5). The main econometric outcomes clearly reveals that, the local R&D become significant by including the FDI variables into model. Our result is supported by Hejazi and Safarian (1999) that argued the spill over effects derived from FDI to host countries are larger and the effect of

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) FDI tend to influence the overall or other spillovers compared to inclusion of spillover effects of trade alone into model . The previous literature has been recognized, as there is a strong association the effect of FDI on local R&D (Blomström & Kokko, 1998). An important finding to report that the spillover effects of FDI, local R&D intensity, value added and physical capital to be more robust by using the “collapsing” technique to eliminate the problem of instruments proliferation. Furthermore, the utilization of lagged dependent variable in this study as instruments for all endogenous variables as proposed by Arellano and Bond (1991) not only has been solve the problem of endogenous problem that may believed emerged in value added, physical capital and wage term in equation (5.1) but, it accounts the sticky nature of the labour demand (Meschi et al., 2011). More importantly, we cannot reject the model on the basis of either Hansen test of instrument validity or second-order serial correlation. Both tests provide a strong evidence that there is no evidence of instrument proliferation as the number of instruments appears to be substantially smaller than N. Turning out our attention to the spillover effects derived from FDI upon relative demand for skilled labour. Despite the FDI show a negative correlation on skilled labour demand with coefficient (9.320), but the effect of FDI is statistically positive and significant at 10%. Meaning that, the spillover effects of FDI appear to be assimilated quickly by workers in the Malaysian manufacturing industry through learning effect and it biased to skilled workers. Consistently result found by Taylor and Driffield (2005) show that the assimilation of technology from FDI is more quickly when FDI is best specified as quadratic than time lags. While the possible reason of negative correlation of FDI can be relates with the existence of crowding-out effect (Masron, Zulkafli, & Ibrahim, 2012). The effect of crowding tends to occur when the openness or liberal economic policies which could allow MNCs to outsource their inputs from other efficient countries and lead to negative consequences. Another possible that could be relates with the negative correlation is due to the inflow of FDI concentrated only in some industries 9. Therefore, those industries have received the higher FDI inflows tend to have higher productivity due to positive spillover effects and this depresses that of non-FDI industries (Aitken & Harrison, 1999). This result strongly consistent with the current Malaysian manufacturing industry which is most foreign investment focused on the capital-intensive industry especially in E&E and machinery industries to intensify in-house R&D and Design and Development (D&D) activities as compared to the labour intensive industries. Nevertheless, we found evidence that the trade effect of technology spill over is statistically not contributing to demand for skilled labour. Our finding empirically supported by Hejazi and Safarian (1999) have argued the spillover effects derived from FDI to host countries are larger and the importance of the trade channel is much reduced once FDI is controlled. The result consistently strong with the theory of traditional trade as expressed in the Heckscher-Ohlin theorem and in its Stolper-Samuelson (HOSS). According to this theorem, the distinction between sectoral and factoral dimensions in industries or firms lead to differences of types of skill (Wood, 1994). Hence, in the case of Malaysia, we abundant in unskilled workers at stages of production as well as low absorptive capacity of local firms are possible found to be a severe problem to imitate the importing of intermediate input that embodied technological knowledge. This could cause a crowding-out effect and as the result induce a specialisation in the unskilled intensive segments of each industry (Esposito, 2008) . 5. Conclusion and Policy Implication Investigation into technology spillovers from the channel FDI and trade found that spillover effects from FDI have a highly significant impact upon relative demand for skilled labour on 50 Malaysian manufacturing industries. In line with the Tenth Malaysia Plan (10MP), the government has streamline the function of FDI transferring of knowledge to labour must be based on the Key Performance Indicators (KPIs). In addition, Malaysia lack a solid base for technology and innovation thereby strengthening the technological capabilities as well as to improve of skills are critical aspects of economic development. Accordingly, government may first wish to adopt policies encouraging FDI to foster technology transfer and industry‐wide knowledge spillovers in the short run. In light of the attracting of FDI inward has become an integral part of the national development strategies in many economies, continuous effort needs to be enhanced further to provide a special incentives to MNCS, reducing barriers to FDI as well as improvement of delivery system and infrastructure, designation of free zones and bonded warehouse facilities. Regarding to the possible of crowding out occur in Malaysian manufacturing industry, effort must be intensified further by encouraging and promoting FDI inflows into low receiving industries as proposed by Aitken and Harrison (1999). Special attention also needs to be put in place related to the long-run FDI policy and compulsory policies to ensure FDI work for skill development for all types of worker need to be developed (Masron et al., 2012). To accelerate the assimilation of knowledge and technology diffusion from FDI, Malaysian government should increase enrolment in secondary education to provide foundation for vocational and tertiary technical education (te Velde, 2002). This effort may be act as a platform towards good quality and appropriate education as in Malaysia case, the output of skilled workers does not meet industry demand due to the education and training system is still excessively supplying graduates in social studies rather than science at the ratio of six to four persons (EPU, 2006). Turning out our attention to the effect of imported of intermediate input upon skilled labour demand. Effort must be geared further by facilitate and promote trade and investment as well as develop a capacity in specific targeted areas through technical cooperation and collaboration. Malaysia also needs to seek for better market access by further reduction tariffs and non-tariff particularly in E&E industry and for R&D leader such as the European countries. These arguments are empirically supported by Machin and Van Reenen (1998) that revealed the demand for skilled labour can be raised by reduction of input tarif, in turn induced the importation of technologically-advanced inputs. The effect of tariff was stronger, particularly in those sectors that use inputs more complementary to skills. References Acemoglu, D. (1998). Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality. The Quarterly Journal of Economics, 113(4), 1055-1089.

9 A study by Masron et al. (2012) show a crowding-out phenomenon is potentially to occur in labour intensive sector such as paper and

printing products, apparel product and metal product. These sector received the least amount of FDI inflows.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Adams, J. D. (1999). The Structure of Firm R&D, The Factor Intensity of Production, and Skill Bias. Review of Economics And Statistics, 81(3), 499-510. Aitken, B. J., & Harrison, A. E. (1999). Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela. American Economic Review, 605-618. Albuquerque, R. (2003). The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment. Journal of International Economics, 61(2), 353-383. Araújo, B. C., Bogliacino, F., & Vivarelli, M. (2009). The Role Of" Skill Enhancing Trade" in Brazil: Some Evidence from Microdata. Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review Of Economic Studies, 58(2), 277. Arellano, M., & Bover, O. (1995). Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal Of Econometrics, 68(1), 29-51. Ariff, M., Yokoyama, H., & Kenkyūjo, A. K. (1992). Foreign Direct Investment in Malaysia: Trends, Determinants and Implications, in M. Ariff And H. Yokoyama (Eds.), Foreign Direct Investment in Malaysia: Tokyo: Institute of Developing Economies, Chapter 1. Berman, E., Bound, J., & Griliches, Z. (1994). Changes in the demand for Skilled Labor within US Manufacturing Industries: Evidence from the Annual Survey of Manufacturing: National Bureau of Economic Research. Blomström, M., & Kokko, A. (1998). Multinational Corporations and Spillovers. Journal of Economic Surveys, 12(3), 247-277. Blonigen, B. A., & Slaughter, M. J. (2001). Foreign-Affiliate Activity and U.S. Skill Upgrading. The Review of Economics and Statistics, 83(2), 362-376. Bruno, G., Crinò, R., & Falzoni, A. M. (2006). Foreign Direct Investment, Trade, and Skilled Labour Demand in Eastern Europe. Calderon, C., Chong, A., & Loayza, N. (2002). Determinants of Current Account Deficits in Developing Countries. Contributions to Macroeconomics, 2(1), 2. Coe, D. T., & Helpman, E. (1995). International R&D Spillovers. European Economic Review, 39(5), 859-887. Duranton, G. (1999). Trade, Wage Inequalities and Disparities Between Countries: The Technology Connection. Growth and Change, 30(4), 455-478. EPU. (2006). Ninth Malaysia Plan, 2006-2010. Percetakan Nasional Malaysia Berhad, Kuala Lumpur. EPU, & Bank, W. (2007). Productivity and Investment Climate Survey. Malaysia. Esposito, P. (2008). Trade, Outsourcing and Skilled to Unskilled Wage Bill Ratio in Ceecs Manufacturing. Feenstra, R. C., & Hanson, G. H. (1995). Foreign Investment, Outsourcing and Relative Wages: National Bureau of Economic Research. Fernandez, A. M., & Fajnzylber, P. (2004). International Technology Diffusion and the Demand for Skilled Labor: Evidence from East Asia and Latin America. Paper Presented at the Econometric Society 2004 Latin American Meetings. Fajnzylber, P., & Fernandez, A. M. (2009). International Economic Activities and Skilled Labour Demand: Evidence from Brazil and China. Applied Economics, 41(5), 563-577. Figini, P., & Görg, H. (1999). Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland. Review of World Economics, 135(4), 594-612. Griliches, Z. (1980). R&D and the Productivity Slowdown: National Bureau Of Economic Research Cambridge, Mass., USA. Grossman, G. M., & Helpman, E. (1991). Innovation and Growth in the Global Economy: The MIT Press. Hansson, P. (2005). Skill Upgrading and Production Transfer within Swedish Multinationals. Scandinavian Journal of Economics, 107(4), 673-692. Hejazi, W., & Safarian, A. E. (1999). Trade, Foreign Direct Investment, and R&D Spillovers. Journal of International Business Studies, 491511. Hollanders, H., & Ter Weel, B. (2002). Technology, Knowledge Spillovers and Changes in Employment Structure: Evidence From Six OECD Countries. Labour Economics, 9(5), 579-599. Katz, L. F., & Autor, D. H. (1999). Chapter 26 Changes in the Wage Structure and Earnings Inequality. in C. A. Orley & C. David (Eds.), Handbook of Labor Economics (Vol. Volume 3, Part A, Pp. 1463-1555): Elsevier. Keller, W. (2004). International Technology Diffusion. Journal of Economic Literature, Vol. XLII (September 2004) Pp. 752-782 Liu, X., Siler, P., Wang, C., & Wei, Y. (2000). Productivity Spillovers from Foreign Direct Investment: Evidence from UK Industry Level Panel Data. Journal Of International Business Studies, 31(3), 407-425. Machin, S., & Van Reenen, J. (1998). Technology and Changes in Skill Structure: Evidence from Seven OECD Countries. The Quarterly Journal Of Economics, 113(4), 1215-1244. Masron, T. A., Zulkafli, A. H., & Ibrahim, H. (2012). Spillover Effects of FDI within Manufacturing Sector in Malaysia. Procedia - Social And Behavioral Sciences, 58(0), 1204-1211. Meschi, E., Taymaz, E., & Vivarelli, M. (2011). Trade, Technology and Skills: Evidence from Turkish Microdata. Labour Economics, 18, Supplement 1(0), S60-S70. Nelson, R. R., & Phelps, E. S. (1966). Investment in Humans, Technological Diffusion, and Economic Growth. The American Economic Review, 56(1/2), 69-75. Pinn, S. L. S., Ching, K. S., Kogid, M., Mulok, D., Mansur, K., & Loganathan, N. (2011). Empirical Analysis of Employment and Foreign Direct Investment in Malaysia: An ARDL Bounds Testing Approach to Cointegration. Advances in Management and Applied Economics, 1(3), 77-91. Robbins, D. (1996). Evidence on Trade and Wages in Developing World: Harvard Institute For International Development, Harvard University. Roodman, D. (2009). A Note on the Theme of too Many Instruments*. Oxford Bulletin of Economics and Statistics, 71(1), 135-158. Slaughter, M. J. (2002). Does Inward Foreign Direct Investment Contribute to Skill Upgrading in Developing Countries? Center For Economic Analysis Working Paper(2002-08). Taylor, K., & Driffield, N. (2005). Wage Inequality and the Role of Multinationals: Evidence from UK Panel Data. Labour Economics, 12(2), 223-249. Te Velde, D. W. (2002). Government Policies for Inward Foreign Direct Investment in Developing Countries: Implications for Human Capital Formation and Income Inequality: OECD. Wood, A. (1994). North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World: Clarendon Press.

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Assessing Risk and Risk Mitigation Strategies of Small Coffee Growers: A Study in Kodagu District in Karnataka, India10 *Deepika M G, Amalendu Jyotishi School of Business, Amrita Vishwavidyapeetham, Kasavanahalli [email protected] Abstract: Coffee in India is largely grown in the southern part of the country and involves small growers. Small holding cultivation combined with the external reliance for markets have posed risks to coffee cultivators at different levels. In this context, the paper attempts to analyse various risks among the small coffee growers in India through the study conducted in the Kodagu district in the state of Karnataka, the largest coffee growing district in India. The risks that are analysed are classified into- farm risk, arising due to threat to yield, rising cost of inputs, lack of irrigation and extension services; marketing risk arising due to volatility of prices and the buyer driven supply chain; policy risks arising due to taxation and other regulatory barriers. From the analysis of diversification at the regional level using secondary information on price and yield, it is visible that coffee and other intercropped commodities have different price and yield cycles, therefore, diversification of crops would act as a hedge against price and yield risks. It is therefore, important to promote diversification of crops at a farm level. It is recommended that the commodity boards like Coffee Board of India and the Spices Board work with co-ordination and encourage diversification at the farm level. Keywords: Coffee cultivation, small grower, risk, risk mitigation, diversification 1. Introduction Coffee cultivation in India, like in many parts of the world is carried out by small and marginal cultivators. Small holding cultivation combined with the external reliance for markets have posed coffee cultivators to risk at different levels. As a production system, coffee cultivation is highly labour intensive. Farm labour in coffee plantations requires a particular set of skills. With limited options of mechanisation and growing labour shortage, coffee production is exposed to a high level of farm risk. Since coffee is a globally traded commodity, the producers are often the victims of volatility in global prices caused from supply-demand disequilibrium. Increasing cost of production and narrowing profit margins have induced heavy migration of people from this sector to other occupations. The regulatory environment having undergone a change, coffee producers are increasingly exposed to the vagaries of market forces, in contrast to secured environment of regulated marketing (Hartmann and Akarsha, 2009). Coffee in India is largely grown in the southern states of Karnataka (70%), Kerala (20%) and Tamil Nadu (7%). Small growers (below 10 hectares) dominate the coffee sector both in terms of number of holdings and production. Over 98% of coffee holdings and 70% of coffee production in India is by small holders. About 77% of holdings are classified as tiny (below two hectares) holdings (Upendranadh, 2010). Hence, it is a major source of income for small and marginal planters as well as plantation workers. Coffee cultivation in India assumes importance not just because it provides foreign exchange through exports but also from the perspective of livelihoods of large number of small growers and plantation workers. This paper makes an attempt to map the risks faced by coffee growers in India with a focus on small coffee growers in the region of Kodagu district in Karnataka11. The nature and extent of risks is assessed in the region along with the coping strategies adopted by the growers. The paper also attempts to examine the amount of diversification among the coffee cultivators in the coffee growing region of Kodagu and addresses some issues relating to diversification and its role in hedging risk in coffee cultivation. Objectives of the Study 1. To examine and map the risks - farm risk, marketing risk, and other risks faced by small coffee growers in India and identify the variables influencing them 2. To assess the current risk management approaches adopted by farmers and other stakeholders related to coffee cultivation. 3. To examine the extent of crop diversification among small coffee growers and examine if diversification would be a means to hedge the risks associated with coffee cultivation. 2. Methodology The study is based on both primary and secondary sources of data. The secondary sources of information include Kodagu District Statistics published by Government of Karnataka, data obtained from the Food and Agricultural Organization, information from Coffee Board of India and Spices Board of India and the earlier literature in the area. Primary data was collected from different regions of Kodagu district of Karnataka in the period from October to December 2012. Focus group discussions were conducted by gathering small farmers in Gaalibeedu and Katekeri villages in Kodagu district and individual interviews with small and a few large farmers in Madikeri and Somwarpet regions. Information on farm gate prices, area under different crops, yield of coffee and related crops, income of the growers, cost of production, input related information, especially, that of labour, marketing and information about the functioning of 10

This paper is an outcome of the project study funded by the National Research Programme on Plantation Development (NRPPD) instituted by the Ministry of Commerce, Government of India at CDS Trivandrum for the period from September 2012 to February 2013. We are thankful to the NRPPD review committee for their constructive comments on the initial proposal. Note: Kodagu is a district in the state of Karnataka in India. Coorg is the other name for Kodagu and is often used interchangeably. 11 Kodagu is a district in the state of Karnataka in India. Coorg is the other name for Kodagu and is often used interchangeably.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Coffee and Spices Board were gathered. Farm and marketing risks faced by the farmers in the region were assessed and documented. Interviews were conducted with the Secretary of Coorg Planters’ Association, Coffee Board Officials in Madikeri and a few curers and exporters located in Kushalnagar region. Reasons behind the lack of efforts or constraints faced in moving up the value chain for coffee producers are analysed. Diversification of crops is measured using the Herfindhal’s Index from the acreage information on different crops using data from Kodagu District Statistics. Issues pertaining to diversification of crops in the farm level and constraints before farmers towards diversification are analysed based on field observations. Trends in prices and yields of different crops are examined to assess if diversification of crops would help in hedging price and yield risk. Brief Profile of the Study Region: Kodagu District in Karnataka : Kodagu, a district in Southern Karnataka is known for its diverse agro climatic conditions. The district is divided into three Talukas12- Madikeri, Somwarpet and Virajpet each distinct in its topography. The coffee agro forestry system of Kodagu is one of the richest agro forestry systems in the world, with about 270 species of shaded tree varieties (Coffee Board of India, www.indiacoffee.org). Figure 1: Land Use Pattern in Kodagu District Land use pattern in Kodagu district (in hectares and percentages)

Forest area Land not available for cultivation Other uncultivated land

179001, 42% 134597, 32%

Fallow

47106, 11% 9264, 2%

Sown area

55155, 13%

Source: Kodagu District Statistics at a Glance: 2009-10, Government of Karnataka Almost 86% of the population of the district is rural. Only 12% of population depends on agriculture for livelihood as cultivators or labourers. A wide variation in the crops cultivated and its yields is experienced. Coffee, paddy, maize, chilli, ginger, pepper, arecanut, banana, orange, cashew, coconut and rubber are the main crops grown in the region. During 2008-09 around 1,78,479 hectares of land was cultivated under different crops. Almost 43.7% of agricultural holdings is marginal (0-1 ha), 22.35% is small holders (1-2 ha), and remaining is medium or large holding. Coffee is the predominant crop of the region occupying around 57.5% of the gross cropped area, followed by paddy (19.8%), cardamom (5.06%) and pepper (4.9%) (Kodagu District Statistics, 2009-10). Coffee in Kodagu region: Kodagu district stands out as a major coffee producing district among the plantation districts of the region with 53% of coffee production in Karnataka (38.5% of All India). Though Arabica and Robusta varieties are grown in the region, Robusta has a larger share. Total area under Arabica Variety is around 26,000 hectares and Robusta occupies 56,000 hectares. Almost 73% of the crop produced is that of Robusta variety. Average production of Arabica and Robusta in the region is around 21, 800 and 93,225 Mt respectively. 98.8% of holdings in coffee in Kodagu is classified as Small by Coffee Board (less than 10 hectares) who contribute to 70% of production and 1.2% of holdings are large contributing to around 30% of total production. 2,54,628 people are employed in coffee plantations as of 2009-10 (Coffee Board of India, 2012). Fig 2: Percentage Share of Production of Coffee in different Coffee Growing Regions in India Percentage Share of production of Coffee in different Coffee Growing regions in India Anamalais Shevroys Non (Salem)traditional (coimbatore) 0.5% 1% Areas Nilgiris Nelliampathies 2% 2% Chikmagalur 1% 24% Travancore 3% Pulneys 2%

Wyanad 18% Hassan 10%

Kodagu* 37%

Source: Coffee Board of India, Statistics, 2012

12

Taluka is a unit of local self administration in India

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Risks and Risk Mitigation Strategies in Coffee Cultivation: A Review: Upendranadh and Subbaiaha (2012) have analysed coffee growers’ situation and the problems faced by them in Kodagu district of Karnataka. They attribute the problem of low price realisation by the farmer to the supply chain in coffee dominated by the MNCs. Their study reveals that the value accrued to the primary coffee producer has consistently come down over a period. In the value chain analysis of coffee marketing in India, Venkatesh (2011) shows the lack of vertical integration in the supply chain of coffee. It is clearly seen that coffee markets in the world are concentrated and are oligopolistic in nature. The study observes that while there are market led mechanisms available to address fluctuations in prices, they are not being adopted by small growers due to several reasons including costs of entry and awareness about such mechanisms. Another aspect what the study highlights is the absence of co-operative system in place to facilitate the push for more demand of quality coffee from the region. Concerns have been raised that as a consequence of liberalisation, producers have become exposed to high volatility of coffee prices, which exposes them to high levels of price risk and therefore, significant amount of income risk (Subervie, 2008). This poses a greater problem for small producers in view of their limited ability to hedge or diversify their price risk exposure. India is a small producer and exporter as far as world production and export of coffee is concerned. India's share in the world production and export are below three per cent and India in no way can influence the world prices (www. fao.org/statistics). Given the small producer status of India, the world prices can be considered as given. Coffee future prices too have been quite volatile in the last decade. There are many factors that contribute to these unstable and high volatile prices. Coffee output is highly vulnerable to weather shocks (Lewin et al., 2004). The entry barriers for coffee imports in India also being very low, it makes it unpredictable for growers to take decisions related to production. A study by World Bank (2010) makes a risk assessment in the Haiti Coffee supply chain, the vulnerability of farmers to those risks and the priority measure for risk management. The methodology is referred to as the Rapid Agricultural Supply Chain Risk Assessment (RapAgRisk), designed to examine and quantify major risks along with specific agricultural supply chains. RapAgRisk provides a conceptual framework and set of detailed guidelines for conducting a system wide assessment of risk, risk management and vulnerability within agricultural supply chains. The study categorises the risks in the Haitian coffee supply chain into three - production risk, marketing risk and other risk. Factors contributing to production risks are identified as pests affecting the yield, hurricanes, excess rain, old age of plants, etc. Under market risks the ones identified are the international coffee price volatility, exchange rate appreciation, steep increase in interest rates, fall in domestic consumption, exporters default on loan, contract failure, transportation blockage due to damaged roads, co-operative failure and other risks like political and labour risk. Risks are summarized on a matrix based on severity v/s probability of occurrence of the events based on qualitative information. A measure for risk management framework is provided for each of the identified risks. It is seen that some countries have also successfully developed other activities such as non-agricultural commodities or light infrastructure. For instance, Columbia’s dependence on coffee exports has significantly decreased over the past decade due to the development of Oil industry. But such a diversification requires a good industrialization policy. Therefore, diversification within the sector needs to be achieved. Sustainable sources of employment have to be found in this sector to reduce the higher incidence of poverty in rural areas and prevent further urbanization. An example of this also comes from Kenya during the early 1990s where diversification programmes to increase production of fruit, vegetables and flowers met with considerable success. (World Bank, 2010) A review of risk mitigation strategies and experiences from such strategies of some of the coffee growing regions would be useful in recommendation of plausible risk mitigation of strategy. Diversification in agriculture can mean any of the three situations: 1) a shift from farm to non-farm activities, 2) a shift from less profitable crop to more profitable crop, 3) using resources in diverse but complementary activities (Vyas, 1996). The first type of diversification is essentially the diversification of rural economy. The second type can be viewed as a farmer’s response to relative price signals to adjust to market conditions. The third type hints towards efficient allocation of resources. The broad rationale for crop diversification emanates from the opportunities it offers to reduce production and price risks, increasing yields, natural resource sustainability, maintaining ecological balance, increasing flexibility and sustain productivity and growth. It also creates opportunities for more employment and higher income through more efficient use of resources and exploitation of comparative advantage (World Bank, 1990). However, one aspect of diversification which seems to be less examined is the assessment of real risk hedge achieved by Indian farmers through adopting the strategy. Diversification which merely increases the return without minimising risk is blind diversification (Luenburger, 1998). Mukherjee (2010) explores the relationship between crop diversification and risks in India. Herfindhal’s index has been used to analyse the level of crop diversification across the major states over the period of study. The study makes an effort to compute yield risk and price risk of each state using Markowitz’s Mean Variance theory and map it with the crop diversification for the corresponding states. It is seen that while the relationship is positive in the case of crop diversification and yield risk, they could not conclude the relationship between crop diversification and price risk. Accounting for the existence of uncertainty and the attitude towards risk would help in better comprehension of the cropping decision. Risks facing the Small Coffee Growers in Kodagu: Field Observations and Analysis Farm Risk: Coffee growers, especially the small and marginal ones are prone to different types of risks. One could broadly classify the risks into price risk arising due to liberalisation in the agriculture sector, high global connectedness and uncertain changes in the trade policies; yield risk due to vagaries in climatic conditions and uncertainties in the input market, especially that of labour, fertiliser and irrigation; marketing risks, given the nature of vertical integration in the coffee industry and lack of bargaining at the producers level; and other risks arising out of problems in land tenure and government policies like taxation. Trends in the Production and Yield of Coffee in India shows that there is a clear stagnation in the productivity of coffee, especially with the case of Arabica variety ( Figure 3 and Table 1). There is a small shift in the productivity of Robusta, since the liberalisation in mid nineties. This shift in the yield could be attributed to incentive of rising prices due to liberalisation in coffee marketing and external factors like frost in Brazil leading to shortage in world coffee supply. Though the data used in Figure 3 pertain to All India level, the scenario should be reflective in the case of Kodagu district too since the district contributes to around 37% of coffee cultivation in India.

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Yield kg/ha

Figure 3: Coffee Productivity in India, (for all coffee, Arabica and Robusta Varieties) Productivity of Coffee in India for all Coffee, Arabica and Robusta 4000

Total

2000

Robusta

0

Arabica

Source: Coffee Board of India: Market Intelligence and Statistical Unit, Coffee Board of India, November 2012. Table 1: Productivity of Coffee in Kodagu District (kg/ha) with All India Average Year 2010-11 2011-12 Arabica Robusta Total Arabica Area (in ha) 28053 76727 104780 28303 Production (in Mt) 22025 102075 124100 21800 Productivity (kg/ha) 785 1330 1184 770 All India Average of Productivity 575 1056 838 597 (kg/ha) Source: Coffee Board of India: Market Intelligence and Statistical Unit, Coffee Board, November 2012

Robusta 75277 93225 1238 1069

Total 103580 115025 1110 852

Yield Risk: There is a huge variation in the yield experienced for coffee in different regions of Kodagu district. Yield is threatened very often due to irregular monsoon, attack of diseases, invasion of forest animals or lack of proper care and attention to the plants. Different regions experience different kinds of problems pertaining to production of coffee and other crops grown in the region. South and north zones are more productive.13 This difference in yield is attributed largely to the topographical conditions including soil and the rainfall situation. Observation from the field shows that Stem borer, Berri Borer, White borer, and Rot diseases are the most often heard diseases attacking coffee plants. Leaf rust disease has also been experienced during 1998 to 2000. From the focus group discussions conducted in Mattikere and Gaalibeedu villages it is understood that the Coffee Board’s intervention does not come immediately during the crisis; farmers say that it takes time for the remedial measures to reach them. In many a situations the remedial measure suggested by the Board is usually to uproot the plants. The farmers are advised to replant after a gap of three years. The small farmers say that such remedial measures are not affordable to be followed by them as it would lead to huge amount of income loss leaving their limited space idle. As most of these diseases are contagious in nature spreading to neighbouring farms, the inability of extension services to reach these farms has huge consequences of negative externalities. Arabica variety of coffee needs more care and attention and is more prone to diseases like stem borer which is more destructive in nature. This is another reason why farmers in the process of replanting have moved towards Robusta cultivation losing the premium value for their produce. Yet another reason what the farmers have cited as the reason for the shift to Arabica Cultivation is the unpredictability of blossom showers. At least one-inch rain in the month of February-March (called the blossom shower) play an important role in flowering and productive yield of coffee. The alternative when the rains fail would be to irrigate the crops through sprinkler irrigation. But as seen in Kodagu district statistics only 2.28 percent of net sown area is under irrigation. Small farmers showed their inability to equip themselves with such facilities given the income constraint. Age of the plant in some farms was seen as a limiting constraint to yield of coffee. Farmers while during the focus group discussion said many small growers in this region were earlier Cardamom producing farmers (for example, Gaalibeedu and Katekeri villages in Mercara Taluka were known to be cardamom villages) and coffee was cultivated in small proportions. But after the attack of mosaic disease to cardamom plants in the nineties, huge percentage of land was converted to coffee. The region which is less suitable for coffee has been forced to coffee cultivation. Attack of forest animals is another menace to coffee growers in the region. The district covering a large stretch of forest area is home to many wild animals. There are many instances of attack by wild elephants and monkeys who destroy a large stretch of crops reducing the yield of coffee. Framers feel that the yield loss due to such problems in the last year could be upto 30 percent of the potential yield. 14 Coffee yield experiences a typical cycle. Control of rot disease is seen possible which requires pruning of shade trees and controlling the shade which is seen crucial. Input Risk: Rising labour problem, sharp increase in the cost of production over the last few years, inadequate irrigation facilities, lack of extension services or reach of extension to farmers at the right time are often heard input related risks. Problem of Labour and Rising Cost of Cultivation: Shortage of labour and the problems associated with them is the most crucial of the input problem faced by the farmers in Kodagu district. Plantation sector, especially coffee and tea in India has been functioning through the permanent labour system where plantations with more than 10 hectares of land are permanently associated with labourers living inside the owner’s estates. Plantations having the status of the industry in India, the plantation labour was protected through the Plantation Labour Act. With the demographic shift of the labour employed in the region, like the migration of the younger generation to cities and the advancement of education among the labour population, a severe shortage of labour is experienced in the region. According to the figures quoted by the Secretary of Coorg Planters’ Association (CPA), Mr. K C Sudarshan, nearly 70% of the labour

13

Coffee growing region of Kodagu is classified into- south zone comprising of Virajpet region, central region comprising largely of Madikeri and the north comprising that of Somwarpet region. 14 As understood from the focus group conducted at Katekeri village in Kodagu district

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) employed in the region is casual. Total number of permanent labourers in the district stands to only 11, 479. (Kodagu District Statistics, 2012) The ratio of labour to the net sown area (hectare) stands to .06: 1 One labour is available to 15.5 hectares seen in terms of agriculture as a whole. However, if one adds the causal labour number to this, the ratio would only improve to .21:1. A crude estimate cited by Coorg Planters Association says that there is a shortage of 80% of labour in the region 15. Table 2: Number of cultivators and Labourers in Kodagu District Taluka Net sown area Total Cultivators Total labourers in ha in nos in nos Madikeri 52513 5006 2418

Labour hectare 0.046046

Somwarpet

48605

11470

5365

0.11038

9.059646

Virajpet

77361

4570

3699

0.047815

20.91403

Total

178479

21046

11479

0.064316

15.54831

per

Hectare labour 21.71754

per

Source: Kodagu District Statistics at a Glance, 2009-10, Govt of Karnataka Currently the wage rate in Karnataka under the Plantation Labour Act (which varies from state to state) stands to Rs. 145. Rs 84.00 is the basic pay and a DA of 72% of the basic pay sums up to Rs. 144.48. In addition, the permanent labourers are entitled to a PF. Gratuity is provided if the labour works for more than 5 years. In addition to that, the permanent labour gets yearly bonus, medical facility for the family, education facilities, housing facilities, free water, free fuel and maternity benefits. This together with bonus may sum up to maximum of Rs. 240. Provision of PF is applicable even for casual labourers if the number of labourers in the estate is more than 20. Casual labourers do not want PF do be deducted from their wages. They also do not want to bond themselves to a particular owner. The earlier generation of permanent labour has aged and the next generation is reluctant to stick to plantations as labour. As told by Mr. K C Sudarshan, quite many labourers today are literate and some educated so they prefer to migrate to urban areas in look out for better jobs. The growth of tourism industry in the region has also attracted labour to the sector with better wages. MNREGS program has created 16.55 lakh mandays of employment in the year 2010-11 (Kodagu District Statistics). The provision of Housing facility through government schemes has been another attraction for the labour to move out of estates and liberate them from bondages. During 2010-11 alone 2,381 houses have been constructed under different schemes like Ashraya Scheme, Ashraya Yojana, Ambedkar scheme and Indira Aawaaz Yojana. So the bondage of labour sticking to the estates through supervision and control of the owners is reduced. Also as casual labourers, the labourers can better negotiate their wages which is around Rs. 300-350 a day. It is an interesting observation from the field that the casual labourers earn better than the permanent labourers and sometimes even provide credit to these permanent labourers/ supervisors. This leads to peculiar linkage of credit market that in turn effects appropriate monitoring by the supervisors on minimum hours of work. The intervention and spread of Self Help Groups(SHGs) though not in a large way in Kodagu district seems to have contributed especially the women labour out of agriculture. About 970 SHGs are functional during 2009-10 with 15,674 memberships of women in those organizations (Kodagu District Statistics, 2010-11). The nature of labour among the tiny farmers is different from the small and large cultivators. The tiny farmers many a times rely on community labour. In addition to depending on casual labour during the harvest season, the family labour works in each other’s farm. Plucking from one acre of land with average yield would take 20-25 mandays of labour. This in fact is a good arrangement, but it is seen to be practiced only with the lowest economic segment of population. Pre-liberalisation system required to sell coffee to Coffee Board that was the only buyer. Post-liberalisation anybody can sell in the open market in any less quantity. So watching and monitoring the labour is another difficult task before the cultivators. The costs of fertiliser, diesel and machineries have all seen a heavy shift in the last three years. Fertiliser prices have almost doubled in last five years. This is in addition to the cost of labour which is seeing a non linear growth. The machineries needed for mechanisation though get close to 50% subsidy is not affordable by small and marginal planters. The increased cost of production in addition to loosing profit margins to farmers without a parallel increase in the farm gate price, might also lead to loosing price competition in the international markets. The emergence of Vietnam as a major producer and competitor and the revival of Brazil from earlier distress have led to more competition to Indian Coffee. This means that Indian coffee growers need to be more efficient producers and explore ways of product diversification along with horizontal and vertical integration. Lack of Irrigation: Kodagu which is the place of origin for major river like Cauvery, ironically denies enough water to the cultivators in many parts of the district. Lack of irrigation especially, when monsoon fails has resulted in the low yield of coffee cultivation in the district. Only 2.27% of the net sown area in the district is irrigated (Kodagu district statistics, 2009-10). Blossom showers at least one inch of rain in February to March is crucial for good yields during the years. But when it fails irrigation works as a good alternative. Of the farmers who were interviewed some of them said they cannot afford this though subsidies are provided by Coffee Board, Spices Board and by the government. The topography and erratic electricity supply further discourages the planters to install irrigation facilities. Poor Management and Extension Services: Whatever be the R&D efforts carried out by Coffee Board and Spices Board in India, the reach of such inventions through extension services to the common farmers is felt to a limited extent. From the focus group discussions it is observed that the tiny and many small farmers are even ignorant of the facilities and incentives provided by Coffee and Spices Board of India. Even a few large farmers are of the opinion that machines used for pruning, plucking and weed cutting are not suitable for the land terrain and the health of the plants. Subsequent years’ crops are affected badly if harvested through machines 16.

Information obtained through interviews conducted with the Secretary of Coorg Planters’ Association, Mr Sudharshan during October 2012 and January 2013. 15

16

Based on the interview with Mr Rohit who owns more than 25 hectares of land in Somwarpet region in December 2012.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Policy and Regulatory Barriers: Government policies and regulations affect the cost of cultivation, prices and farm practices of coffee. There are a few policies and regulations that affect the coffee growers. These policy and regulatory barriers include but are not limited to labour and wages, land, environmental and pollution related concerns and tax & subsidy related issues. Based on the discussion with Mr. K C Sudharshan, Secretary, Coorg Planters’ Association (CPA), some of these policy and regulations were identified. One major regulation affecting the coffee plantation is from the State Pollution Control Board, 2008 Act. Pollution control department says that the pulping activity in coffee (the process to remove the pulp to get the coffee beans) generates pollution and the pulp and pulped water cannot be put into the water stream or ground water. The planters, therefore, have to maintain a lagoon of polyethylene sheet to contain the water. The water then would evaporate naturally under the sun. A planter with more than 35 acres needs to have three such lagoons, whereas a small and tiny planter has to maintain one lagoon of specified size. However, natural evaporation of water is difficult in the absence of proper sunlight. Creating such lagoon with specified quality of polythene cost a planter about 3.5 lakhs of rupees. These further ads to the cost of cultivation, especially for planters involved in pulping activity. CPA has mooted a memorandum against this act to environment minister. Gadgil Committee Report on ecosystem vulnerability of Western Ghats suggests that coffee is a monoculture. This report if accepted in totality, all areas under coffee would be declared as monocrop and the forest area within the plantation or surrounding the plantation would be declared as buffer zone which may restrict and curtail the access of planters to forest resources. Planters’ dependency on fuel-wood from the neighbouring forest is very high. Central Income Tax Act Section 7(B) attracts tax on 60 percent income if curing of coffee is part of the estate activities. Therefore, most planters including the corporate planters have outsourced the curing activity or made curing as a separate entity to avoid this tax. This has created a concentrated separate entity of curers who now play a critical role in price determination of coffee. Similarly, the export subsidy on coffee, as we will see later, is passed on to the planters. Any change in this subsidy would also affect the farm-gate price of coffee. A coffee planter faces several uncertainties relating to production, input, price volatility or exchange rate volatility. If policies are not clear and uniform, this would add more uncertainty to the planters. In this context, minimum wages and State Pollution Control Board policies are state specific that may make the planters of the state less competitive as compared to other states. Marketing Risk: External threat with rise in competition from other players, volatile prices in a liberalised atmosphere, a buyer drivenroaster controlled supply chain, asymmetry of information between the sellers and buyers, concentration of buyers, failure of cooperatives on marketing of products, quality concerns with coffee produced by small growers are the major problems leading to risks in marketing of coffee in India. Risks from External Factors: India is ranked 7th in the production of coffee in the world producing 3,02,000 tonnes of coffee in 2011 (FAO). Brazil, Vietnam, Indonesia, Columbia, Ethiopia, Peru are some of the major coffee producing countries. India is ranked only 13th among the major exporters of coffee in the world. Brazil, Columbia and Vietnam are consistently the top performers in exports of coffee in the world. Exports of coffee from India has been highly fluctuating. Italy, Russian Federation, Germany, Belgium, Spain, Finland and Greece are some of the top destinations for Coffee Exports from India. USA, Jordhan, Slovenia, Malaysia, Spain and Turkey are gaining prominence among the export markets. (www.fao.org/statistics). There has been a downward trend in exports from India in early 2000 to that of mid 2005 with recovery in 2006 and again a downfall. India’s share in the world exports of coffee has slightly increased to 5% from 4% in the last decade. Domestic consumption of coffee now stands at 1,15,000 Mt which has steadily increased since the last decade. But this increase in the consumption of coffee has not led to transmission of higher prices to the farmers. This calls for probing the nature of supply chain of coffee marketing in India. Volatility of Price: Unlike in the past when domestic markets were protected with government regulation through Boards, the post liberalisation period since the mid nineties has experienced a high level of volatility in coffee prices. Figure 4: Trends in the International Prices of Arabica and Robusta Coffee IOC Average Indicator Price of Arabica and Robusta Coffee

US $/kg

10 5 0 1993

1995

1997

1999

2001

2003

Year

2005

2007

2009

2011 2013 Arabica (US$/kg)

Source: Coffee Board of India Statistics, 2012 Though coffee’s contribution to export earnings has reduced, it still remains a source of livelihood for lakhs of people. Looking into the trend in coffee prices (figure 4), coffee does not seem to have adhered to the theory that opening up of economy would reduce the extent of commodity price instability. Free trade economists who pose this argument believe that the removal of tariffs, quotas and other trade restrictions have reduced agricultural price instability. Table 3: Price Instability of Coffee in the Pre-reform and the post reform period Inter Year Price 1980-2010 1980-1990 1991-2010 Instability for Coffee /Year Price instability using 40.81 7.50 33.83 the nominal price

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Price instability using 40.12 8.19 30.03 266.55 the real price Note: Instability measured using Cuddy and Valle index from the price data from various commodity Boards Source: Anoopkumar, 2012, Discussion Paper No. 13, NRPPD, CDS World demand and supply scenario for coffee showed a scenario of over supply during the early 2000. The slump phase lasted for quite long. Whenever the price of green coffee goes up the production increases in the next cycle bringing back the price to previous levels. (Almeida et al 2009). Short term volatility creates a confusing picture to the farmers to take any production decisions. Period from 20002004 saw the worst of the coffee prices and it took a steady growth from 2005 -2010. Controlling the price of coffee in India is not possible as the market prices of Robusta and Arabica are determined by the commodity trade exchanges in London and New York respectively. In the pre reform period the domestic price of coffee did not show any association with the domestic or with global production. While price remained more or less stable, production has been fluctuating both at the domestic and global level. With the liberalisation of commodity markets since 1991 domestic price of coffee has responded more to global production cycles and less to domestic production cycle (Anoopkumar, 2012). The inter year price instability, however, is common to many agricultural and plantation commodities arising due to seasonality. December to March being the harvesting time for coffee, the production peaks during this period. The highest price of coffee has turned out to be quite high in the off season months of September, October, November and May though with a few years exception (Anoopkumar, 2012). This reflects that the futures trading or forward contracts have not made enough impact to the prices of coffee. It is a matter of serious concern that the average duration of the boom phase is lower than that of the slump phase. The amplitude of the cycle has widened for coffee which adds more to instability and adverse situation. Since coffee is a long duration crop which takes 4-5 years to harvest from planting the multi-year cyclical oscillations are evident which shows the production to adjust to the changed demand scenario. It is therefore, well established that volatility of price has increased in the post-liberalisation scenario. However, the farmers who were interviewed were of the opinion that though prices are not stable now in the post liberalisation period (and were more stable during Coffee Board’s monopoly period) the prices now are much higher than what Coffee Board would have offered. The private traders and agents, immediately after liberalisation offered the price at least 4 times higher than what Coffee Board payed to farmers. One farmer cites the instance of the year 1975 when farmers were offered Rs 5/kg while the price in London was 52 cents /kg. The Board however would have sold coffee at higher prices not transferring it to farmers reflecting the amount of corruption in the system. Now at least a few farmers are informed of international prices in London and New York through the advent of internet and have some scope to bargain with the local agents. Buyer Driven Supply Chain: Since coffee is largely a globally traded commodity and predominantly large players are involved in trading of this commodity, the supply chain of coffee is quite complex. The value chain of coffee is typically an example of a buyer driven chain, specifically controlled by large roasters (Ponte, 2001). This is so after the dismantling of quotas and International coffee agreement. The market is Oligopolistic on the seller side and Oligopsonistic on the buyers side. They hedge price fluctuations by trading in the futures markets (Almeidia, et, al, 2009, Upendranadh and Subbaiah, 2012). After the liberalisation in coffee marketing, eliminating the monopoly power of the Coffee Board in marketing of coffee in India, the roasters and exporters have gained tremendous control on the market. Earlier studies on coffee supply chain in India concludes that there is a lack of vertical integration between the producers and roasters/exporters (Venkatesh, 2011; Upendranadh and Subbaiah, 2012). Price Determination at Farm Gate Level: With the integration of domestic markets to international markets the farm gate prices are trickled and are set top down from the international markets to the farm gate. The prices of Robusta and Arabica coffee are dependent on London International Financial Futures and Options Exchange (LIFFE) and New York market respectively. The following flow charts provide the process of farm-gate price determination for both types of coffee. Table 4: Determination of Farm-gate price for Robusta and Arabica Coffee Price Chain Factors determining prices at different level LIFFE/NYC Price • LIFFE/NYC Price is determined by the commodity trading in that market through international buying and selling • USD 300 is added to average out different grades and quality of coffee for Arabica varieties. Exchange Rate

Export Subsidy

Handling/Transaction Costs

• Exchange rate is determined through the exchange rate market which is dependent on varieties of factors

• Government of India currently provides 5.5 percent of export subsidy on Coffee export • This subsidy amount is added to the above arrived price. In other words, the export subsidy is passed on to the producers. • Rs 4.5 per kilogram of Coffee is subtracted from the above arrive price towards the expense relating to handling charges and other transaction costs.

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Pricing of Robusta 1934$ at LIFFE per Metric ton. Add $300 to average out the quality, which is $2234 1$= Rs 54.76

Price of Arabica £150.6c at NYC. 150.6X22.0462= 3320 $. (No additional grading average out price in Arabica) 1$= Rs 54.76

Robusta per metric ton 2234X54.76= Rs 122333.84. Per kg price is Rs. 122.33 122.33+5.5% of 122.33= Rs 129.06

Arabica per metric ton 3320X54.76= Rs 181803. Per kg price is Rs 182

129.06-4.5= Rs 124.56

182-9= Rs 173 per kg ( 9 rupees as handling charge and no

No export subsidy

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) separate charge for the agent) Farm-gate Price • The price arrived at from the following iteration 124.56-4= Rs 120.56 Rs 173 per kg is the determines the farm-gate price. Agents keep a margin of per kg or farm-gate farm-gate price. Rs 4 per kilogram of coffee. price for 50 kg bag Farm-gate price for • In crux, the variability in coffee prices is dependent equivalent to 26 kg 50kg bag equivalent on 3 factors namely, the price at LIFFE, exchange rate beans is 120.56X26= Rs to 41 kg of beans is and government policy towards export subsidy 3134 per bag of 50 kg 173X41 = Rs 7093 per bag of 50 kg Source: Compiled by authors based on the interview conducted with curer and exporter, K P Exports at Kushalnagar in January 2013 Table 4 provides the details of the price chain and price determination at farm-gate for Robusta and Arabica varieties of coffee. These prices at farm-gate are influenced by the LIFFE and NYC commodity exchange market price. The commodity market price is essentially influenced by speculation relating to supply situation in major producing countries and demand situation in global market. Besides, international commodity exchange market, two other factors that influence the farm-gate price are exchange rate and government policy on export (eg. Export subsidy). In domestic market the price is determined by adding up handling charges and export subsidy based on the price at the curing level. This price again changes based on proportion of chicory mix. Chicory price is around Rs 30 per kg. What is important here is that any export subsidy/tax in coffee affects the domestic consumption price of it. In other words, domestic consumer subsidises the export price and hence export subsidy policy has a direct impact on the macroeconomic indicators of the domestic economy on the one hand and works as a support at farm-gate level on the other. Barrier to Entry and Concentration of Markets: Almost 70% of the coffee produced in India is marketed for exports (FAO, 2012). Of the 75 coffee exporters who form the top end of the value chain of coffee in India, the top 10 contribute to 75% of the total exports in quantity (Coffee Board, 2011, cited in Venkatesh, 2011). This speaks of the market concentration and oligopoly nature of the coffee sellers in India. The curers or exporters also need to grade their products if they need to cater to the international markets. Large storage of good conditions, grading facilities which require technology and investments and the already established scale of operation and networking with international markets have acted as barriers for entry to the small farmers. A large volume of coffee traded in international markets is a blend of various coffee beans from different source of origin. The sources of origin and the formula of blending are therefore established among the exporters. The roasters in importing countries have a path dependency of relying on a small number of suppliers who assure them the supply required for the blending formula. This is another major constraint for small players to enter the export segment. The other channel where coffee is sold is through ICTA auction and selling to domestic roasters. The volume of transactions in ICTA auctions has thoroughly reduced due to constrain faced with transporting of products, the tax imposed on volume of transactions and delay in settlements on payment17. The large domestic roasters are also few in numbers selling speciality coffee in the domestic segment based on their brand names. The domestic consumption of coffee is therefore largely brand driven which has prevented small players to enter the domestic segment. Information Asymmetry and Interlocked markets: The value chain analysis on coffee in India shows a price spread of 42% from the producer to the roaster (Venkatesh, 2011). The information obtained from the curers in Kushalnagar shows that the price spread currently goes to 50% between the farmer and the end retailer (Explained in Table 4). Such a spread is unlikely in many agricultural commodities. This situation has been attributed not just to the asymmetry of information between the buyers and sellers but also the interlocking of markets created with agents and farmers due to various reasons. While agents provide direct information on the production at the farm level to the curers and the exporters, the farmers lack knowledge on activities of the supply chain and are helpless about the profits reaped by the roasters and retailers. Asymmetry of information lies not just with the information on prices (which has narrowed due to spread of internet and market information) but largely on information pertaining to the complexities in the supply chain. Though the penetration of internet has led to good spread of information on the coffee prices, only a few farmers who are educated and informed update this information. The small farmers lack bargaining power and are not vertically integrated with the top end players of the supply chain. A large section of small farmers are interlocked with agents under different situations and therefore, do not dare to bargain for higher prices even if they are well informed about the prices. The poor storage capacity with the small farmers is also another factor leading to hasty selling. The level of concentration of markets on the global scenario facilitates a small number of multinational traders and roasters to dominate the supply chain and set requirements for other actors in the chain. These governance structures are often challenging who lack resources or skills to obtain and sustain the necessary certification, quality standards and skills to undertake processing to increase their bargaining power (Venkatesh, 2011). The failure of Co-operatives: It is a known fact that a co-operative system has acted in favour of farmers in case of many agricultural commodities and a solution to the anticompetitive practices of the traders can largely lie with the formation of co-operatives. Unfortunately the co-operative movement of coffee growers in India was short lived and unsuccessful. A national level co-operative by coffee growers in the name of COMARK was set up in 1992 immediately after liberalisation in coffee marketing. The organization had a membership of nearly 5500 coffee growers and had a joint share of capital from the members, government and National Co-operative Development Corporation. However, this co-operative had a very short life due to poor management and loss of confidence of farmers during low international prices. The other reasons that one can cite for the failure of this body is the fact that it had limited role to play in price control due to the small share of India in international coffee market. So when the prices are good members are happy, when the prices crash, they fail to understand the international price movements and its impact on co-operative performance. In such situation the role of co-operative is much more than selling of the produce as per international prices. There were no efforts made by the co-operative to touch the domestic segment and compete with the private players. The system was also blamed for a high level of corruption and lack of updated marketing mechanisms. There were other small co-operatives who were selling coffee in the ICTA auction but with the

17

Based on interview with coffee Board officials in Madikeri

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) decline in the volume of trading through this channel members moved out of such co-operatives rendering them inactive. According to David and Clementine (2008) the success of co-operatives in Indian context would depend on four major factors; building confidence among members, being transparent in functioning, implementing fluidity in payment, and in reaching new markets. A few large farmers while being interviewed in the field were of the opinion that the co-operatives so formed were corrupt and people lost confidence in its functioning. Also, there is no unity among the members in the community while people are self centric which led to the growth of agency network in coffee marketing. There is lack of leadership from even large farmers, which is crucial especially in the formation and nascent stage of functioning of such co-operatives. Diversification in Coffee Cultivation: Is it a Feasible Solution to Mitigate Risk? Extent of Diversification: The district of Kodagu has been known for its rich biodiversity and agro-climatic conditions. A favourable climatic condition with thick forest coverage is found suitable for cultivation of varieties of crops in the region. Though the region is known for the cultivation of coffee, the district has been known for its rich spices like cardamom, pepper, ginger, honey, forest products like cinnamon, cash crops like arecanut and horticulture products like orange, chikku and banana and also paddy. The Kodagu District Statistics of 2009-10 shows almost 35 crops being cultivated in 1,79,001 hectares of net sown area. The figure 11 below shows the percentage share of the major crops grown in the region. The Herfindhal’s index which is a measure of diversification (sum of squares of the percentage share of each crop in the gross cropped area)18 is 0.37 which is a fair amount of diversity at a macro level seen for district as a whole. Along with coffee, paddy is grown as a staple crop but is carried out largely by small farmers under rainfed conditions. Pepper, cardamom, horticulture products like oranges and ginger is intercropped with coffee. Coconut and arecanut are other crops grown in some parts of the region. Honey produced in the region has a different flavour which is obtained from both forest sources and bee culturing. Problems towards Diversification: Having seen the amount of diversification of the crops grown, we try to address the question whether diversification of crops has helped in hedging price and income risks of small farmers in the region. The observations from the field showed that at the farm level, amount of diversification has reduced though the number of crops grown in the region (in Kodagu district as a whole) crosses over 35.19 Cardamom which was largely grown in Madikeri, the central region of Kodagu has almost perished due to the Mosaic or Marble disease which had attacked more than a decade back. Spices Board or the government was not quick enough in arriving at a solution to the problem. The cultivation of cardamom now stands at only 5% of the total cultivated area in the district (Kodagu district Statistics, 2009-10). But even after the recovery from this disease the growers had not gained confidence to go in for cultivating this crop since they found it to be highly risky. The extent of diversification within coffee variety has also reduced as per the information obtained from the farmers. Arabica varieties of coffee is replaced with Robusta in every replanting since there are higher costs and risks involved in managing the Arabica plants which are more prone to disease like that of stem borer and leaf rust. Pepper is grown as an intercrop with coffee and its share stands to around 5% of the crops cultivated (Kodagu district statistics, 200910). Since the shade trees act as a base for the spread of pepper vine, majority of the farmers go in for the cultivation of pepper in the region. Quick wilt, slow wilt, leaf and spike rot are some of the major diseases which have attacked pepper cultivation in the region. Similarly, Orange, another major crop known for cultivation in the region has been reduced thoroughly with its share to just 1% in the region (Kodagu district statistics, 2009-10). The spread of fruit rot disease in the region has made the farmers to discontinue replanting of this crop. The Orange from Kodagu is known for its high citrus quality, has good domestic market and also fetches a good price as told by the farmers. However, farmers from Somwarpet region were of the opinion that the suitability of the region for orange cultivation has reduced. Ginger cultivation in the region has been on the rise. With environmental concern this is seen as a negative development. Ginger cultivation reduces the water table due to the heat generated and also a high amount of pesticides used for its cultivation. With the ban of ginger cultivation in Kerala a few years back, ginger based merchants migrated to Kodagu region and encouraged the cultivation of this crop. Attracted by its good price, many farmers are now into the cultivation of ginger ignoring its long term ill effects. Figure 5: Percentage Share of Major Crops in Kodagu District Percentage share of major crops in Kodagu District Rubber Cashewnut Banana 1% 1% 1% Arecanut Gingercoconut Orange 2% 1% 1% Pepper Maize 2% 5%

2%

Cardamom 5% Paddy 20%

coffee 59%

If the index is close to zero it indicates diversity and index close to 1 indicates concentration. Opinions formed through focus group discussions conducted in Katekeri and Gaalibeedu villages and personal interviews held with coffee board officials, large and small farmers at Madikeri and Somwarpet Talukas. 18 19

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Source: Kodagu District Statistics at a Glance: 2009-10 In addition to the yield and production related problems of the crops grown in the region, there are a few other significant barriers in increasing the amount of diversification. The cultivation of cardamom and pepper are both labour oriented. Both these crops require one or the other sets of skill with labour. Plucking of cardamom is of an intrinsic nature and is quite labour intensive. The drying of cardamom requires the hot chamber facility which is not available with small farmers. The season of harvests for those crops being spread across the year, farmers have to be labour dependent throughout. With the casualisation of labour there is no availability of labour at the disposal like what it used to be under permanent estate labour scenario. On the other hand, if only coffee is grown the large dependence of labour is only during plucking season from December to February where labour is contracted for the period. In case of commodities like pepper and coconut there is shortage of labour with skills of climbing the tree. A farmer, Mr Ganesh who is cultivating pepper in Gargandur village in Somwarpet region said he has contracted the harvest of pepper totally to agents. These agents decide on the amount based on rough estimate of yield which very often is underestimated leading to loss to the farmers. Similarly, the time for spraying the pesticides and insecticides also varies based on the requirements of different crops. This task is again labour dependent. Vanilla was once tried by many farmers when the price was very attractive. But when the price showed a declining trend, farmers stopped cultivating. This also requires a very specific skill of pollinating in a particular season. Paddy crop cultivation among small farmers is totally monsoon dependent. Paddy, also being another labour intensive cultivation quite a few farmers said that they have stopped cultivating paddy now. Some of the fields not suitable for converting to any other crop are left idle. A farmer in Katekeri village said that they used to cultivate paddy since generations through yield sharing agreement with the permanent labour (the labour cultivating paddy is entitled for half the crop harvested). But now with complete dependence on casual labour, paddy cultivation is no more viable. Yet another disincentive towards diversification of crops is from that of policies. The subsidies or support given from the Coffee Board and Spices Board lack co-ordination across the departments. Many subsidies are entitled on an acreage basis and once the farmer gets the subsidy from Coffee Board he is not entitled for certain supports from Spices Board. This makes it easy for the regulatory authorities to administer the mechanism. However, this could also work as a disincentive towards growing of multiple crops. Home stay business which is mushrooming in the estate homes of the farmers has diversified the farmers into off farm activities. Kodagu being a tourist destination and with the upcoming concept of ecotourism, farmers have tapped the potential seen in this sector. The business is highly remunerative, as home stays are priced competitively with that of hotels around the region. This has also shifted the managerial time and effort from agriculture to that of other businesses. Though this would act as an income support to the farmers in the short run, the long run sustainability of this business and its impact on ecosystem of the region through such a shift needs to be analysed. Diversification as a means to hedge Risk: An attempt is made in this section to analyse the trends in the yields and prices of coffee and related crops and examine whether diversification of crops if properly encouraged through policy intervention would help in minimising the yield and price risks, two major risks faced by especially the small farmers cultivating coffee. Table 5: Price Instability comparison of Coffee with two major intercropped commodities Commodity/Period 1980-2010 1980-1990 1991-2010 %change Coffee 40.81 7.50 33.83 351.34 Cardamom 48.80 48.70 36.70 -24.64 Black Pepper 56.59 31.01 53.74 73.30 Note: Instability measured through Cuddy Valle Index with the data from Coffee Board and Spices Board of India. Source: Anoopkumar, 2012, “Commodity Price Instability under Globalisation: A Study of India’s Plantation Crops”Discussion Paper No 13, NRPPD, CDS Trivandrum Table 5 shows the increase in the instability in the coffee prices in the last decade, while the instability in the prices of cardamom is reduced. The instability of pepper, overall seen for the decade has also increased. The instability in prices of cardamom having reduced in the post liberalisation period, the commodity which has a large potential to be intercropped with coffee, would act as a hedge to price instability. Yearly trends in the prices and yield of coffee and other related commodities grown in the region are also observed. Table 6: Trend Analysis of Prices of Coffee and Related Commodities Commodity Peaks Dips Upward Movement Coffee 1995, 2011 2001 and minor 2001-08 dip in 2009 2009-11 Cardamom 1993, 2001 1992, 1996 1998-01 2009-11 Orange 1998 Small dip in 2000 1991-2000

Downward Movement 1997-01 2008-09 1993-96 1998-00

Pepper Rice

1999 2008

2004 Small dip in 1997 and 2003

1991-99 1991-96 2005-08

1999-04 1996-97 2004-05

Ginger

1994, 1998, 2003

1996, 2002, 2005

1994-1996

Arecanut

2000

1992, 2001

1996-97 2002-03 1992-00

Banana Coconut

1998 1991, 1997

Minor dip in 2000 1995

1991-99 1995-97

1999-00 1993-95

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Not seen other than minor dips

Nature of cycle Long cycles of 5-6 years observed. No clear cycles observed. No cycle observed. Upward trend from 1991-99 Long cycles of 8 years Steady Upward trend since 1991. No cycle observed Short cycles of 2-3 years No cycle observed. Constant upward trend from 1992-2000 No cycles observed Short cycles of 2-3 years

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Natural Rubber 1996 1999 1991-96 1996-00 5-6 years cycles Compiled from FAO database: www.fao.org/statistics, for the years from 1990-2011 (data for some commodities is missing for some years) Table 7: Trend Analysis in Yields of Coffee and Related Commodities Commodity Peaks Dips Upward Movement Coffee 1989, 1994, 1996, 1984, 1990, 1998, 1998-01 2001 2009 2009-11

Cardamom

2005, 1996

1988, 1998

Orange

1989, 1993

1988, 1992, 1995, 2003

Pepper

1995, 2006

1985, 2002 2009

Rice

2011

Ginger

Downward Movement 2002-09

1986-88 1997-98 2005-08 1993-95 1997-03

2002

1982-85 1988-97 1998-05 1980-87 1995-97 1988-91 1994-99 2002-06 2009-11 No cycle seen

1992, 1996 2011

1995

1980-92

1992-95

Arecanut

1998, 2002

1984, 1999

1996-1998

1984-88 1981-91 1998-01

Banana

1988, 1999, 2008

1988

1988-99 2003-08 2004-11

1999-2003 1987-88

Cocoa

Not seen

Not seen

2000-02

1994-2000 2002-11

Coconut

1994

1986, 2004

1994-2004

Natural Rubber

2006

Minor fall in 1993 and 2007

1986-1994 2004-2011 Since 1980

1980-85 1999-02 ----

Not seen

Nature of Cycle Short cycles of 1-2 years upto 1997. From 1998, 5 year cycle observed. Falling trend from 2003-09 and a recovery from 2009-11. 5-6 years cycle. Increasing trend since 1998 2-3 years short cycles. Steady fall since 1993 5-6 years cycle. Falling trend since early 1990s. Steady growth since 1980 with a short dip in 2002. No cyclical pattern observed. 4-5 years cycle. Upward trend since 1980 with few dips. 4-5 years cycle. Has been more or less stable since 1980s with a peak in 2002. Upward trend from 1980091 and a downward trend from 1999-03. No cycles seen. Steady decline from 1994-2011 with a minor recovery in 2002. Long cycles of 7 years. . Steady upward trend. No major dips in the yield.

Compiled from FAO database: www.fao.org/statistics for the years from 1980 to 2011 The pattern in trends in the prices and yields of coffee and the related commodities, i.e., commodities intercropped or crops grown in the region is analysed in Tables 6 and 7 respectively. Comparison of trends in yields of coffee and related crops shows a good amount of dissimilarity in the yield cycles which would help in hedging the yield risk. Similarly, with respect to price trends, a long cycle of 5-6 years is observed for coffee and a longer cycle of 7-8 years for pepper and no cycle is evident for cardamom. Here again it is evident that the major crops that are grown with coffee have different price cycles with respect to the amplitude of the cycle and duration of the cycle. Diversification of commodities therefore seems to be a hedge against the yield and price risk, the two major risks that may have a bearing on the income risks of the farmers. But as observed from the field, at a farm level, the constraints towards diversification of crops are many, especially, those pertaining to scale economies and the threat of diseases with the rising cost of cultivation, threat of robbery, threat of animals, etc. Hence, a policy intervention towards this would help in a long run sustainability of coffee cultivation. The role of the Coffee Board and Spices Board should therefore, be seen in totality working with more co-ordination across the departments. However, the analysis in this study is limited to price and yield risks at a macro level and has not considered the cost of production variable. Analysing diversification at the farm level with its impact on the net income of the farmers and its role in hedging risk is called for. 3. Conclusion and Policy Implications Small holding cultivation combined with the external reliance for markets have posed coffee cultivators in India to risk at different levels. An attempt is made in this study to understand, analyze and map various risks among small coffee growers through the study conducted in Kodagu district of Karnataka. Having mapped the risks among the coffee growers and understanding the severity of the problems, it

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) calls for certain policy interventions, which if properly addressed might help in mitigating some of the risks faced by the farmers. To mention some of them, there is an urgent need to enhance the R&D efforts of Coffee and Spices Board to address on the kind of diseases that attack coffee and other crops in the region. Tie- ups with the local bodies and non-governmental organisations for such activities would be one of the effective alternatives. The area under irrigation being only 2.28 percent of net sown area calls for the extension of irrigation facilities in the region. Educating the farmers by the Boards on water harvesting, and sustainable means of irrigation would lead to efficient results. The subsidies provided by the Coffee Board and Spices Board on acreage basis needs to be worked in coordination so that the farmers avail sufficient crop specific subsidies for cultivation. Shortage of labour being the most crucial of the input problem faced by the farmers in Kodagu district an urgent need to move towards cost effective and crop specific mechanisation is essential. Educating the farmers on advantages of mechanisation and its uses should be treated as the part of extension services by the Coffee and Spices Board. Though MNREGS program has created 16.55 lakh mandays of employment in the year 2010-11, linking of MNREGS for plantation labour could provide some relief to the problem of labour shortage in the sector in the region. A relook into the Plantation Labour Act to make it advantageous to both the farmers and the labourers is called upon so that it leads to more formalisation of the labour market. To address the marketing risks, a seller driven supply chain would be useful in resisting the price related risks associated with the growers. Asymmetry of information lies not just with the information on prices but largely on information pertaining to the complexities in the supply chain. It is a known fact that a co-operative system has acted in favour of farmers in case of many agricultural commodities and a solution to the anticompetitive practices of the traders can largely lie with the formation of co-operatives. There is however, absence of leadership in the region to revolve the co-operative movement in the region. There are possible alternatives in terms of coffee marketing cooperative or local auction market that can help creating a seller led supply chain process. These alternatives however need to be analyzed to identify appropriate institutional response to price related risks. The other way to minimize risk would be to promote crop diversification by the existing Boards. From the price and yield trends of coffee and related commodities, it is visible that these commodities have different price and yield cycles, dips and peaks and therefore, would act as a hedge against price and yield risks. It is however important to promote diversification of crops at farm level. Attempts made to address crop related issues by Coffee Board, Spice board and horticulture department hardly promotes diversification. It is essential that these Boards work in tandem to promote diversification of crops in the region. This study however has the limitation of analysing diversification in a regional level. A more detailed analysis on farm level diversification with a sample survey through analysing the cost of cultivation at the farm level is called for. References Almeida, Christian, De Marchi, Mannino (2009), “How to promote Social and Economic Upgrading in the Coffee Value chain”, Coffee GVC Memo, Duke – VIU Workshop 2009. Anoopkumar, M (2012) “Commodity Price Instability under Globalisation: A Study of India’s Plantation Crops”, Discussion Paper No 13, National Research Programme on Plantation Development, CDS, Thiruvanthapuram. Coffee Board of India website, www.indiacoffee.org. David M and Clementine V, (2008), “Coffee Value Chain and Geographical Indications in India: Origin, Reputation and Marketing of Indian Coffee” published by CIRAD Food and Agricultural Organization, statistical database, various years, www.fao.org/statistics Government of Karnataka, Kodagu District Statistics at a Glance, 2009-10, Madikeri, Koadu District. Hartmann M., and Akarsha B.M. (2009), “Emerging Challenges for Farm Labour in the Indian Coffee Sector”, Humboldt-Universitätzu Berlin, Department of Agricultural Economics, Division of Development Planning and Project Management, Germany. International Coffee Organization. 2004. Lessons from the World Coffee Crisis. A Serious Problem for Sustainable Development. Available at www.ico.org Luenberger, David G (1998), Investment Science. Oxford University Press, New York Lewin, B., Giovannucci, D., Varangis, P. 2004. Coffee Markets: New Paradigms in Global Supply and Demand. World Bank: Washington DC. Markowitz, Harry M. (1952), “ Portfolio Selection”, The Journal of Finance, 12:77-91, March Mukherjee, Sanchita (2010), “Crop Diversification and Risks: An empirical analysis of Indian States”, MPRA paper accessed from http://mpra.ub.uni- muenchen.de/35947/1/MPRA_paper_35947.pdf Sharpe, W. (1970), Portfolio Theory and Capital Markets, McGraw-Hill, New York. Subervie, J. (2008), “ The Variable Response of Agricultural Supply to World Price Instability in Developing Countries”, Journal of Agricultural Economics, 59(1), 72–92. Upendranadh, (2010), Coffee Conundrum: Whither the future of Small growers in India, NRPPD Discussion Paper, September 2010. Upendranadh, C and C A Subbaiah (2012), “Small Growers and Coffee Marketing: issues and Perspectives from the field”, paper presented at the National Seminar on Building Competitiveness in Globalised World: Experience of India’s Plantation Sector, CDS Trivandrum, 23-24 Jaunary, 2012. Vyas, V.S. (1996), Diversification in Agriculture: Concept, Rationale and Approaches, Indian Journal of Agricultural Economics, 51(4): 636643. Venkatesh, Bhavya (2011), “Value Chain analysis for coffee in Karnataka”, Thesis submitted in partial fulfilment of the requirements of joint academic degree of International Master of Science of Rural Development from Ghent University, Belgium. World Bank (2010), Haiti Coffee Supply Chain: Risk Assessment, report financed by All ACP Agricultural Commodities Program, European Commission and ACP Group of States, March, 2010.

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A Conceptual Framework for Antecedents and Consequence of Organizational Learning Capability Azharuddin Hashim Universiti Sains Islam Malaysia, Malaysia [email protected] Abstract: In extension of organizational learning study, the concept of organizational learning capability had emerged which stress on the importance of the facilitating factors for organizational learning or the organizational propensity to learn. Despite its recognized importance in the literature, little research has been devoted to the research centered on the related factors that could contribute to its development. Factors such as human resource management practices and leadership are identified as the strong predictor of organizational learning. There are also little attention has been given to relate organizational learning with organizational commitment, thus more research is required to analyze the relationships between organizational learning and issues concerning employees, such as organizational commitment. Thus this paper proposed the integration of human resource management practices, servant leadership, organizational learning capability and organizational commitment in a conceptual framework for future research. Keywords: Organizational learning, organizational learning capability, human resource management practices, servant leadership, organizational commitment. 1. Introductıon In the organizational context of the new millennium, it is clear that companies need to learn, and the organization’s ability to learn is a key strategic capability to compete in modern markets (Santos-Vijande, López-Sánchez, & Trespalacios, 2012). The unpredictable competitive environment, accelerating changes in nature of work setting and fast changing of information technology have all shifted the rules of the business game. As a result, a strategic focus on learning has become a critical in helping organizations to sustain (Smith, 2012). Based on existing research, organizational learning field has aroused a great deal of interest, originating from the studies of Argyris & Schon (1978). The main objective of organizational learning is to enhance an organization's core competence and create competitive advantages for success (Chau, 2008). Despite a cumulative tradition over the years, the organizational learning literature contains very little research on its implementation into practice (Taylor, Templeton, & Baker, 2010). Because organizational learning is a multidisciplinary topic and consequently has a myriad of diverse definitions, research on getting organizational members to adopt its tenets has been scarce.Thus, to tackle the changes existing in the practices environment, organizations need to develop a series of specific capabilities and to regenerate their essential competences. From among these resources and capabilities that are specific to the firm, learning as one of the most important capabilities in the society of knowledge, stands out for its highly strategic role (Llorens Montes, Ruiz Moreno, & Garcıa Morales, 2005). In the same line, implementing this organizational learning requires a series of characteristics allowing firms to develop the learning processes and, ultimately, become intelligent organizations. Only if they increased their capacity to learn would they be able to survive and adapt to the changing environment (Santos-Vijande et al., 2012). Consequently, organizational learning capability is considered as the organizational and managerial characteristics that facilitate the organizational learning process or allowing an organization to learn, plays an essential role in this process (Chiva, Alegre, & Lapiedra, 2007). 2. Literature Revıew Organizational learning is not just the total sum of individual learning but is also the organizational capability to continuously enhance, the collective capacity to reflect, to learn how to learn, to unlearn old ways of doing things and abandon old habits (Senge, Roberts, Ross, Smith, & Kleiner, 1994). In furtherance, the concept of organizational learning capability (e.g. Dibella, Nevis, & Gould, 1996; Goh & Richards, 1997; Hult&Ferrell, 1997) seems to stress the importance of the facilitating factors for organizational learning or the organizational propensity to learn. Goh & Richards (1997) defined it as the organizational and managerial characteristics or factors that facilitate the organizational learning process or allow an organization to learn. Akgün, Keskin, Byrne, & Aren (2007) posited organizational learning capability as an ability of firms to implement the appropriate management practices, structures, and procedures that facilitate and encourage learning processes. Chau (2008) noted that the literature generally supports the use of strategic learning capability as the basis for measuring organizational learning. Such capability represents the capacity for organizational members to learn. With the challenges of the organizational learning, a capability to initiate, develop, enhance, and exploit learning in an organization is necessary (Ussahawanitchakit, 2008). Chiva et al. (2007) conceptualized organizational learning capability dimensions into five underlying dimensions, namely experimentation, risk taking, interaction with the external environment, dialogue and participative decision making. According to Chiva et al. (2007), these dimensions were considered as the most underlined facilitating factors in the literature. Now, despite its recognized importance in the literature, little research has been devoted to the re-search centered on the related factors that could contribute to its development (Rebelo & Gomes, 2011). Lähteenmäki, Toivonen, & Mattila (2001)asserted that learning itself is seen as a prerequisite for the survival of today’s organizations, and so it is quite understandable that there is a growing need to know more about the most favorable conditions for learning. According toLähteenmäki et al. (2001), filling this knowledge gap is, however, not an easy job. Lopez (2006) asserted that it would be desirable to analyze human resource strategy along with other variables such as organizational structure and leadership. Since all the organizational factors are closely interlinked, the effectiveness of human resource management practices could be determined by the existence of a global approach affecting all areas of an organization. Furthermore, the relationship between employees’ belief regarding learning benefits and employees’ commitment is as yet unclear. Chiva et al. (2007) noted that further research is needed to test the organizational learning capability in other contexts. At the employee level, more research is required to analyze the relationships between organizational learning capability and issues concerning employees, i.e. organizational commitment. Joo & Park (2010) agreed that while the possible link between organizational learning and organizational commitment has been much discussed, little research has investigated the relationship between the two constructs. It is

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) important to consider the influence of organizational learning on commitment because the process of socialization involves learning which in turn is dependent on the availability of information within an organization (Morrison, 1993). Camps & Rodríguez (2011) supported that there is a still lack of research on how it is connected to individual task performance although organizational learning capability has been connected to other individual behaviors. They believed this connection is justifiable through organizational commitment. Thus, the conceptual model proposed in this paper goes beyond examining the antecedents of organizational learning. In other words, the consequence and mediating role of organizational learning in influencing organizational commitment is another area to be investigated. The antecedents of organizational learning capability Human resource management practices: Although the developments in the field of human resource management practices are now well established in the literature, there is a need to focus on human resource management issues as firms are entering more dynamic international business markets (Lee, Ooi, Chong & Tan, 2011; Budhwar & Boyne, 2004). A review of literature on human resource management practices reveals extensive studies on organizational performance and effectiveness, but the association between human resource management practices and organizational learning has not been sufficiently covered in the literature (Kong, Chadee & Raman, 2012; Theriou & Chatzoglou, 2008). Jaw & Liu (2003) posited that as invisible assets are embodied in people, policies regarding human resource management practices and activities are critical to organizational learning. Bhatnagar & Sharma (2005); Perez Lopez, Montes Peon, & Vazquez Ordas (2005)&Jerez-Gómez, Céspedes-Lorente, & Valle-Cabrera (2005) posited that human resource practices can be a fundamental tool in developing the organization’s learning capability, which means that analyzing their possible influence opens a new field of study that has rarely been dealt with. Jerez-Gómez et al. (2005) argued that there is still debate about how managers can efficiently develop a learning capability in their firms. The learning schools tend to explain the role of human resource management practices as one concerned with the enhancement of an individual capacity to learn (Garavan, Gunnigle, & Morley, 2000). More recent, Martínez-León & Martínez-García (2011)recommended human resource management practices as a future research to link with organizational learning. Theriou&Chatzoglou (2008) pointed out that it is obvious from the literature presented, that best human resource management practices used by an organization have the potential to influence people’s attitude towards learning. Khandekar & Sharma (2005) found that the more specific human resource management practices exist in the organizations, the stronger the learning capability of the organization. Thus, organizational learning capability is strongly “bonded” on human factors which can, as already shown, be strongly shaped or manipulated by those human resource management practices that are usually described as “best human resource management practices”. Khandekar & Sharma (2005) point out if organizations are seeking competitive advantage through HR, they should design HR systems in ways that allow them to leverage and exploit knowledge-based resources and enable employees to use the knowledge for competitive edge. Thus, the discussion leads to: Proposition 1: Human resource management practices have positive association with organizational learning capability. Servant Leadership : A review of the literature on leadership reveals that there are many studies on measurement of leadership but the association of leadership and organizational learning capability has seldom been studied (Chau, 2008;Mirkamali, Thani, & Alami, 2011). Of the human resource-related aspects, this study shall concentrate on support leadership (Lloréns Montes et al., 2005).Berson, Nemanich, Waldman, Galvin, & Keller (2006);Zagoršek, Dimovski, & Škerlavaj (2009); Amy (2008)argued that leadership and organizational learning have limited systematic research directly linking leadership and learning and they remained disconnected fields. Although there is widespread presumption that leaders are the catalyst or powerful facilitators of organizational learning (Lakhani, 2003; Zagorzek, et al., 2009), there is little research focusing on the specific practices through which leaders affect organizational learning (Lahteenmaki et al., 2001). As literatures prevailed, Vera & Crossan (2004)were among the early research that systematically linked leadership and organizational learning. However, they focused mainly on leadership at the upper echelons of organizations. Extensive and large portion of leadership research state that transformational leadership seems to be strong prerequisite for organizational learning (see Vera & Crossan, 2004; Malik, Danish, & Munir, 2012; Mirkamali et al., 2011; Camps & Rodríguez, 2011; &Zagoršek et al.,2009). However, as one of the notable researcher in transformational leadership style, Bass (1999) proposed that since most organizations need to keep learning at all levels in order to adapt to their changing environments, servant leadership should be of interest for today’s organizational leaders for it enables and empowers people to learn and grow. Likewise, Senge (1990) emphasized the importance of the concept by stating that he believes the essay by Robert Greenleaf (1970), titled The Servant as Leader, as the most useful statement on leadership in the last 20 years. This claim by such an influential author begged more empirical study of the emerging theory of servant leadership (Drury, 2004). Covey (2002) believed servant leadership requires humility of character and core competency built around new skills. Covey (2002) recommended a servant leader approach view that “you don’t just serve, you do it in a way that makes them independent of you, and capable and desirous of serving other people” (p. 31). Mittal & Dorfman (2012) asserted that even though servant leadership is a relatively new construct in the leadership literature appearing in the writings of Greenleaf (1970), it has its origin far earlier, in religion and philosophy. Current models of servant leadership are anchored in the human drive to bond with others and contribute to the betterment of the society. In Islam ("the leader of a people is their servant") and other world religions have long embraced the philosophy of servant leadership. Melchar& Bosco (2010) found that one criticism of servant leadership has been its lack of sup-port from "published, well designed, empirical research". Therefore, acceptance of the theory has not been strong enough to generate widespread acceptance (Russell & Stone, 2002). Thus, the discussion leads to: Proposition 2: Servant leadership has positive association with organizational learning capability. The consequences of organizational learning capability Organizational commitment: Retaining valued and committed employee to the organization is a top priority for many contemporary organizations today (Neininger, Lehmann-Willenbrock, Kauffeld, & Henschel, 2010). Valued or top performers are not limited to higher management, but can be found at all levels of an organization. Organizational commitment is one of the main reasons for these employees to stay (Hausknecht, Rodda, & Howard, 2009). Therefore organizations necessitate to extend their learning capability and competencies to be able to learn better and faster from their successes and failures, from within and from outside such that will increase the organizational commitment (Zollo & Winter, 2002). Organizations are not disappearing; they may be becoming leaner, but they must

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) maintain a core of people who 'are' the organization. As organization becomes smaller and jobs become more flexible, those who remain in the organization become even more important. Once the "fit" is gone, the remaining employees represent the "heart, brain and muscle" of the organization (Meyer & Allen, 1997). Thus, over the recent years, many firms try to become an employer of choice, which refers to an organization that outperforms their competition in attracting, developing and retaining people with business required talent (Joo & McLean, 2006). In the era of rapid change and to keep pace with globalization, securing commitment and retaining skilled employees have become key challenges for an organization to gain competitive advantage (Joo & Park, 2010; Suman & Srivastava, 2012;Kalyar, Rafi, & Ahmad, 2012). The cost associated with losing key employees, or retaining less productive ones in depressed economic conditions, has long been recognized by organizational leaders. Thus, undesired turnover and underproductive employees have a negative impact on firm profitability (Doh, Smith, Stumpf, & Tymon, 2011). Organizational learning researchers have traditionally examined organizational commitment as a focused sub attitudinal facet where commitment is seen as a necessary pre requisite for successful change management (Massingham & Diment, 2009). This approach typically characterizes organizational commitment as buy in and attitudes are measured in terms of willingness to accept a specific change initiative. Garvin (1993) posited organizational learning as one of the key contextual components to enhance organizational commitment. Basically it refers to an organization skilled at creating, acquiring and transferring knowledge, and at modifying its behavior to reflect new knowledge and insight. More research about the impact of organizational learning on employees’ organization commitment is recommended. Many researchers linked organizational learning and organizational performance (Khandekar& Sharma, 2005; Michna, 2009), but little attention has been given to relate organizational learning with organizational commitment, thus more research is required to analyze the relationships be-tween organizational learning and issues concerning employees, such as organizational commitment (Chiva et al., 2007). Thus, the discussion leads to: Proposition 3: organizational learning capability has positive association with organizational commitment. Organizational learning capability as mediating variable: The existing management and leadership research has demonstrated the effects of human resource management practices, leadership, and organizational learning on organizational commitment separately. However, researchers have not yet measured the relationship between human resource management practices, leadership style on organizational commitment as mediated by organizational learning capability. Guchait & Cho (2010) stressed that although previous studies have suggested, e.g., human resource management practices are related to organizational commitment, some scholars have found that these relations are not necessarily direct. Meyer & Smith (2000) posited that the assumption of a direct influence of the implementation of a particular human resource management practices on employees’ organizational commitment cannot be made. Theriou&Chatzoglou (2008) added that there is still little understanding of the mechanisms through which human resource management practices influence organizational effectiveness. Therefore, the question of “how” best human resource management practices lead to organizational performance needs to be answered and the exact mechanics that play an important role must be identified. Tremblay, Cloutier, Simard, Chênevert, & Vandenberghe (2010) suggested that an exchange mechanism must intervene upstream for human resource management practices in influencing organizational commitment. Thus, the discussion leads to: Proposition 4: Organizational learning capability mediates the relationship between human resource management practices, servant leadership and organizational commitment. Based on the above statements and recognizing that only a few studies centered on its determinants have been carried out, the aim of this research is to examine the human resource management practices and servant leadership that could act as potential determining or facilitating factors of organizational learning capability. Further research is also aimed at examining organizational commitment as the consequence variable of organizational learning capability. Beside, from the preliminary review of the literature, to the extent of author’s knowledge, there appears to be no research that examined the relationship or integration among human resource management practices, servant leadership and organizational commitment, mediated by organizational learning capability in the organizational learning literature. Conceptual Framework: The significant importance of organizational learning has received significant attention among researchers and practitioners but there is a few cumulative and empirical research which leads to the development of the proposed conceptual model drawing from previous studies. Thus, based on the research gaps and argument discussed in this paper, human resource management practices (HRM) and servant leadership (SL) variables are postulated as antecedents of organizational learning capability (OLC), and the impact on organizational learning capability on the organizational commitment (OC) as in Figure 1: Figure 1.Conceptual framework HRM OLC

OC

SL 4. Conclusıon This study extracted examines the issue of organizational learning, which has the potential to impacts on employees’ organizational commitment. It is proposed that organizational learning has certain impacts on organizational commitment, which in turn will affect employees’ turnover intention. Organizational learning will help the organization to enhance employees’ learning capability and it will make the employee have a strong engagement and intention to stay, and become closely attached to the organization. Thus, employee commitment contributes to the fulfilment of overall organization performance. Previous researchers demonstrate that organizational learning is a source of competitive advantage, it offers an alternative paradigm by which systems can change, thus permitting us to redefine the economy and society. In an era of rapid changes in the business world, organizational learning will allow companies to remain flexible, adaptable and innovative, thereby gaining a lasting advantage over their competitors. In Malaysian context, this study

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) could provide initial insight into the nature of the said relationship. It could provide some guidelines for managers to understand the value of learning that could lead to implementation of more effective policies for improving employees’ commitment at work. References Akgün, A. E., Keskin, H., Byrne, J. C., & Aren, S. (2007). Emotional and learning capability and their impact on product innovativeness and firm performance. Technovation, 27(9), 501–513. Argyris, C. & Schon, D. (1978). Organizational learning: A theory of action perspective. Reading: Addison-Wesley. Amy, A. H. (2008). Leaders as facilitators of individual and organizational learning. Leadership & Organization Development Journal, 29(3), 212–234. Bass, B. M. (1999). Two Decades of Research and Development in Transformational Leadership. European Journal of Work and Organizational Psychology, 8(1), 9-32. 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Determining of Misconceptions by Means of Tree-Tire Test about the Unit Human and Environment *Erol TAŞ1, Evşen AYMEN PEKER2, Murat ÇETİNKAYA3 1OndokuzMayisUniversity, Turkey 2Institute of Education Sciences, Seyfi Demirsoy Elementary School, Turkey 3Institute of Education Sciences, Ordu University, Ünye Vocational High School, Ünye/Ordu/Turket *[email protected] Abstract: Studies carried out concerning concepts are very important especially in the topics of science and technology. In order for significant and lasting learning to take place, it is very important to identify inconsistency between pre-information and newly learnt information before students participate in formal lessons of science and technology. In addition to achievement tests misconception tests should also be carried out to identify knowledge of students in relation to concepts and their misconceptions if any. From a total of 12 questions a 3 tier test was made in order to develop an effective and reliable scale for students in primary school 7 th grade in the unit human and environment and in addition to also identify misconceptions. The answers that the students gave were saved in Ms excel program. Calculations in related categories were done using this program. At the end of the study the results obtained from the concept test were analyzed using SPSS 16 program. Cronbach alpha internal consistency coefficient was looked at to determine the reliability of the scale and the value was found as 0.662. According to the results at the end of the analysis, it was determined that students hada lot of misconceptions related to the unit Human and Environment. Key words: 3 tier test, misconceptions, science education. 1. Introduction and Literature Review When students attend the science and technology lesson they come with knowledge and concepts based on life experiences. According to research, the pre-information and concepts created outside school were found to have a big effect on learning. (Ausubel, 1968; Novak, 1998; Richardson, 2003). Concept is defined as , abstract and general design of an object or thought in the mind (TDK, 2013) and also as the name given to groups of an object, action ,event ,idea and thoughts grouped according to similarities.(Malatyalı&Yılmaz, 2010).In other words concept is, objects and thought sanimated in a person’s mind, an abstract unit of thought (Ülgen, 2001; Yağbasan&Gülçiçek, 2003). Misconception is defined as when the concept that a student creates in their mind and the scientific meaning of that concept are not in harmony.(Marioni, 1989; Stephans, 1996; Riche, 2000).Misconception is not an answer given that is mistaken or has incomplete information .One can be said to have a misconception when they have the wrong information about a concept and they are sure that the information that they have is true. To define misconceptions as wrong answers given because of insufficient information would be wrong.(Eryılmaz&Sürmeli, 2002). Teacher factor and information given in textbooks are effective in the formation of misconception. It also,the necessary concept change is not achieved is caused by the formation of misconceptions(İsen&Kavcar, 2006; Coştu, Ayas&Ünal, 2007; Aykutlu&Şen, 2012).Detection of inconsistencies in prior knowledge before joining formal science classes between the newly learned concepts is extremely important for the realization of a meaningful and permanent learning(Novak&Canas, 2008). Application of misconception tests is much better than achievement test in determination of student’s misconceptions if any, in the student’s knowledge related to concepts .Because,achievement test is based on the average(norm-referenced), whereas misconception test is based on the criteria(criterion-referenced)(Gronlund&Linn, 1990). In the multiple choice questions that prepared and used in achievement test, one answer should be right and the others misleading. The answers used to mislead are chosen according to mistakes that students make frequently.1 point is awarded for the right answer and 0 for wronganswers(Eryılmaz&Sürmeli, 2002). The first stage of misconception test requires an answer and in the second stage reasons to support that answer. A third stage can also be added to this two-tiertest and this stage is the level of which the person is sure. The answers given the achievement test do not determine whether wrong answers were as a result of insufficient knowledge or misconceptions, because of this when a student gives a wrong answer as a result of insufficient knowledge it cannot be accounted to misconception. In this respect, determining misconceptions by using achievement test is very hard. In misconception tests, a wrong answer given in the first stage justifies a misconception and if the student says that they are sure then we can determine that there is misconception. When we look at the studies carried out in the field related to determining misconceptions in the unit human and environment, it is seen that there have been researches in this field. In the study carriedoutby Mutlu and Tokan (2012) ,the student’s misconceptions related to soil pollution were determined as “oil pollution is caused by exhaust fumes”; “spitting in the environment and as a result making people ill”; “soil pollution is damaging of plants and animals”; “soil pollution, being dirty and nasty”; “soil pollution having a negative effect on food”; “disposal of food waste”; “perishing of animal habitats”; “the world staying hungry”; “soil being unproductive”; “dying of trees”; “insufficiency of farm products”; “pouring a lot of water and therefore causing mud”; “as a result of everyone treading on the soil”. Ürey, Şahin and Şahin (2011) determined that teacher’s perspective; it was a person making a sample related to environmental problems knows the following expressions “thinning of the ozone layer, ozone layer depletion”; “greenhouse effect is as a result of the ozone layer depletion.” In addition, researchers were referred to the study of Papadimitriou (2004) and Bozdoğan (2009) werefound to have the same results; the misconceptions of students in the primary school level are carried up to the university level. “Thinning of the ozone layer will result to more sunlight passing through therefore causing the earth to heat more.” This misconception was determined by studies carriedoutby Pawlowski (1996), Boyes, StanisstreetandPapantoniou (1999), Christidou (1999), Summers, Kruger, ChildsandMant (2001), ErdoğanandÖzsevgeç (2012), SelviandYıldız (2009)etc. “Melting of the glaciers on the poles as a result of global warming will only consume the animal generation living there. “This misconception was determined in studies carried out by Erdoğan and Cerrah Özsevgeç (2012). Darçın, Bozkurt, Hamalosmanoğlu and Köse (2006) has revealed that the misconceptions by students related to the concepts in the green house effect in that way. “If the increase in the greenhouse effect, global temperature will increase”; “there is no relation to poisoning of the fish in rivers and greenhouse

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) effect”; “with increase in greenhouse effect more people will be affected by skin cancer”; “if there is an increase in greenhouse effect, the icebergs in the South Pole and North Pole will melt” “Increase the amount of ozone around the world, will further increase the greenhouse effect”; “using unleaded gasoline has no effect in decreasing greenhouse effect.” The following misconceptions was determined “greenhouse effect occur as a result of a lot of sun rays coming through”;“Greenhouseeffect increases with acidrain” in Arsal’sstudy (2010) In order for effective learning of the science and technology lesson, it is important to determine and evaluate misconceptions. In determining these misconceptions, there is need for a valid and reliable method of measuring for researches carried out in this field in the future. The aim of this study is to determine misconceptions and develop a valid and reliable scale for students in the 7th grade for the misconceptions in the unit “Human and Environment”. 2. Methodology In order to determine the student’s misconceptions in the unit “Human and Environment” a 3 tier concept test was developed and applied. The research took place in the academic year 2012-2013 spring semesters. Participants in the study, a total of 182 science and technology student that 7th grade. 3-tier test that consist of 12 questions was developed with the aim of determining the student’s knowledge and misconceptions related to the concepts in the unit Human and Environment. The first tiers of this test had questions under the topics;Ecological Concepts (EC), Ecosystems (E), Biological Diversity (BD), Extinct Organisms (EO) and Environmental Problems (EP) ,12 questions suitable to the unit’s gains were prepared. The opinion of 2 teaching staff and 3 science and technology teachers was taken concerning the questions prepared. The questions in the 2ndtier were aimed at exploring the reasons as to why the students gave the answers in the first tier. The questions also contained misconceptions in the unit which had been determined before hand by a review of literature. The other choice was added as a last alternative to these questions. If the reason as to why the student had given the answer in the first stage was not available in the given alternatives a student could write their own reason by labeling this alternative.The questions in the third tier were aimed towards exploring the level of certainty for the answers given. The prepared Human and Environment Unit Misconception Test (HEUMT) was applied on 182 7th grade students. A period of 40 minutes was given for the test Eight scores—the first tiers, both tiers, total, certainty, and lack of knowledge, Misconception first tiers (M-first tiers), Misconception both tiers (M-both tiers), and Misconception all tiers (M-all tiers)—were calculated as described by Pesman and Eryilmaz (2010) and Arslan, Çakıroğlu &Moseley (2012). The first-tiers score and M-first tiers score were calculated based only on the answers to the first-tierquestions of theitems of the HEUMT. The students’ first tiers score is the sum of their correct responses to the first tiers of all items. Item difficulty, as described byCrocker&Algina (1986) and Arslan et al (2012) is the proportion of examinees who answered an item correctly. Based on this description, the proportion of students who answered only the first tier of each item correctly was calculated as the difficulty level of the first tier of each item. The mean difficulty level of the first-tier scores is the difficulty level of the one-tier test (a simple multiple-choice test). Both tiers score and M-both tiers score take into account both the first end second tiers. Students’ both tiers score is the sum of their correct responses to both the first and second tiers (correct and correct) of all items. Similar to the calculations done for the difficulty level of the one-tier test, the difficulty level of the two-tier test was calculated. The M-both tiers score is the sum of the students’ responses which are misconceptions in the first and second tiers together (misconception and misconception). Figure-1.A: Diagram of coding and scoring procedure

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Misconceptions in the second tier have to be consistent with misconceptions in the first tier of the items.∗∗Three combinations are ‘incorrect and correct’, ‘correct and incorrect’, and ‘incorrect and incorrect’ (Figure has been Arslan et al (2012)’s study). The first tier, second tier, and third tier (certainty index) of the items were taken into consideration all together to calculate total score and M-all tiers score. Total score is the sum of correct responses to both first and second tiers along with being certain (correct and correct and certain). The difficulty level of the total scores (the difficulty level of the three-tier test) was calculated in the same way as for the first-tier and both tiers scores. Lack of Knowledge score is the situation of being uncertain regardless of correct or incorrect responses to the first and/or second tiers described as by Arslan et al. (2012). The Certainty Score is related to the responses in only the third tier (that is, the certainty tier). The summation of student’s ‘Yes’ responses is his/her certainty score. The answer given by students was saved in Ms excel program and on the categories specified the calculations were made with this program. The overall response possibilities to the HEUMT (first, second, and third tiers together) bring out five categories: Scientific knowledge, Misconception, False positives/negatives, Lucky guess, and Lack of knowledge (Table 1). Table-1: All possibilities of responses First tier

Second tier

Third tier

Categories

Correct

Correct

Certain

Scientific knowledge

Correct Incorrect

Incorrect Correct

Certain Certain

Misconception (false positive) Misconception (false negative)

Incorrect

Incorrect

Certain

Misconception

Uncertain Uncertain Uncertain Uncertain

Lucky guess, lack of confidence Lack of knowledge Lack of knowledge Lack of knowledge

Correct Correct Correct Incorrect Incorrect Correct Incorrect Incorrect The table has been Arslan et al. (2012)’s study. 3. Results and Discussion

At the end of the study results obtained from the concept test were analyzed by using the SPSS 16 program. The overall descriptive statistics of the 7th class student’s total score in HEUMT have been summarized in Table 2.TheCronbachalphacoefficient of the HEUMT was 0.662, which can be considered acceptable according to criterion-referenced tests (Crocker & Algina, 1986; Kane, 1986). Table 2: Descriptive statistics of HEUMT total score Number of items

12

Number of participants

182

Mean/standarddeviation (SD)

2.45/2.16

Minimum

0

Maximum

8

Cronbachalpha

0.662

The percentages of the students’ responses are given in Table 3. The students’ overall understandings of EC, E, BD, EO and EP are very low (range 5 – 76%). These results might be related to the complex and abstract nature of these problems (Boyes & Stanisstreet, 1992; Francis, Boyes, Qualter& Stanisstreet,, 1993; Boyes, Chambers & Stanisstreet, 1995; Cordero, 2001; Daskolia, Flogaitis& Papageorgiou,2006). In contrast, their certainty scores were moderate (mean percentages of 46,25). These findings are consistent with those obtained byPallier, Wilkinson, Danthiir, Kleitman, Knezevic, Stankov, & Roberts. 2002), and Renner & Renner (2001) who revealed that self-assessment in the cognitive domain produced overconfidence. Table 3: Percentages of the students’ responses % Correct responses Content area

HEUMT item

Onlyfirst tiers

Both tiers

EC

1

33

21

15

62

45

33,00

21,00

15,00

62,00

45,00

2

37

27

10

64

33

3

69

37

29

57

57

4

57

49

40

49

75

54,33

37,67

26,33

56,67

55,00

40

25

14

70

43

Mean % EC E

Mean % E BD

5

87

two All tiers

three % Lack of % knowledge certainty

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Mean % BD

40

25

14

70

43

6

68

46

35

48

65

7

38

30

19

68

46

8

53

40

32

54

57

53,00

38,67

28,67

57,00

56,00

9

46

29

18

61

34

10

47

30

18

65

36

11

42

24

12

65

29

12

19

13

5

76

30

Mean % EP

38,50

24,00

13,25

66,75

32,25

Mean Persentages

43,77

29,27

19,45

62,48

46,25

EO

Mean % EO EP

Notes: Only first tiers shows the percentages of the students’ correct responses based on the first tier of each question. Both two tiers shows the percentages of the students’ correct responses to both the first (content) and the second (reason) tiers. All three tiers shows the percentages of students who selected the correct response for both first and second tiers and also were certain about their answers. Lack of knowledge is the percentages of students who were uncertain regardless of their responses. Certainty is the percentages of students who were certain regardless of their response to the first or second tier. The differences between the percentages of the correct answers from the first tier to all three tiers are noticeable. These differences can be attributed to lack of knowledge, lucky guess/lack of confidence, or misconceptions. Having the advantage of being a three-tier test, the HEUMT provides an opportunity for identifying the percentage of each. Figure-2.Students’ percentages of misconceptions 100 50 0 M1

M2

M3

M4

M5

M6

M7

M8

M9

M-all tiers M-both tiers M-first tiers

M10

M11

M12

M-first tiers

M1 67

M2 63

M3 31

M4 43

M5 60

M6 32

M7 62

M8 46

M9 54

M10 53

M11 58

M12 81

M-both tiers

79

73

63

51

75

54

70

60

71

70

76

87

M-all tiers

85

90

71

60

86

65

81

68

82

82

88

95

Notes: The M-first tier shows the percentages of the students who selected wrong alternatives, which include misconceptions in the first tier of each question in the HEUMT. The M-both tiers shows the percentages of the students who not only selected wrong alternatives which include misconceptions in the first tier, but also selected there as on with misconception in the second tier of each question. The M-all tiers shows the percentages of students who were also certain about their responses for the first two tiers Table 4: Percentages of the Questions on Categories Q1 Q2

Q3

Q4

Q5

Q6

Q7

Q8

Q9

Q10 Q11

Q12 mean

Scientific Knowledge

22

10

36

40

15

35

19

32

18

18

13

5

22,0

Misconception

23

23

21

35

28

30

27

24

15

18

15

28

24,0

Luckyguess, lack of confidence

6

18

9

9

12

12

11

8

11

12

13

7

10,5

Lack of knowledge

49

49

34

15

45

23

43

36

55

52

59

61

43,5

The students hold thirteen prevalent misconceptions with percentages equal to or greater than 24. These misconceptions are: 1 The sheer number of animals does not affect the size of the population.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 2 3 4 5 6 7 8 9 10 11 12 13

There are always visually larger creatures in forest ecosystem. Aquatic organisms, must take measures to reduce water loss. Biological diversity does not affect increase revalues of peoples. Biodiversity is not effective in maintaining the balance of the ecosystem. Biodiversity doesn’t effect on our health. Growing plants greenhouses in which are in danger of extinction are not effective in the protection of this species. Storage of orchid seeds in a seed bank has no effect in protecting the generation. When the amount of sunlight entering the world increases, the greenhouse effect occurs. When Industrial and house wastes mixed with water will not cause stink. The Chernobyl accident did not more affect Black Sea because there are many trees there. Greenhouse effect is as a result of accumulation of gasses that cause acid rain. Sunbeams increase with the increase in greenhouse effect.

4. Conclusion According to constructivist approach the learning information is based configuration of this information in the mind; while this is taking place the old information in the mind needs to be integrated with thenew(Glasersfeld, 1995).Science and Technology education program created under the leadership of this approach accepts the following assumptions: The learning is not a direct transfer of information; The learning is affected by prior information; Students are the center; Current concepts in mind must be reordered; Student forms a meaning to the world assimilating, organizing, or rejecting; Students' prior knowledge and concepts, are given special attention (Bodner 1986; Bodner, 1990). In this study, from a total of 12 questions a 3 tier test was made in order to develop an effective and reliable scale for students in primary school 7th grade in the unit human and environment and in addition to also identify misconceptions. Despite the 3 tier test being time consuming it can be used time and time again by people with a certain aim after it has been developed. When we look at it from this perspective it is practical. In the analysis of our research, it was determined that the students have a lot of misconceptions. The student’s misconceptions can be said to be due to the following: A part of the concepts found in the unit (acid rain, green house effect, bio-diversity etc) could be understood in a different way by the students because they are intangible. The student creates a schema in their mind. Before school starts a student acquires some of the concepts related to the environment from the environment (forest, water, living things etc).The result of this effect may be a student learning wrong things about this concepts and other related concepts.In the process of learning in the classroom, the method that the teacher uses might be incompatible with the student’s style thus resulting to the student not learning exactly. With today’s living conditions, some of the students being used to living in cities behind brick walls may cause them to lose touch with nature. For this reason students may find concepts related to the environment senseless, resulting in them not making any effort towards learning these concepts. Visual materials such as cartoons, movies and documentaries related to the environment can have an effect on students learning the concepts. They bring with them their inadequacy and misconceptions. In addition, inadequate and wrong expressions found in the reference books related to the topics can cause the student to configure the wrong concept. Using misconception test to determine the student’s knowledge and misconceptions if any is much better than using the achievement test. With the help of 2 or 3 tier tests, the student’s wrong answers as a result of insufficient knowledge cannot be evaluated as misconceptions(Şen & Aykutlu, 2008).In this context the 3 tier test can be developed and applied for all science topics and concepts. Therefore by taking into consideration the student’s pre-knowledge,a program that will contribute to correcting the wrong information can be developed. Recommendations: According to the study,  The developed misconception test is a valid and reliable measuring tool in determining the misconceptions of the 7th grade students in relation to the science and technology unit of Human and Environment.  When this characteristic of this test is taken into account, it can be used in studies including topics of Human and Environment.  In regards to determining misconceptions it can give researchers the needed feedback.  Similar studies of misconception test in other units can be realized by taking it into account  From the results from the 3 tier test, various models can be used in order to correct abstract concepts.  Concept maps can be used to show the following; a student’s thought related to a topic, concepts that they have ,the relationship established between the concepts because of this the misconceptions are determined and can therefore be corrected .In addition to this the using of tools such as structured grid, meaning analysis statement and mind map can be of assistance.  Correcting the misconceptions of the students is made easier by sharing and discussing the misconceptions that have been determined before related to the topic at hand with the students in class. References Ausubel, D. P. (1968).Educational Psychology: A Cognitive View, New York: Holt, Rinehart and Winston. Arsal, Z. (2010).The Greenhouse Effect Misconceptions of the Elementary School Teacher Candidates. Elementary Education Online, 9(1), 229-240. Arslan, H. Ö. Cigdemoglu, C. & Moseley, C (2012) A Three-Tier Diagnostic Test to Assess Pre-Service Teachers’ Misconceptions about Global Warming, Greenhouse Effect, Ozone Layer Depletion, and Acid Rain, International Journal of Science Education, 34:11, 1667-1686. Aykutlu, I. &Şen, İ. A. (2012).Determination of Secondary School Students’ Misconceptions about the Electric Current Using a Three Tier Test, Concept Maps and Analogies.Education and Science, Vol. 37, No 166. Bodner, G.M. (1986). Constructivism: A Theory of Knowledge, Journal of Chemical Education, 63 (10), 873-878. Bodner, G.M. (1990). Why Good Teaching Fails and Hard-working Students Do Not Always Succeed?,Spectrum, 28(1), 27-32. Boyes, E.&Stanisstreet, M. (1992).Students’ perceptions of global warming. International Journal of Environmental Studies, 42, 287 – 300. Boyes, E., Chambers, W., &Stanisstreet, M. (1995). Trainee primary teachers’ ideas about the ozone layer. Environmental Education Research, 1 (2), 133 – 145.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Boyes, E.,Stanisstreet, M. &Papantoniou,V.S. (1999).Theideas of Greek high school students about the ozone layer. Science Education, 83,6, 724-737. Christidou, V. &Koulaidis, V.(1996). Children’s mental models of the ozone layer and ozone depletion. Research in Science Education, 26, 421-436. Cordero, E. (2001). Misconceptions in Australian students’ understanding of ozone depletion. Melbourne Studies in Education, 41, 85 – 97. Coştu, B., Ayas, A., &Ünal, S. (2007). KavramYanılgılarınınOlasıNedenleri: KaynamaKavramı. KastamonuEğitimDergisi, 15(1), 123-136. Crocker, L.,&Algina, J. (1986).Introduction to classical and modern test theory. Orlando, FL: Holt, Rinehart and Winston. Daskolia, M., Flogaitis, E., &Papageorgiou, E. (2006).Kindergarten teachers’ conceptual frame-work on the ozone layer depletion.Exploring the associative meanings of a global environ-mental issue. Journal of Science Education and Technology, 15(2), 168 – 177. Erdoğan&CerrahÖzsevgeç (2012).KavramKarikatürlerininÖğrencilerinKavramYanılgılarınınGiderilmesiÜzerindekiEtkisi:Sera EtkisiveKüreselIsınmaÖrneği. TurkishJournal of Education, 1(2): 1-13 Eryılmaz, A. &Sürmeli, E. (2002).Üçaşamalısorularlaöğrencilerinısıvesıcaklıkkonularındakikavramyanılgılarınınölçülmesi. V. Ulusal Fen BilimleriveMatematikEğitimiKongresi, BildirilerKitabı, s,110. Francis, C.,Boyes, E., Qualter, A., &Stanisstreet, M. (1993).Ideas of elementary students about reducing the ‘Greenhouse Effect’. Science Education, 77, 375 – 392. Glasersfeld, E. V. (1995). A constructivist approach to teaching.InSteffe P. L. and Gale J. (Eds), Constructivism in education (s. 3-15). Hillsdale, NJ: Lawrence Erlbaum Associates. Gronlund, N.E. &Linn, R.L. (1990).Measurementand Evaluation in Teaching, 6th ed., New York: Mac Millian Publishing. İsen, İ.A &Kavcar, N. (2006). Ortaöğretim Fizik Dersi “Yeryüzünde Hareket” Ünitesindeki Kavram Yanılgılarının Belirlenmesi ve Ünitenin Öğretim Programının Geliştirilmesi Üzerine Bir Çalışma. Dokuz Eylül Üniversitesi Buca Eğitim Fakültesi Dergisi, 20, 84-90. Kane, M.T. (1986). The role of reliability in criterion-referenced tests. Journal of Educational Measurement, 23(3), 221 – 224 Karataş, Ö. F., Köse, S. & Coştu, B. (2003). Öğrenci yanılgılarını ve anlama düzeylerini belirlemede kullanılan iki aşamalı testler. Pamukkale Üniversitesi Eğitim Fakültesi Dergisi Yıl:2003 (1) Sayı:13 Kılıç, D. & Sağlam, N. (2009). Development of a Two-Tier Diagnostic Test to Determine Students’ Understanding of Concepts in Genetics. Eurasian Journal of Educational Research, Issue 36, 227-244. Malatyalı, E. & Yılmaz, K. (2010). The importance of concepts in the constructivist learning process: an Examination of concepts from pedagogical angle, The Journal of International Social Research, 3:14, 320-332 Marioni, C. (1989). Aspects of student's understanding in classroom settings: Case studies on motion and inertia. Physics Education. 24, 273 - 277 Mutlu, M. & Tokcan, H. (2012). İlköğretim 7. Sınıf öğrencilerinin toprak kirliliği hakkindaki düşünceleri, International Journal of SocialScienceResearch, 1(1): 65-75 Novak, J. D. (1998). Learning, Creatingand Using Knowledge: Concept Maps as Facilitative Tools in Schools and Corporations, Mahwah, NJ: Lawrence Erlbaum. Novak, J. D. &Canas, A. J. (2008). The Theory Underlying Concept Maps and How to Construct and Use Them. Technical Report IHMC Cmap Tools 2006-01, Rev 01-2008. Florida: Institute for Human and Machine Cognition. Retrieved from, http://cmap.ihmc.us/Publications/ResearchPapers/TheoryUnderlyingConceptMaps.pdf Pallier, G., Wilkinson, R., Danthiir, V., Kleitman, S., Knezevic, G., Stankov, L.& Roberts, R.D. (2002). The role of individual differences in the accuracy of confidence judgments. The Journal of General Psychology, 129 (3), 257 – 299. Pawlowski, A. (1996). Perception of environmental problems by young people in Poland. Environmental Education Research, 2,3, 279285. Pesman, H.&Eryilmaz, A. (2010). Development of a three-tier test to assess misconceptions about simple electric circuits. The Journal of Educational Research, 103, 208 – 222 Renner, C. H.& Renner, M.J. (2001). But I thought I knew that: Using confidence estimation as a debasing technique to improve classroom performance. Applied Cognitive Psychology, 15, 23 – 32. Richardson, V. (2003). Constructivist Pedagogy, Teachers College Record, Y.105, S.9, s.1623-1640. Riche, R. D. (2000). Strategies for Assisting Students Overcome Their Misconceptions in High School Physics. Memorial University of New found land Education 6390 Selvi, M. & Yıldız, K. (2009). Biyoloji öğretmeni adaylarının sera etkisi ile ilgili algılamaları. Türk Eğitim Bilimleri Dergisi, 7,4, 813-852. Stephans, J. (1996). Targeting Students' Science Misconceptions: Physical Science Concepts Using the Conceptual Change Model. Riverview, Fla.: Idea Factory Summers, M., Kruger, C., Childs, A. &Mant, J. (2001). Understanding the science of environmental issues: development of a subject knowledge guide for primary teacher education. International Journal of Science Education, 23, 1, 33-53. Şen, A.İ.& Aykutlu, I.(2008). Using concept maps as an alternative evaluation tool for students’ conceptions of electric current. Eurasian Journal of Educational Research, 31,75-92. TDK,(2013). http://www.tdk.gov.tr/index.php?option=com_gts&arama=gts&guid=TDK.GTS.526c34ce861941.46257464 Ülgen, G. (2001). Kavram Geliştirme, Ankara: Pegem A Yayıncılık. Ürey, M., Şahin, B. & Şahin, F. (2011). Öğretmen Adaylarının Temel Ekoloji Kavramları ve Çevre Sorunları Konusundaki Yanılgıları, Ege Eğitim Dergisi, 12 (1): 22-51 Yağbasan, R. &Gülçiçek, Ç. (2003). Fen öğretiminde kavram yanılgılarının karakteristiklerinin tanımlanması. 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An Examination of the Causal Relationship between Budget Deficit and Inflation: A Case Study of Lao PDR Phouthanouphet Saysombath, Phouphet Kyophilavong National University of Laos , Lao PDR [email protected] Abstract: In this study we try to attempt investigating the dynamic relation between budget deficit and the inflation in the Lao PDR. Using annual data for the period 1980-2010, we apply ARDL cointegration method in conjunction with the structural VAR (SVAR) analysis to provide evidence for both the long and short run dynamics between the variables. We find that there is no long-run relation between the budget deficit and the inflation in Laos. In addition, we also find that there is Granger causality between the budget deficit and the inflation in Laos. The impulse response results in the SVAR model indicate that the budget deficit does not cause inflation but the inflation does cause the budget deficit. Keywords: Budget deficit and inflation; Cointegration; ARDL Bounds Testing; SVAR model 1. Introduction Are government budget deficits inflationary? In the monetary framework, deficits tend to be inflationary. This tendency is because when monetization takes place, it leads to an increase in the money supply and an increase in the rate of inflation in the long run (Gupta, 1992).The argument is that the monetization of deficits is the fundamental reason for the high inflation problems in developing countries. However, these studies are full of contradictions. The empirical evidence on government deficits is inconclusive because of the inconsistency of the theoretical framework and the data sets. In particular, the evidence is quite limited for developing countries. The Lao PDR has faced a consistent budget imbalance for three decades. Arguably, these budget imbalances might have played an important role in explaining price fluctuations. During the 1980s and 90s, the critical task faced by the Central Bank of Lao PDR was to control inflation at the targeted level and also to ensure macroeconomic stability. The rate of inflation rose from 6 percent in 1987 to 25 percent in 1988 and 60 percent in 1989. The government has pursued cautious fiscal and monetary policies since the 60 percent inflation of 1989 by trimming the overall budget deficit from over 16 percent of GDP in 1989 to under 10 percent in the 1992/93 fiscal year. Roughly onethird of this reduction was accomplished by improving revenue collection and by reducing expenditures by two-thirds. In the late 1990s, the inflation rate moderately topped out at above 20%. The average inflation for the 2000s was around10 percent. The year-on-year inflation rose and stood at 18 percent in 2003 due in part to increased government borrowing to finance a widening budget deficit. The inflation rate then declined to below 5 percent in late 2010.In addition, the government revenues are largely dependent on natural resources. The fiscal revenues from this sector went from 3 percent in 2001 to around 18 percent of total revenues in 2008. The contribution of the mining and energy sectors to the GDP in particular went from approximately 2.5 percent before 1997 to 12 percent in 2008. Thus, the natural resources contributed more than one-fifth of the total economic growth over that period. The government deficit is financed mostly through its revenue and international development assistance (World Bank 2012). Since 1990, the money supply has grown rapidly while there was a structural shift in the demand for credit and money balances. The broad money supply expanded by 49 percent in 1992, 65 percent in 1993, and approached 78 percent in the late 1990s. During the 2000s, the money supply declined but remained relatively high compared to other small economies. The major objective of this paper is to examine the long-run relation between the budget deficit and the inflation trend in Lao PDR. In order to examine the long-run relation between the two variables, we apply the ARDL bounds testing approach to cointegration the VAR Granger causality, as well as the structural VAR framework (SVAR). This study uses annual time-series data from the World Development Indicator (WDI) that covers the period of 1980 to 2010.This study contributes to the literature in the following ways. First, the study is a pioneering effort because it investigates the causality between the budget and inflation in the Lao PDR. Second, we use the ARDL bounds testing approach to cointegration that was developed by Pesaran, Shin and Smith (2001). And third, we use the VAR and the SVAR that was used by Narayan, Narayan and Prasad (2008). This paper is organized as follows: Section 2 discusses the literature and evidence from the empirical findings. Section 3 provides the modeling and empirical strategy. Section 4 provides the empirical results and the last section concludes the paper. 2. Literature Review Keynesian Economic Theory says that an increase in the budget deficit causes an increase in the real interest rate that results in the crowding out of private investment and a high prices overall. When monetary deficits are financed, the financing means that there is an excess demand in the economy, which creates inflation. According to a study by Sergent and Wallace (1981), the governments that run persistent deficits have to sooner or later finance those deficits with increasing money creation that produces inflation in the long run. Generally, the two main alternatives at a government’s disposal to cover their budget deficits (namely monetary and nonmonetary financing) have a different impact on inflation. Because monetary financing supposes the creation of new money in order to finance budget deficits, it generally has a greater probability of incurring an inflationary increase in prices that depends directly on the destination of the resources collected by governments. If these resources are used to finance investment projects, which induce a raising output, then the original increase in the money supply correlates with an equivalent rise in the quantity of goods and services available for transactions. In other words, the supply on the real market and the increase in the level of prices does not become permanent. On the other hand, if the additional resources are used to finance final consumption expenses, which does not induce subsequent growth in GDP, the increase in the price level becomes long standing, and the monetary financing of the budget deficit is inflationary. A number of studies support this hypothesis. Darrat (2000) provides empirical results that show the significant impact of the budget deficits on inflation. Cevdet, Alpher and Ozmucur (2001) find a positive relation between the budget deficit and inflation. According to their study, financing the deficit through money printing and internal and/or external borrowing lead to inflation in the long run. Solomon and De Wet (2004)use annual data from Tanzania during 1967 to 2001 and find that there is a stable long-run relation between the budget deficit and inflation. A study by Catao and Terrones (2003) shows that the relation between the budget deficit and inflation is significant

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) and positive. Chaudhary and Ahmed (1995) show that the domestic financing of the budget deficits, particularly from the banking system, leads to inflation in the long run. Khan, Bukhari and Ahmed (2007) are of the view that the financing of the budget deficit through money creation adds to the inflationary pressure. The second solution for financing the budget deficit implies public loans made by governments in order to make up for supplementary expenditures not covered by current revenues. As a result, the public loan does not lead to the unjustified increase in the amount of financial signs that are in circulation, and it does not generally have an inflationary character. The only case where the involvement of money issuing, with all its negative effects, might become possible is when the indebtedness of the government is accepted as a viable solution in the context of covering the cash deficits of the treasury by loans from the central bank. Thus, if the government meets with financial difficulties; then in order to incur expenditures, it can resort to the central bank that is required to lend it some money to temporarily cover the deficit of the public treasury in exchange for issuing some treasury bills. If the government does not succeed in cashing in current revenues to pay back this loan, then the money stock might unjustifiably increase. Several empirical studies have some success in establishing a statistically significant connection between inflation and the budget deficit. King and Plosser (1985) did a comprehensive study on the United States and 12 other countries but found no general and significant relation between budget deficits and inflation. Astudy by De Haan, and Zelhorest (1990)findsthat inflation is weakly related to budget deficits except during very high inflation periods. Dornbusch, Sturzenegger and Wolf (1990) also find a negative relation between inflation and the budget deficit. Hondroyiannis and Papapetrou (1997) provide the result that there is no empirical relation between budget deficits and inflation. There are other less referred to channels that can be identified. One is the wealth effect, also called the demand-side effect. Patinkin (1965) stated that the rise in the real value of the stock of bonds increases the perceived private wealth and therefore spending, which leads to inflation. There could also be a supply-side effect through the cost of factors. Wray (1997) shows that a deficit caused by an increase in certain public expenditures might augment the demand for scarce resources that increases their cost. These two effects might be regarded as the ‘non-monetization effects’ of deficits. The wealth effect was denied by Barro’s Ricardian Equivalence Proposition. Barro (1979) focuses on the positive relation between the expected inflation and budget deficits. Higher inflation expectations imply higher real interest rates and therefore higher debt-service costs. Kwon, McFarlane and Robinson (2006) find comprehensive evidence that an increase in public debt (part of external debt) leads to inflation in highly indebted countries but this pattern holds less strongly in advanced economies. In addition, Hondroyiannis and Papapetrou (1994) provide bidirectional causality between the two variables by finding long-run and short-run bidirectional Granger causality from the budget deficits to the real exchange rates, and from the real exchange rates to the inflation rates. Persson et al. (1998) propose a different view of the connection between inflation and deficits. In general, inflation tends to increase real, effective tax rates while eroding the real value of money transfers, for example, because of an imperfect indexation of the tax and transfer systems. Analyzing Sweden in 1994, they conclude that the fiscal gains from inflation might be quite substantial. According to this view, causality can run both ways because higher inflation tends to reduce budget deficits, irrespective of the underlying source of the inflation. This effect contradicts the more conventional Tanzi (or Olivera-Tanzi) effect of the nominal characteristics of the tax system according to which higher inflation reduces the real government revenues due to lags in tax collection. This Tanzi effect has certainly become less significant with the modernization of the tax collection system. This brief review of the ﬁndings shows that the evidence is mixed. The variety of results arises due to the different data sets, alternative econometric methods, and different characteristics of the countries. Despite the fact that the examination of the budget imbalance and inflation is important to evaluate how the financing of the budget deficit affects inflation, empirical research on this issue in the Lao PDR does not exist, which the authors are aware of. Modeling and empirical strategy: Following the literature, the dynamic relation between the government budget deficit and the inflation rate is investigated. The relation is specified as follows: Ln BDt = α1 + α2lnINFt + μt (1) and Ln INFt = β1 + β2lnBDt + μt. (2) The BD and INF denote the government budget deficit and inflation rate respectively. The μ is an error term. We expect that α 2 and β2 >0. The government budget deficit is defined as the ratio of the budget deficit to the GDP and inflation rate of Lao PDR. To examine the longrun relation between the two variables, we use the ARDL bounds testing approach to cointegration. This approach is sequentially developed by Pesaran and Pesaran (1997), Pesaran and Shin (1999), and Pesaran et al. (2001). There are a number of comparative advantages to the ARDL method that makes it more useful than others. First, with a small sample size, as is the case with ours, this method is more efficient than other techniques. Second, the ARDL bounds testing is flexible regarding the integrating order of the variables whether the variables are found to be stationary at I(1) or I(0). A dynamic unrestricted error model (UECM) can be derived from the ARDL bound testing through a basic linear transformation. The UECM integrates the short-run dynamics with the long-run equilibrium without losing any information in the long run. The empirical formula of the ARDL bounds testing approach to cointegration is given below: ΔlnBDt = c1 + π1 lnBDt-1 + π2 lnINFt-1 + (4) iΔlnBDt-i + iΔlnINFt-i + u1t and ΔlnINFt = c2 + π1 lnINFt-1 + π2 lnBDt-1+ (5) iΔlnINFt-i + iΔlnBDt-i + u2t Where Δ is the first difference logarithm operator.Thec1and c2are constants, and π1 and π2 are the coefficients on the lagged level dependent and independent variables respectively. The I and ɸi are the coefficients on the lagged dependent and independent variables respectively. The u1t and u2t are the error terms. And the P signifies the maximum lag length, which is decided by the user. The procedure forthe ARDL bounds testing approach has two steps. The first step uses a F-test for the joint significance of the laggedlevel variables. The null hypothesis of the nonexistence of a long-run relation is Ho : 1 =  2 =0 against (Ha: 1 ≠  2 ). Pesaran et al. (2001) generate lower and upper critical bounds for the F-test where the lower bound critical values assume all variables are I(0),and

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) the upper bound critical values assume all variables are I(1). If the calculated F-statistic exceeds the upper critical bound, then the null hypothesis of no cointegration between the variables is rejected. If the calculated F-statistic falls below the lower bound, then the null hypothesis of no long-run relation is accepted.1 Further, we use the VAR and SVAR approaches to analyze the dynamic of the relation between the BD and INF. The SVAR is used to see the sensitivity of the results of the VAR model. The SVAR is superior to the VAR in the sense that the reduced form of the VAR does not consider the structural relation among the variables unless some identification restrictions are assumed. In this sense, the SVAR analysis is an attempt to solve the traditional identification problem. Therefore, the SVAR can be used to predict the effects of the specific policy actions or of important changes in the economy (Narayan et al. 2008). We define a vector of variables in the SVAR as follows: xt = [BDt , INFt]’ (6) The infinite order vector moving average (VMA) is represented as follows: xt = C(L) ξt (7) where L is a lag operator,  is a difference operator, and ξt = [ξa,t , ξb,t] is a (2 x 1) vector for the covariance matrix of the structure shocks ∑. The error term can be interpreted as the relative budget-deficit shocks and the real exchange-rate shocks respectively. We assume that the structural shocks have no contemporaneous correlation or autocorrelation. This assumption implies that ∑ is a lower diagonal matrix. Next, we estimate the following finite-order VAR model: [I – Ψ(L)]xt = ut (8) where Ψ(L) is a finite-order matrix polynomial in the lag operator, and ut is a vector of disturbance. If the stationary condition is satisfied, then we can transfer equation (8) to the VMA form: xt = A(L) ut (9) where A(L) is a lag polynomial. Equations (7) and (9) imply a linear relation between ξt and ut as follows: ut= C0ξt (10) In equation (10), C0 is a 2 x 2 matrix that defines the contemporaneous structural relation between the variables. Additionally, we have to identify for the vector of the structure shocks so that it can be recovered from the estimated disturbance vector. We require four parameters to convert the residual from the estimated VAR into the original shocks that drive the behavior of the endogenous variables. The long run of equation (8) can be written as follows:

 BDt  C11(1) C12 (1)  1,t       INFt  C211 C22 (1)  2,t 

(11)

where C(1) = C0 + C1 + C2 + … 0 is the long-run multiplier in the SVAR model ( long-run effect of xt ). We also work with a lower triangular matrix. In the next step, we construct a SVAR and plot the impulse response functions (IRFs) of the variables in the model. The lag length to be incorporated in the analysis of the SVAR model is determined with an Akaike Information Criteria (AIC) because of its better performance in small samples (Liew, 2004). 4. Empirical Results We apply the ARDL to find the long-run link between the budget deficit and the inflation rate in the Lao PDR. To ensure that the variables are not stationary at I(2),we use the Perronunit-root test (Perron, 1989) and the Z-A unit-root tests (Zivot and Andrews, 1992). The unitroot test shows that the BD and the INF are stationary in their different forms with the intercept. This finding implies that our variables have an order of integration that is I(0). Table 1: Results of the Unit-root test Perron unit root test Z-A unit root test A - Intercept A - Intercept t-stat break t-stat -5.3213** -6.0493* lnBD 2008 (0) (0) -7.3363* -4.1829 lnINF 1997 (1) (1) -9.3621* -8.3003* dlnBD 1995 (0) (0) -5.2249*** -5.1519** dlnINF 1997 (1) (1) Note: *, ** & *** indicates the significance at the 1%, 5% & 10 respectively

break 2008 2004 1995 2000

We select the optimal lag length by using the Schwarz Bayesian Criterion (SBC). The result indicates that one is the optimal lag order.2 To account for a relatively small sample size, we produce new critical values (CVs) for the F-test computed by stochastic simulations with 20,000 replications. Table 2 reports the computed F-statistic for cointegration. When the dependent variable is lnBDt, then the calculated F-statistic (F(lnBDt/ lnINFt) = 3.0468) is smaller than the lower critical bound at the 10 percent significance level. Further, when the dependent variable is lnINFt, then the calculated F-statistic (F(lnINFt/lnBDt=0.46395) is smaller than the lower critical bound at the 10 percent significance level. These results suggest that no cointegration exists between the budget deficit and the inflation rate in Laos.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Table 2: Results of ARDL Cointegration Test Variable lnBDt

lnINFt

F-statistics 3.0468 Cittical values 5% level Lower bounds 5.6863 Upper bounds 6.6111 Diagnostic tests Adj-R2 0 .36065 Durbin-Watson 2.1690 Note: *, ** and *** show the significance at 1%, 5% and 10% level respectively.

0.46395 10% level 4.5106 5.2841 0.39671 1.4067

In order to obtain better results, we analyze the VAR-based Granger causality test and report the results in Table 3. Table 3 shows that inflation does cause the budget deficit; but, surprisingly, the budget deficit does not cause inflation. Table 3: VAR Engle-Granger causality analysis VAR Granger Causality/Block Exogeneity Wald Test Sample:1980 :2010 Dependent variable: LBD Dependent variable: LINF Excluded Chi-sq Prob Excluded Chi-sq LINF 7.57376 0.0059 LBD 0.130459 All 7.57376 0.0059 All 0.130459 Note: *, ** and *** show the significance at 1%, 5% and 10% level respectively.

Prob 0.7179 0.7179

Further, to analyze the accumulated dynamic among these variables, we calculate the IRFs with 10,000 Monte Carlo simulation standard errors following Benkwitz, Lütkepohl, and Wolters (2001). Their study suggests that for a small sample, the properties of the bootstrap confidence intervals are better in comparison with other asymptotic methods. Figure 1 shows the impulse response function (IRF) of the SVAR. Figure 1. IRFs in SVAR model Response to Cholesky One S.D. Innovations ± 2 S.E. Res pons e of LBD to LBD

Res pons e of LBD to LCPI

.20

.20

.15

.15

.10

.10

.05

.05

.00

.00

-.05

-.05

-.10

-.10 1

2

3

4

5

6

7

8

9

10

1

2

Res pons e of LCPI to LBD

3

4

5

6

7

8

9

10

9

10

Res pons e of LCPI to LCPI

.3

.3

.2

.2

.1

.1

.0

.0

-.1

-.1

-.2

-.2 1

2

3

4

5

6

7

8

9

10

1

2

3

4

5

6

7

8

Note that LCPI here is LINF. Figure 1 shows that the accumulated response of the BD to one SD shock in the BD itself is positive and negative only in year 2, whereas the response of the BD to one SD shock in the INF is negative. The accumulated response of the INF to one SD shock in the INF itself is positive, whereas the response of the INF to one SD shock in the BD is negative. The results of the FEVDs (forecast error variance decompositions) of the SVAR model are presented in Appendix 1. 3. Conclusion This study examines the inter relationship between a government budget balance and the inflation rate by using the ARDL bounds testing approach and the Granger causality in a SVAR framework by using annual data from 1980 to 2010. This approach is well suited to predict the effects of specific policy actions or important changes in the economy. The results disclose that there is no long-run relation between the budget deficit and the inflation rate. The Granger causality test shows that inflation causes the budget deficit; but, surprisingly, the budget deficit does not cause inflation. However, the impulse response results in the SVAR model indicate that the budget deficit has a negative impact over the inflation rate. This impact means that the budget deficit does not cause inflation. However, inflation causes the budget deficit in a negative direction. Nevertheless, the study finds that the budget deficit has not directly caused an increasing inflation rate in Laos. However, if the resources resulting from the additional money issued to cover the budget deficit are used to finance investment projects, then the increase induces raising output. But the ensuing increase in the level of prices does not

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) become permanent; and, therefore, the government enjoys an additional resource from the growth. The government also benefits because the fiscal gains from inflation tends to increase the real, effective tax rates that in turn tend to reduce budget deficits. Note 1:If the calculated F-statistics falls between the lower and upper bounds, it is inclusive. The significance and negative lagged errorcorrection term have been used for the investigation of cointegration (Kremers et al., 1992). Note 2:We also set the maximum lag order up to five due to the small sample size. The results are available by request. Appendix I. Variance decomposition in SVAR Variance Decomposition of LBD: Period S.E. LBD LINF 1 2 3 4 5 6 7 8 9 10

0.125603 0.126102 0.126958 0.128276 0.129816 0.13134 0.132719 0.133904 0.134889 0.135693

100 99.55593 98.2289 96.46034 94.667 93.06042 91.70997 90.61258 89.73677 89.04441

0 0.444069 1.771101 3.53966 5.332995 6.93958 8.290028 9.387425 10.26323 10.95559

Variance Decomposition of LINF: Period S.E. LBD

LINF

1 2 3 4 5 6 7 8 9 10

99.98407 99.4462 93.22128 87.91758 84.32062 81.89654 80.23036 79.06027 78.22249 77.61262

0.064209 0.119469 0.171961 0.217513 0.254749 0.284403 0.307724 0.325956 0.340175 0.351257

0.015928 0.553798 6.778716 12.08242 15.67938 18.10346 19.76964 20.93973 21.77751 22.38738

References Barro, R. (1979) On the determination of public debt, Journal of Political Economy, 87(5), 940-971. Catao, L. and E.M. Terrones (2003). Fiscal Deficits and Inflation. IMF Working Paper WP/03/65.washington, D.C. Cevdet, A. , E.C. Alper, and S. Ozmucur (2001). Budget Deficit, Inflation and Debt Sustainability: Evidence from Turkey (1970-2001). Mimo. Istanbul: Bogazici University. Chaudhary, M.A and N. Ahmed, (1995). Money Supply, Deficit and Inflation in Pakistan. Pakistan Development Review, 34 (4), 945-956. Darrat, A.F. (2000). Are Budget Deficits Inflationary? A Reconsideration of the Evidence. Applied Economics Letters, 7, 633-636. De Hann, J., and Zelhorst, D., (1990). The Impact of Government Deficits and Money Growth in Developing Countries. Journal of International Money and Finance, 9, 455- 69. Dorndusch, R., Sturzenegger, F., and Wolf H., (1990). Extreme Inflation: Dynamics and Stabilization, Brookings Papers on Economic Activity: 2, Brookings Institute, 1- 84. Gupta, K.L. (1992). Budget Deficits and Economic Activity in Asia, London and New York: Routledge. Hondroyiannis, G. and Papapetrou, E. (1994). Cointegration, Causality and the Government Budget-Inflation Relationship in Greece. Applied Economics Letters, 1, 204-206. Hondroyiannis, G. and Papapetrou, E. (1997). Are Budget Deficits Inflationary? A Cointegration Approach. Applied Economics Letters, 4, 493-496. Khan, Bukhari and Ahmed (2007). Determinants of Recent Inflation in Pakistan. Pakistan Development Review, 34 (4), 945-956. King, R., and Plosser, C., (1985). Money, Deficits, and Inflation. Carnegie Rochester Conference Series on Public Policy, 22, 147-195. Kremers, J.J.M., Ericsson, N.R., Dolado, J.J., (1992), The Power of Cointegration Tests. Oxford Bulletin of Economics and Statistics, 54(3), 325-348. Kwon, McFarlane and Robinson. (2006). Public Debt, Money Supply and Inflation: A Cross Country Study and its Application to Jamaica. IMF Working Paper WP/06/121. Liew, K.S. (2004).Which leg length selection criteria should we employ? Economics Bulletin 3: 1-9. Narayan, P., S. Narayan, and A.Prsad. (2008). A structural VAR analysis of electricity consumption and real GDP: evidence from G7 countries. Energy Policy 36: 2765-9. Patinkin, D., (1965). Money, Interest and Prices: An Integration of Monetary and Value Theory, Harper & Row (1st edition 1955). Perron, P., (1989). The great crash, the oil price shock and the unit root hypothesis. Econometrica, Vol. 57, 1361-1401. Pesaran, M.H., Pesaran, B., (1997), Working with Microfit 4.0: Interactive Econometric Analysis. Oxford University Press, Oxford, 1-505. Pesaran, M.H., Shin, Y., (1999), An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In: Strom S., Ed., Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge, 371-413. Pesaran, M.H., Shin, Y., Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level Relations. Journal of Applied Econometrics, 16, 289-326. Persson, M., Persson, T. and Svensson, L. (1998). Debt, cash flow and inflation incentives: a Swedish example, in G. Calvo and M. King (eds.), The Debt Burden and its Consequences for Monetary Policy, MacMillan Press, 28-62. Solomon, M and W.A De Wet (2004), The Effect of a Budget Deficit on Inflation: The Case of Tanzania. Department of Economics, University of Pretoria. SAJEMS NS 7 (1), 100-116. Sergent, T.J and N. Wallace (1981). Some Unpleasant Monetarist Arithmetic. FRBM Quarterly Review, 5 (3), 291-307. World Bank (2012). Lao PRD Economic Monitor: Tightening Demand to Maintain Macroeconomic Balance. World Bank, Vientiane. Wray, L., (1997). Deficits, inflation and monetary policy, Journal of Post Keynesian Economics, 19(4), 543-571. Zivot, E., Andrews, K., (1992). Further evidence on the great crash, the oil price shock, and the unit root hypothesis. Journal of Business Economic Statistics, 10, 251-257.

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Investigating the Relationship between Assets and Stock Returns of Listed Companies in the Food Industry of Tehran Stock Exchange Market *AlirezaFazlzadeh1, Abbas Talebbeydokhti2 College of Economics, Management and Business, University of Tabriz, Iran Gachsaran Branch, Islamic Azad University, Gachsaran, Iran *[email protected] Abstract: The main purpose of the present study is to investigate the relationship between asset components and stock returns of the listed companies in the food industry of Tehran stock exchange market. The statistical population of the study consists of the companies that were operating continuously in stock markets for a period of seven years between 2006 and 2012. Financial statements of the companies and their accompanied notes were available at the website of Research Development and Islamic Studies Administration of Tehran Stock Exchange. Stock Exchange Databases (TadbirPardaz and Rah AvarNovin Software) have also been used for data collection. The under study population consisted of 20 operating companies in Food Industry. Multiple regression and panel data techniques were performed to test the hypotheses. The results of the study reveal that the direct relationship only exists between other assets and stock return, i.e. the more the assets increase, the more the stock returns will be. Multiple regression method was used in other tests, and an inverse relationship was found between total assets and the stock return in this industry. Keywords: Current Assets, Fixed Assets, Monetary Assets, Financial Assets, Stock Return, Tehran Stock Exchange 1. Introduction Investors, as financial suppliers of economic units, have different motives for investing which include enjoying the advantages of profits and cash benefits and the ownership of these units. On the other hand, the economy needs financial resources for various reasons. However, the most important issue for the investors and specific units is to increase stakeholders' assets (RahnamayRudPoshti, 2008). The investors pay a great attention to the factor of return in the process of decision making about investing. They invest with the aim of profit making and evaluate their investing before they do anything and if they anticipate making a good profit, they put their decisions into action. Nowadays, the issue of important factors that have influence on the returns is considered as an important subject in the process of financial decision making. This is due to the fact that all of capital market interventionists are facing with the questions, the answers of which require obtaining more related information. Thus, increased amount of information increases the problems and complexities of decision making and resolving these issues necessitates applying various techniques. Probably, the relationship of the asset components with the combination and different other componentsis one of the most significant aspects which can influence the return rate of the companies. So, the relationship between asset components and stock return of the company is the issue that the present study is mainly concerned with .This study aims to answer the question of whether the relationship of asset components can be related to stock return of the company or not. Thus, using the results of the present study, the investors can make more appropriate decisions. 2. Literature Review Bakhshi (2005) studies the relationship between company's size (the amount of assets) and the returns and risks of the listed companies in Metal and Nonmetal Industry of Tehran Stock Exchange. The results of his study show that there is not a meaningful relationship between asset amount and returns, and risk in the whole Metal and Nonmetal Industry; however, a meaningful relationship exists between asset amounts and returns in Nonmetal Industry. Cooper et al. (2009) studied the effect of asset growth on stock returns in US Stock Market between 1968 and 2006. They considered a large sample in US Stock Market. They concluded that, there exists a strong negative relationship between the increase of the whole asset and its return. In average, the companies with lower asset increase had 20% more additional annual returns than the companies with higher of asset increase. They also found that, the effect of asset increase is more considerable than a set of other ordinary effects in the stock market. Lipson et al. (2009) in a study named ' What Explains the Asset Growth Effect in Stock Returns?', came to the conclusion that the rate of asset growth compared with other elements that have effect on stock returns, can better interpret and explain the returns. 3. Methodology The methodology of the present study is descriptive-analytic. This study is quantitative empirical and the analysis of the relation among the variables is comparative. In a comparative analysis, in addition to descriptively studying the collected information, the information has also been compared to each other. The variables of the present study are as follows: a) Independent variables: current assets, fixed assets, other assets, monetary assets, financial assets. b) Dependent variables: variations of stock returns. The population of the present study consists of all listed companies in Tehran Stock Exchange, which were continuously operating during 2006-2012 and had permanent participations then and are in accordance with the following conditions: 1. They have been listed in the stock market since 2006. 2. The end of their financial year is March 20th( the end of Iranian calendar year). 3. They do not have financial period change. 4. They do not have any reported losses in their financial statements. 5. The required information is available through the present sources (Stock Database). Thus, 20 companies in Food Industry had the aforementioned conditions during the studied period and were selected as the population sample of the study. The required data and information of the present study have been collected in two ways: first, some of the

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) information related to the theoretical discussion of the present study were gathered from the library resources; then the required data and information for the analysis of data relationship were mainly obtained from Rah AvardNovin Database and the official website of Securities and Exchange Organization of Iran. The information about monetary asset and financial asset of each sample companies during the period of the study (2006-2012) that was not available in Rah AvardNovinDatabase, was manually collected from the official website of Securities and Exchange Organization of Iran, and the balance sheets and the notes of financial statements were used. Then the data were transferred to Excel Software and were summarized there and after performing the needed calculations, we prepared the aforementioned information for data analysis. Final analysis was done using Eviews Statistical Software through Data Panel technique. Statistical model of research hypothesis: Multiple Regression model is used to study the relationship between the assets and the stock return in an integrated analysis. (2-3)

y  c  a1 xi t  a2 xi t  a3 xi t  a4 xi t  a5 xi t  ui

Where

x1

is the current asset, cˆ is the intercept,

x2 is the fixed asset,

x3 is the other asset, x4 is the monetary asset, : x5 is the financial asset and yis the stock return. 4. Results Table1. Shows the choice between the integrated model and the fixed effects model in the main hypothesis in the level of food industry. Table1: The choice between the fixed and random effects model for the main hypothesis in food industry Effect test

Statistics

Degree of freedom

Level of significance

Cross-section Chi-square

10.197516

1

0.0014

Table2. shows the results of evaluatingthe main hypothesis in food industry. Table2: Multiple regression analysis between the total asset and stock return Dependant variable: stock return p-value t-statictics Coefficient 0.0000 4.975037 60.52862 0.0029 -3.085897 -4.81E-05 1.871544 Watson Camera 0.084342 0.100759 Probe(F-statistic) 1.637099

Variable C intercept Total asset Adjusted coefficient of determination F-statistic

Table3. shows the choice between the integrated model and the fixed effects model in the secondary hypothesis in the food industry. Table3: The choice between the fixed and random effects model for the secondary hypothesis in food industry Effect test Statistics Degree of freedom Level of significance 0.495226 (11,65) 0.0066 Cross-section F Cross-section random

5.720041

5

0.3344

Table4. shows the results of the secondary hypothesis in food industry. Table4. Multiple regression analysis between the research variables and stock return Dependant variable: stock return p-value T-statistic 0.0009 3.450410 0.7073 -0.376883 0.2024 -1.285934 0.0241 2.302171 0.3343 0.971717 0.8991 0.127225 1.963865 Watson Camera 0.049157 Prob(F-statistic)

coefficient 23.34919 -1.56E-05 -3.30E-05 0.000593 6.31E-05 3.36E-06 0.059462 2.344882

Variable C intercept Current asset Fixed asset Other assets Monetary asset Financial asset Adjusted coefficient of determination F-statistic

Findings of the main hypothesis: Given to obtained results in table 1, and taking into account the results of fixed effects and Pooled method test, the null hypothesis is rejected and the appropriate selected model of the study is the model of the fixed effects (verification of the null hypothesis would indicate the choice of pooled method and rejecting the null hypothesis would imply the choice of the fixed effects method). By taking into consideration table 2. In testing the main hypothesis, the multiple regression equation for explaining the relationship between the total assets as the independent variable and the stock return as the dependent variable, is as follows: re  60.52862  4.81  051 u i The above equation shows that there is a meaningful relationship between the companies' total assets in food industry and stock returns; and this verifies the hypothesis and indicates the existing inverse relationship between these two variables. In other words, as the total asset increases, the stock return decreases considerably .

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Findings of the secondary hypothesis of the research: Given to obtained results in table3, and by paying attention to the results of fixed effects and Pooled method test, the null hypothesis is rejected and the appropriate selected model of the study is, the random model( verification of the null hypothesis would indicate the choice of pooled method and rejecting the null hypothesis would imply the choice of the fixed effects method). Hausman Test was used to make a choice between the fixed effects test and the random model. The introduced model is carried out using the generalized least squares random method of panel method. In testing the secondary hypothesis with regard to table 4, the multiple regression equation for explaining the relationship between the asset components (the current asset, fixed asset, other assets, monetary asset, financial asset) as the independent variable, and stock return as the dependent variable is as follows: re  23 / 34919 1/ 56E  05 X 1  3 / 30E  05 X 2  0 / 0005933  6 / 31E  05 X 4  3 / 36E  065  ui

The results obtained from investigating Hypothesis 1: By testing the relationship between the companies' current assets in food industry and stock return, no significant relationship was found between the two variables and this hypothesis was rejected. The results obtained from investigating Hypothesis 2: By testing the relationship between the companies' fixed assets in food industry and stock return, no significant relationship was found between the two variables and this hypothesis was rejected. The results obtained from investigating Hypothesis 3: By testing the relationship between the companies' other assets in Automotive Industry and stock return, a significant relationship was found between the two variables and this hypothesis was not rejected. This shows that there exists a positive relationship between other assets and stock return. In other words, the stock return increases with the increase of other assets. The results obtained from investigating Hypothesis 4: By testing the relationship between the companies' monetary assets in food industry and stock return, no significant relationship was found between the two variables and this hypothesis was rejected The results obtained from investigating Hypothesis 5: By testing the relationship between the companies' fixed assets in food industry and stock return, no significant relationship was found between the two variables and this hypothesis was rejected. 5. Discussion and conclusion The results obtained from testing the research hypothesis indicate that there is a meaningful relationship between the rate of the stock return and the total asset of the studied companies in food industry. This relationship is also meaningful between the asset components and the stock return of the studied companies. This means that, using the studied assets can be useful for anticipating the stock return. The results obtained from testing the hypotheses in the level of Food Industry, made it clear that the only meaningful relationship exists between the other assets and the stock return, and this indicates a direct relationship. It was also shown that the total assets and the stock return have an inverse relationship. These findings show the significance of the assets in Securities and Exchange Organizations, and it seems that any kinds of the appropriate information in this field can be useful in companies' executives and the investors' decision making for investing and obtaining more returns in stock market . Implication of the Study 1. Regarding the fact that the present study found a relationship between asset and stock returns, more attention should be paid to asset variations (current, fixed, other, monetary, and financial) in decision making. 2. Given the fact that the relationship between total assets and stock return is an inverse one, it can be concluded that, the factor of assets should be dealt with, more carefully for the purpose of investing. 3. Owing to the fact that other assets have the most effective direct and positive relationship on the stock returns in Food Industry, it is suggested that the executives of these companies pay more attention to the variations of their companies' assets. References Abu Nuri, E. Qasemi, A. (2008).Investigate the Causal Relationship between Interest Rates and Economic Growth Using Panel Data. The Article Database of the Conferences of Ferdousi University of Mashhad, pp1-13. Administration Office of Stock Publishers.(2009). AnnouncementoftheSecurities and Exchange, Tehran Securities and Exchange Organization, //www.irbourse.com/seo.aspx:http. Azar, A. Momeni, M. (2008).Statictics and Its Application in Management, Vol 2.SAMT Publications. Bakhshi, H. (2004). The Investigation of the Relationship between the Amount of Assets and Risk and Stock Return, M.A. Thesis.Tehran, Islamic Azad University, Science and Research Branch. Cooper, Michael J, Gulen, Huseyin, Schill, Michael J. (2009). The Asset Growth Effect in Stock Returns, http://www.ssrn.com. Cooper, M., H.Gulen, and M. Schill.(2008). Asset Growth and the Cross Section of Stock Returns, Journal of finance 68, 1609-1651. Cochrane, J. (1991). Production Based Asset Pricing and the Link between Stock Returns and Economic Fluctuations, Journal of finance46, 209-237. D.E.Ficher 8 R.J.irdan.(1995). Security Analysis and Portfolio Management. Gojerati, D. (1992).Principles ofEconometrics.Abrishami, H. Tehran, Tehran University, Vol 2. J.J.Hampton.(1990). Financial Decision Making Prentice Hall. Lipson, M.L., S. Mortal, and M. Schill.(2009). What Explains the Asset Growth Effect in Stock Returns? Evidence of Costly Arbitrage, Working paper, university of Virginia. Namazi, M. Rostami, N. (2006). The Relationship between Financial Ratios and Stock Returns of Listed companies in Tehran Stock Exchange.Accounting and Auditing Review, no 34. Research Development Islamic Studies.(2009). Corporations' Reports.TehranSecurities and Exchange Organization.http:/ www./rids.ir/CMP

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Does ASEAN-Korea FTA Reduce Poverty in Laos? The Roles of FDI and Trade Facilitation 1Jeong-Soo

OH, 2Phouphet KYOPHILAVONG University of Laos 1Kunming University of Science and Technology.Lao PDR 2Faculty of Economics and Business Management,National University of Laos, Lao PDR [email protected] 1National

Abstract: The objective of this paper is to attempt to quantify the impact of the ASEAN-Korea Free Trade Agreement (AKFTA) on the roles of Foreign Direct Investment (FDI) and the improvement of trade facilitation for the national economy and poverty. The study uses a standard Global Trade Analysis Project (GTAP) model for this analysis. The simulation results show that with consideration to the flow of FDI and the improvement in trade facilitation. Laos has gained significantly from AKFTA. The real GDP, welfare, and household income have increased as well as improvement in Laos’ trade terms and balance. In addition, the income of unskilled labor that affects the poverty level has also increased significantly. Therefore, AKFTA has increased growth and also improved income distribution in Laos. Keywords: ASEAN-Korea FTA (AKFTA), Poverty, Income Distribution, CGE model 1. Introduction The Government of Laos has designated trade facilitation as one of the most important keys to economic growth and the reduction of poverty (GOL, 2011). Laos joined the Association of Southeast Asia Nations (ASEAN) in 1997 and the ASEAN Free Trade Area (AFTA) in 1998. The ASEAN-Korea Free Trade Agreement (AKFTA) negotiations were launched in 2004, the agreement was officially signed in 2006, and the agreement came into force for Laos in 2008. According to the free trade agreement, Laos must reduce its tariffs. By doing so, the government expects to gain key benefits such as an increase in exports and increased foreign direct investment (FDI). With reduced tariffs, the price of imported goods reduces and therefore imports increase, which has had an impact on the Lao economy and its income distribution. Laos has achieved economic growth of around 7% during the past two decades, and poverty has dropped significantly. However, poverty is still high, and inequality has increased (National Statistic Bureau, 2008). Therefore, an understanding of how trade facilitation impacts a less developed country like Laos is important because it is a small, fast growing economy with a high level of poverty. Laos is a land locked country but has rich natural resources and labor. However, business climate is poor, and there is undiversified FDI. Trade facilitation is an important factor that can promote FDI and trade facilitation to reduce the cost of trade. A number of interrelated factors determine whether trade facilitation has positive or negative effects on poverty. One effect involves the impact of trade facilitation on household income and takes place in the factor market. Another dimension affects the pattern of household expenditures, which take place in the commodity market. The specific effects of trade facilitation vary from country to country, and so the exact impact of trade facilitation on poverty and income distribution in the context of Laos is not clear. To the best of our knowledge, there is no study on the impact of AKFTA on the Lao economy and its income distribution that uses the Computable General Equilibrium (CGE) approach. This study’s main objective is to attempt to quantify the impact of AKFTA on the national economy and its poverty by using the standard GTAP model by studying the roles of FDI and trade facilitation, which differs from other studies. Lao economy, trade, and poverty: Since introducing the New Economic Mechanism (NEM) in 1986, Laos has been transitioning from a centrally planned economy to a more market-oriented economy. As a result, except during the Asian financial crisis of the 1990s, Laos achieved high economic growth, as shown in table 1.20 Table 1: Macroeconomic development in Laos, 1990-2011 Macroeconomic indicator 2006-2011 2001-2005 1996-2000 1990-1995 GDP (current million US$) 5,739 2,130 1,617 1,276 GDP growth (%) 8.02 6.24 6.17 6.28 GDP per capita (constant 2000 US$) 509 371 302 243 GDP per capita growth (%) 6.43 4.58 4.00 3.44 Inflation, CPI (%) 5.42 10.31 57.00 15.27 Trade balance (million US$) -320 -228 -276 -174 Trade balance/GDP (%) -5.41 -10.43 -17.03 -13.02 Budget deficit(including grants, million US$) -136 -87 -79 -107 Budget deficit/GDP (%) -2.53 -4.13 -4.87 -7.95 Exchange rate (kip per US$) 8,885 10,164 4,094 727 Sources: The World Bank’s online database ‘World Development Indicators.’, and the Asian Development Bank’s online database ‘Key indicators for Asia and the Pacific 2012’ Even though Laos has maintained high economic growth, low inflation and a stable exchange rate; serious macroeconomic challenges remain. First, Laos has faced chronic twin deficits in government and its trade balances. Second, there is a huge gap between savings and investment. Third, Laos has also faced a high external debt burden. Fourth, the Lao economy depends highly on resource sectors (Kyophilavong and Toyoda, 2008). The trade trends indicate that Laos has faced a chronic trade deficit since introducing the New Economic Mechanism (NEM) in 1986, although the situation has recently changed. Laos imports various goods from other countries from light and heavy manufacturing goods to processed food, textiles, and clothing. Its imports from Thailand account for 60% of all of its 20

The engines of growth during this period were the FDI inflows into the mining and hydroelectricity sectors and the resulting mining production and exports. More detail see Kyophilavong and Toyoda (2008)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) imported goods in 2008 (table 2; 3). Laos’ main export commodities in 2004 were textiles and clothing, light manufacturing, and mining production. However, the export structure of the country has since changed. Heavy manufacturing held the highest share of exports in 2008, higher than textiles, clothing, and mining (table 4; 5). The main export destinations were Thailand, the European Union, East Asia, and Vietnam. This distribution shows that Lao trade was highly dependent upon Asian countries, especially its neighbors. Because the tariff rates for Laos and its trading partners were already low, Laos might not have gained much from the affects of AFTA through tariff cuts. Table 2: Imports by commodity (%) Grains and crops Livestock and meat products Mining and extraction Processed food Textiles and clothing Light manufactring Heavy manufacturing Utilities and construction Transport and communication Other services Total

2004

2008

1.74 0.25 2.70 15.03 10.19 18.44 46.58 0.53 0.82 3.72 100.00

1.48 0.26 1.28 10.12 6.44 26.77 49.13 2.46 1.08 0.97 100.00

Sources: GTAP data base 7 and 8. Table 3: Imports by country of origin (%) Australia, New Zealand Cambodia East Asia European Union 25 Indonesia Latin America Malaysia Middle East and North Africa North America Philippines Rest of Southeast Asia Singapore South Asia Sub-saharan Africa Thailand Vietnam Rest of the world Total

2004 1.87 0.06 11.91 13.54 0.20 0.26 0.29 0.95 2.66 0.03 0.01 5.10 0.44 1.43 53.67 5.70 1.85 100.00

2008 1.20 0.00 17.64 6.50 0.24 0.10 0.62 0.10 1.49 0.03 0.01 0.44 0.27 0.22 66.06 4.16 0.91 100.00

Sources: GTAP data base 7 and 8. Table 4.Exports by commodity (%) Grains and crops Livestock and meat products Mining and extraction Processed food Textiles and clothing Light manufacturing Heavy manufacturing Utilities and construction Transport and communication Other services Total

2004 5.62 0.90 9.00 1.56 27.26 21.20 4.91 1.11 12.76 15.67 100.00

2008 4.36 0.46 10.07 1.05 12.74 9.73 42.87 2.72 9.90 6.11 100.00

Sources: GTAP data base 7 and 8. Table 5. Exports by country (%)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Australia, New Zealand Cambodia East Asia European Union 25 Indonesia Latin America Malaysia Middle East and North Africa North America Philippines Rest of Southeast Asia Singapore South Asia Sub-sahara Africa Thailand Vietnam Rest of the world Total

2004 0.64 0.05 7.11 46.29 0.14 0.97 0.16 2.34 11.16 0.05 0.00 0.53 0.39 0.55 15.79 10.63 3.20 100.00

2008 0.78 0.01 15.75 24.65 0.38 1.01 2.49 0.50 7.67 0.07 0.01 0.50 0.78 0.93 27.87 13.31 4.06 100.00

Sources: GTAP data base 7 and 8. An analysis of three Lao Expenditure and Consumption Surveys (LECS) from the World Bank (WB) and Department of Statistic (DOS) (2009) shows that the incidence of poverty has fallen since LECS 1, though it fell slowly during 1997 to 1998. The incidence of poverty fell from 46% in LECS 1 to 39% in LECS 2, and from 33.5% in LECS 3 to 28% in LECS 4 (table 6). Inequality has also changed since LECS; it has increased between LECS 1 and LECS 2, but declined by LECS 3. Table 6. Poverty and inequality in Laos LECS 1 1992/93 46

LECS 2 1997/98 39.1

LECS 3 2002/03 33.5

LECS 4 2007/08 28

Urban Rural

27

22

20

17

- with road - without road Sources: WB and DOS (2009).

43 61

32 51

31 46

30 43

Poverty in Laos Lao PDR

2. Literature Review The conceptual framework behind the link between trade policy and poverty was first developed by Winters (2000). The impact of trade on poverty is a complex and multidimensional phenomenon. The evidence on trade facilitation and poverty falls under four headings: macroeconomic aspects (growth and fluctuations), households and markets, wages and employment, and government revenue and spending. (Winters et al., 2004). The results of experienced trade facilitation are mixed. There are both positive and negative impacts in the studies on the accession of trade facilitation. Some scholars find a positive impact on trade facilitation, for example, from the regional agreement (the East Asian FTA) that yielded higher economic welfare gains and a greater economic impact (Kitwiwattanachai et al., 2009). An FTA within ASEAN tends to reduce the returns to labor of the developed non member countries and narrow the income gap between ASEAN members (Ariyasajjakorn et al., 2009). Fukase and Martin (1999) argue that the AFTA effects for Vietnam were small. The AFTA was a more efficient allocation of resources among Vietnam’s industries. It benefits were moving the agriculture sector to labor-intensive manufacturing that increased the welfare (income) and was economically beneficial. Adams and Park (1995) indicate that ASEAN was better off with AFTA because the trade volume within ASEAN grew, and the positive effects increase. Park, Park and Estrada (2012) find that AKFTA has created welfare and output gains in most of the member countries because of positive net trade creation and net welfare effects. Kawai and Wignaraja (2008) find that AKFTA has generated positive income effects for Korea and other ASEAN countries. Based on the deviations in equivalent variations, the highest gains accrued to Vietnam, Korea, and Thailand while the lowest gains accrued to Less Developed Countries (LDCs). On the other hand, some scholars find a negative impact from AFTA. Panagariya (1993) declares that AFTA was a “wrong turn.” He gives several reasons for this wrong turn. First, ASEAN had small internal markets, thereby limiting the potential for internal market expansion. Second, the region had low levels of intra-regional trade. Finally, the larger countries had higher levels of protection, and he suggests that they were offering little in the way of product facilitation in the first few years. An advanced country gains more than a low income country. Adam and Park (1995) argue that the FTA is an additional burden on the government’s budget and trade accounts those results in inflation. Ando and Urata (2006) find that individual ASEAN countries, in particular Thailand and Singapore, have benefitted from AKFTA. They show that the impacts of the FTA on individual countries are mixed and that the impact highly depends on the characteristics of FTA and the country’s economic structure. But there is very little research on trade facilitation and poverty topic that uses quantitative methods on Laos. Kyophilavong (2004) find that the AFTA increases real consumption and investment that increases the GDP, but the increase is small. Kyophilavong, Takamatsu, and Ko (2010) find that the benefits from WTO accession are quite small. To the best of our knowledge, there is no study on the effects of AKFTA on Lao economy. Foreign Direct Investment plays important roles in economic development. According to the empirical studies, trade facilitation promotes FDI in many countries. Francois and McDonald (1996) explore the linkage between trade policy and investment in a GTAP Model. They examine the linkages between trade facilitation and multiliteral investment emphasize the effects related to investment and the accululation of capital. When policy shocks are capital friendly, investment is greater than the current savings rate. Brown and Stern (2000) find that the welfare effects of services facilitation is quite large, and the imporvement in the scale of production contributes to the welfare gain for capital importing countries. By contrast, the welfare effects for countries that experience capital outflow are generally negative. In addition, the improvement in trade facilitation

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) also reduces the cost of trade (Stone and Strutt, 2009; Minor and Tsigas, 2008). The empirical studies show that trade facilitation can be improved through the improvement of rules, regulations, and the implementation of agreement on cross-broder trade. 3. Methodology and scenarios We use the GTAP model to evaluate the impact of the AKFTA on the Lao economy. The GTAP model, a multi-region CGE model, is one of the most popular models for analyzing the impact of trade policy. There are various advantages to the GTAP model. First, since it is a multi-regional model of world production and trade, it can take into account the overall trade implications of the AKFTA’s impact as well as third party countries. Second, in contains a database for different sectors and thus can explore the trade implications for various sectors of interest (Hertel, 1997). The GTAP model assumes perfectly competitive markets, in which the zero profit condition holds and in which all of the markets are cleared. The regional household allocates expenditures across three categories: private household, government, and savings. It derives income from the “sale” of primary factors to the producers that combine them with domestically produced and imported intermediate composites to produce final goods. These final goods are in turn sold both domestically to private households and the government and are exported to the rest of the world. Both the government and the private households also import consumer goods from the rest of the world. A global bank intermediates between global savings and regional investments by assembling a portfolio of regional investment goods and selling the shares in this portfolio to regional households to meet their savings demands. Further, a global transport sector assembles regional exports of trade, transport, and insurance services and produces composite goods used to move merchandise among regions (Hertel, 1997). The flowchart of the GTAP model and the production structure in the GTAP model are illustrated in Figure 1.

Figure 1: Production structure (GTAP model)

Source: Hertel (1997) This study uses the newest version of the GTAP database. Version 8 reflects the world economy in 2012. The database is formatted as an input-output structure within each country with bilateral international trade values. The GTAP 8 database includes Laos’ input-output table, which might provide significant contributions to empirical studies of this issue. To facilitate our analysis, we have aggregated all of the sectors into 57 sectors and 12 regions. (Kyophilavong, 2012). In order to analyze the effects of AKFTA on the Lao Economy and its income distribution, we use the following simulations: Simulation scenario 1- reducing tariff: This simulation shows the impact of AKFTA on the Lao economy through reduced tariff rates. We assume that the Common Effective Preferential Tariff (CEPT) Scheme for the AKFTA will reduce to 0% in 2015.21 Simulation scenario 2- Improve trade facilitation: This simulation considers the improvement of trade facilitation through AKFTA by trade facilitation and in time costs reducing overall trade costs. This approach is followed by Hertel, Walmsley, and Itakura (2001), Minor and Tsigas (2008), and Stone and Strutt (2009). We assume a reduction in costs of 25% in the Lao economy. 22 Simulation scenario 3- Increasing FDI: Through AKFTA, we assume that Laos will gain FDI from Korea and other countries. Trade facilitation could promote FDI (Brown and Stern (2000), Binh and Haughton (2002), and Okamoto (1994)). By improving institutions and thus the climate for doing business, AKFTA might result in increased FDI for Laos. We assume that the FDI inflow will increase by about 25%.23 Simulation scenario 4- Effect of AKFTA: We combine the three simulation scenarios together to show the impact of AKFTA on the Lao economy and its poverty. 4. Results The result of the tariff eliminations between Laos (with ASEAN) and Korea on selected macroeconomic variables is shown in table 7. These eliminations have positive impacts on GDP and welfare, but the impacts are relatively small. The real GDP increases about 0.17%, and welfare increases about USD 12 million from the baseline of 2008. The terms of trade improve with AKFTA. However, the trade deficits increase. Laos faces a trade deficit of about USD 37 million per year with AKFTA. There are positive and negative impacts from AKFTA on output in Laos. The positive sectors are light and heavy manufacturing (table 8). The top positive sector is motor vehicles and parts, which is Korea’s major industrial product. On the other hand, some sectors lose with AKFTA (table 9). The agricultural sectors in particular seem to suffer negative impacts from AKFTA. The impact of AKFTA on returns to factors of production is shown in table 10. 21

We do not consider the effects from the service sector. We will shock ams(i,r,s) 10% for reducing cost by25% (From Laos to ASEAN countries and from ASEAN countries to Laos) 23 We will shock qo("Capital", REG) is the variable for capital endowment and it is set as exogenous under the standard GTAP model. 22

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Following the literature, we assume that the changes in the income returns of unskilled labor relates to a change in poverty because most of the poor in Laos are unskilled labor. AKFTA increases the returns to land (3.42%), unskilled labor (2.35%), skilled labor (2.47%), and capital (2.28%). Clearly, AKFTA is good for poverty in the case of Laos. However, a deeper analysis on the impact of AKFTA on poverty needs to be considered. Table 7: Macroeconomic results on AKFTA Macroeconomic variables

Tariff cut

Trade facilitation

FDI

Simulation

(1)

(2)

(3)

0.05

3.28

10.58

13.9

13.73

240.68

286.1

540.87 24.17

Real GDP (%) Welfare(equivalent variation) ($US million) Household income (%)

AKFTA Effects (1)+(2)+(3)

0.9

14.39

8.88

Terms of Trade (%)

0.67

6.00

-3.79

2.88

Trade balance ($US million)

-6.95

-66.78

127.15

53.41

Source: Authors’ simulations Table 8: Top 10 sectors for positive impact of output from AKFTA No 1 2 3 4 5 6 7 8 9 10

Sector

AKFTA Effect(%)

Metals Machinery and equipment Electricity Chemicals, rubber, plastic products Ferrous metals Water Motor vehicles and parts Water transport Trade Dwellings

77.17 54.71 42.31 40.3 30.97 29.3 29.06 21 20.23 18.33

Source: Authors’ simulations Table 9: Top 10 sectors for negative impact of output from AKFTA No 1 2 3 4 5 6 7 8 9 10

Sector Sugar Leather products Crops Textiles Vegetable oils and fats Dairy products Cereal, grains Wearing apparel Oil seeds Gas

AKFTA Effect(%) -53.39 -35.5 -31.37 -23.26 -18.41 -16.39 -8.22 -8.18 -7.62 -1.44

Source: Authors’ simulations Table 10: Change in returns to factor of production Factor of production Simulation

Tariff cut (1)

Trade facilitation (2)

FDI (3)

AKFTA Effects (1)+(2)+(3)

Returns to land

1.36

18.7

12.24

32.31

Returns to un-skilled labor

0.96

13.73

7.63

21.36

Returns to skilled labor

1.12

13.72

6.58

21.43

Returns to capital Source: Authors' simulations.

1.03

12.77

-17.84

-3.09

5. Conclusion The main objective of this study is to investigate the impact of the ASEAN-Korea FTA (AKFTA) on the national economy and poverty in Laos. We use the Global Trade Analysis Project (GTAP) model. There are four simulation scenarios in our study. Our simulation results show that the increase in FDI and the improvement of trade facilitation from AKFTA allows Laos to gain significantly from AKFTA. The return for unskilled labor (poverty) also increases significantly. In conclusion, AKFTA has a positive impact on the macroeconomic variables: real GDP, welfare, household income, and trade terms and balance. By tariff cut alone, AKFTA could not bring more benefits to Laos without the improvement in the business climate through attracting more FDI and improving trade facilitation. Therefore, policymakers should consider improving the business climate by attracting more FDI. In addition, because Laos is a landlocked country with poor infrastructure and trade facilitation, one of the most important factors is to improve these two factors to promote exports to enhance economic development. References Adam, F. G., Park, I. (1995). Measuring the Impact of AFTA: An Application of a Linked CGE System, Jouranl of Policy Modeling 17(4): 325365

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Ando, M., Urata, S. (2006). The Impact of East Asia FTA: A CGE Simulation Study, Paper presented at the JSPS (Kyoto University)-NRCT (Thammasat University) Core University Program Conference, Emerging developments in East Asia FTA/EPAs, Doshisha University, 27-28 October Ariyasajjakorn, D., Gander, J. P., Ratanakomut, S., Reynolds, S. E. (2009). ASEAN FTA, distribution of income, and globalization, Journal of Asian Economics 20: 327-335 Binh, N. N., Haughton, J. (2002). Trade liberalization and foreign direct investment in Vietnam, ASEAN Economic Bulletin, 19(3) Brown, D. K., Stern, R. M. (2000). Measurement and Modeling of the Economic Effects of Trade and Investment Barriers in Servies, Research Seminar in International Economics, School of Public Policy, The University of Michigan, Ann Arbor, Michigan 48109-1220, Discussion Paper No.453. Francois, J., McDonald, B. (1996). Liberalization and Capital Accumulation in the GTAP Model, GTAP Technical Papers, Paper 8, http://docs.lib.purdue.edu/gtaptp/8 Fukase, E., Martin, W. (1999). Evaluating the Implications of Vietnam’s Accession to the ASEAN Free Trade Area (AFTA), Development Research Group, World Bank GoL. (2011). The National Growth and Poverty Eradication Strategy (NGPES), Committee of Planning and Investment, Vientiane, Laos Hertel, T. W. (1997). Global Trade Analysis: Modeling and Applications, Cambridge University Press Hertel, T., Walmsley, T., Itakura, K. (2001). Dynamic Effects of the “New Age” Free Trade Agreement between Japan and Singapore, GTAP Working Papers, Paper 15, http://docs.lib.purdue.edu/gtapwp/15 Kawai, M., Wignaraja, G. (2008). Regionalism as an Engine of Multilarelism: A Case for a Single East Asia FTA, ADB Working Paper Series on Regional Economic Integration No.14, Asian Development Bank, Manila Kitwiwattanachai, A., Nelson, D., Reed, G. (2009). Quantitative impacts of alternative East Asia Free Trade Areas: A Computatble General Equilibrium (CGE) assesment, Journal of policy modeling 32, 286-301 Kyophilavong, P. (2004). Analyzing the effect of AFTA on Lao economy: Macroeconomic model approach, ESRI Asia Workshop on Econimic Modeling on Deepening Interrelationships among Asian Countries, November 30, Bangkok, Thailand Kyophilavong, P., Toyoda, T. (2008). Impact of Foreign Capital Inflows on the Lao Economy., in Toyoda eds., Empirical Research on Trad and Finance in East Asia. Hiroshima Shudo University Kyophylavong, P., Takamatsu, P., Ko, J. (2010). The impact of Laos’ Accession to the World Trade Organization, Thirteen Annual Conference on Global Economic Analysis, 15 APR 2010 Kyophilavong, P. (2012). The Impact of Global Financial Crisis on Lao Economy: GTAP Model Approach, Journal of US-China Public Administration, Vol.9, No.3, 280-289, March 2012 Minor, P., Tsigas, M. (2008). Impacts of Better Trade Facilitation in Developing Countries, Conference Paper, GTAP 11th Annual Conference, Helsinki, Finland National Statistics Bureau (2008). Poverty in Lao PDR 2008 Okamoto, Y. (1994). Impact of trade and FDI liberalization policies on the Malaysian economy, The Developing Economies, 32(4), 460–478 Panagariya, A. (1993). Should East AsianGo Regional? No, No, and Maybe, Trade Policy Research Papers, Regional integration Initiative Study, October, World Bank Park, D., Park, I., Estrada, G.B. (2012). The Prospects of ASEAN-Korea Free Trade Area (AKFTA): A Qualitative and Quantitative Analysis, ASEAN Economic Bulletin Vol.29, No.1, pp. 29-45 Stone, S., Strutt, A. (2009). Transportation Infrastructure and Trade Facilitation in the Greater Mekong Subregion, ADBI Working Paper Series, No. 130, Asian Development Bank, Tokyo Winters, L. A. (2000). Trade and Poverty: Is There a Connection? in Trade, Income Disparity and Poverty, Ben David, D., Nordstrom, H., Winters, L. A. eds., Special Study 5, Geneva: WTO Winter, L. A., Mculloch, N., Mckay, A. (2004). Trade Liberalization and Poverty: The Evidence So Far, Journal of Economic Literature, Vol. XLII (March 2004), pp. 72-115 World Bank., DOS (2009). Lao PDR: Recent Economic Developments, World Bank Vientiane Office, Laos

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One Vıllage One Product (OVOP) in Japan to One Tambon One Product (OTOP) in Thaıland: Lessons for Grassroot Development in Developıng Countrıes Nguyen Thi Anh Thu Chulalongkorn University, Bangkok, Thailand Hue College of Foreign Languages, Vietnam [email protected] Abstract: Following the 1997 Asian Financial Crisis, Thailand’s economy which did rely on external capital and resources suffered from an imbalanced economic growth. As a solution to the economic restructuring process, endogenous development concept proved to be an alternative development paradigm which prioritizes the community development, human empowerment in the transformation of local resources. Accordingly, One Tambon One Product (OTOP) was designed to unlock grass-root potentials by generating income through developing local products in a national, regional, and global scale. This initiative was first developed under the name of One Village One Product (OVOP) by local people in the poorest Oita Prefecture, Japan in 1961. The aim of the paper is to compare two development models of OVOP and OTOP. The comparative study draws useful lessons from the experience of OTOP for future applications of the OVOP model in developing economies. The paper finds that there are inevitable differences in terms of administration, finance management, human resource management, and marketing promotion management between bottom-up OVOP in Japan and top-down OTOP because of social diversity, political culture, and economic capability in Thailand. The paper contributes to provide a comparative study into models of sustainable development in the context of increasing gap between the urban and rural in globalization. Keywords: OVOP, OTOP, sustainable endogenous development, regional growth, grass-root 1. Introductıon Rapid industrialization and modernization so far has helped Thailand achieve high GDP, and also brought some undesired consequences. The Human Development Report of Thailand accounts that the inequalities in wealth distribution among different groups, internal immigration from rural to urban areas emerge as critical problems in the country (Kuhonta, 2003). Following the 1997 Asian Crisis, the expanding gap between the rural and the urban drives the social movement such as Assembly for the Poor (Missingham, 2003). Therefore, the government paid more attention to rural development by setting sustainable development as one of the targets in National Development Plan (National Sustainable Development Strategy, 2008). One of the solutions is One Tambon One Product (OTOP) project which derived from One Village One Product (OVOP) in Japan. OVOP features a small-scale production in local districts and aims to generate income to villagers by distributing nationally and globally their products. In the context of global restructured economy, this initiative deserves to be widespread as a model for grass-root and sustainable development. For Thailand, in awareness of its imbalanced economy, in terms of sectors and geographical regions, this policy serves as a solution to sustainable economic development. The objectives of this paper are first to compare the original Japanese OVOP scheme and the Thai OTOP in terms of policy implementation to clarify how the idea of grass-root development has been transferred and modified. The ultimate objective is to extract lessons from the comparison for the future application of the OVOP model in developing countries. With this in mind, three questions are worth of studying: (1) Whydoes the OVOP initiative deserve to be widespread applied as an economic strategy for sustainable development in Thailand and in other countries? (2) How different are OVOP and OTOP model implemented in Japan and Thailand? (3) How are the experiences in implementing OTOP in Thailand relevant to grass-root development in developing countries? The paper argues that there are differences between the original bottom-up OVOP in Japan and the replicated top-down OTOP in Thailand because of some political, economic and social factors. These differences are also expected in carrying out OVOP in other developing countries. In order to make OVOP take off in developing countries, it is necessary to consider that lessons drawn from the transfer from OVOP in Japan into OTOP in Thailand. 2. Lıterature Revıew Endogenous Development: Resource Economy in the Third world undoubtedly results in the deterioration of local cultural, political, and economic system, limiting opportunities for marginalized groups. In a recent report by World Bank, the present production-oriented capitalism needs to re-identify and prioritize its goal for a sustainable economy24with the participation of social capital, the role of the state, and local government and non-governmental organizations (Nixon, 2009). Moreover, in theSustainability Revolution, regions need to revitalize low-income groups,understand regional resources25, developpotential sectors that bring added-value for the region, and enhance human empowerment (Nixon, 2009). These ideas lie in the concept of regional development. In a globalized world, the role of locality and regional development is particularly significant. Concerning the model of regional growth, there are two approaches to regional development in focus: exogenous regional development and endogenous regional development. Originally, the concept of an endogenous model of development appeared in the late 1970s26. Unlike exogenous development which relies on external capital and 24There

has generally been recognition of three aspects of sustainable development: Firstly, an economically sustainable system must be able to produce goods and services on a continuing basis, to maintain manageable levels of government and external debt, and to avoid extreme sectoral imbalances which damage agricultural or industrial production. Moreover, an environmentally sustainable system includes maintenance of biodiversity, atmospheric stability, and other ecosystem functions are not economic resources. Finally, a socially sustainable system must achieve distributional equity, adequate provision of social services including health and education, gender equity, and political accountability and participation. 25Known

as “resources metabolism”

26Advocated

by Friedman and Weaver (1979) and Stohr and Taylor (1979) in association with those who researched the “Third Italy”. This center is famous for its industrial clusters of small and medium enterprises producing shoes and leather in Bologna in the 1970s (Dinis, 2006; Camarero et al., 2008; Piore

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) resources to promote industries, endogenous development approach is considered as the alternative development paradigm which places social development, the growth of human capital, the role of local communities and their activities in the transformation of local resources in the center. A characteristics feature of endogenous development is the diffusion of knowledge and innovation within enterprises in a region to make it become a local industry (Wysocka, 2009). Notably, Friedman (1987) identified seven elements of regional assets necessary for endogenous development, including basic human needs, organized civil society, the heritage of an established environment and popular culture, intellectual and creative assets, regional resource endowment, the quality of its environment, and infrastructure. This kind of regional development gets impetus since Marshall (1948), Schumpeter (1991) and Kirzner (1997) noted that knowledge and rural entrepreneurship are the modern drivers of regional growth. Rural entrepreneurship is given its importance in regional sustainable development, in terms of poverty reduction, and meeting social needs (Bornstein, 2007; Dees, 2007; Torii, 2009 and 2010). Community-based enterprise CBEs are a development strategy based on community’s resources. Among these resources are social capital, structures, and networks (Torri, 2009, Coleman, 1988 and 1990) that facilitate the co-operations in CBEs for community development (Kilkenny et al, 1999; Lyons, 2002). OVOP is a shining example of the endogenous development and rural entrepreneurialism. History of OVOP : The One Village One Product (OVOP) movement was initiated in 1961 by local residents in Oyama town, Oita prefecture, Japan (Igusa,K. nd ). Oyama, located in hilly town, is the poorest town in Oita Prefecture. Because rice planting is not a sustainable livelihood, the challenge for Oyama was the migration of the young people who had to be woodcutters or seasonal migrant laborers for higher income in cities. The villagers were aware that the hilly geography was not suitable for mass cultivation of rice (Wahlin and Natsuda. 2008). They decided not to follow the rural development policy of the Japanese Government, which relies on subsidies and rice cultivation. In order to deal with local depopulation, Mr. Yahara, the mayor of Oyama Town, the president of the Oyama agricultural cooperative decided to be self-reliant by utilizing social capital and local knowledge for community development (Pitchayapisut, N. 2008). He launched a New Plum and Chestnut (NPC) strategy which aimed at transforming local agricultural production from rice into more promising plums and chestnuts. They were convinced that the investment in chestnut will allow them to lighten their workload, and work on other tasks to complement income from harvesting. The movement which then was transformed into Neo Personality Combination in 1965 and New Paradise Community in 1969 contributed to improve the quality of life and decrease youth from leaving the town of Oyama. Subsequently, the OVOP movement was launched across prefecture by Governor Dr. Morihiko Hiramatsu in 1979. OVOP Movement has spread to other rural Japanese areas that fall behind in its economic development and face the problem of out-migration and an aging population (Figure 1). Figure 1: OVOP in Japan today.

Source: Oita Prefecture International Center Principles of OVOP: According to Hiramastsu (2008), the operation of OVOP movement is based on the following four principles (Figure 2). 1. Think Globally, Act Locally: Local residents are expected to create global products that embody cultural richness and natural resources. Such local flavor adds value to local products while the use of local human makes economic activities sustainable. 2. Self-reliance and creativity: local people play a central role in selecting products to develop, raising capitalbeing accountable for the production process, and improving individual creativity. 3. Capacity building for human-resource: In this sense, local people are to re-value and re-invent their local resources and cultural craftsmanship to cultivate a distinctive product in agriculture, tourism, trading, etc. The expected products are not only physical products but also entrepreneurs with leadership in some fields. These core elements have been changed in its transfer to Thailand.

and Sabel, 1986).

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Figure 2: Three Principles of OVOP

Source: htttp://www.ovop.jp/en/ison_p Thailand’s New Economic Situation :Before 1997, for many years, Thailand relied on mass production to drive exports and attract FDI. Hence, Thailand enjoyed being one of the leaders in Asian Miracle, with real annual GDP growth averaging about 9.5 percent between 1988 and 1996 (Shinawatra, 2005). However, this results in unsustainable and imbalance growth. Thailand’s economy is highly vulnerable to external shocks. Many years after 1997, Thailand was still struggling to recover from the 1997 financial crisis that had devastated many economies and had profound impacts on Thailand export and import. Additionally, internal immigration as well as wealth gap which are consequences of imbalanced investment between urban and rural areas is a sizeable challenge for Thailand. The urgent needs for the new government are to create unique value for Thai economy. In other words, Thailand needed to transform it into a knowledge-based economy in steps with global trend. Also, it needs to rely on self- sufficiency by investing in its own strength, resources, and assets, instead of being dependent on foreign trade, FDI and vulnerable to external shocks as before. The vision of building an internally resilient and externally competitive economy is the solution for Thailand’s renaissance following the stagnation in 1997. OTOP was the initiative in the Dual Track policy, a package of innovative and integrated measures by former Prime Minister Thaksin Shinawatra when he was first in power to fulfill these two goals (Shinawatra, 2005). Aiming at rural empowerment, OTOP is developed on the foundation of the endogenous development. However, OTOP witnesses some differences from its original OVOP model which are addressed in the next section. 3. Methodology This qualitative paper draws on documentary review, historical narratives of the development of OVOP in Japan and OTOP in Thailand. Comparison is adopted as an effective method to provide critical analysis of implementation of the two policies in different context. 4. Results And Dıscussıon Although the scheme of OVOP and OTOP are conducted for similar objectives, there are still some differences in their implementation. Initiative and Administration :The basic philosophy of the OVOP movement is to mobilize local human and material resources to create value-created goods and services. However, this purpose was changed in OTOP project to fulfill different stages of Thailand’s economic development. For the Oita OVOP movement, the purpose was to revitalize local communities left behind in the nation’s economic development process and to solve the depopulation. The Thai OTOP is implemented as a national policy; hence, it is much more attached to the aim of national economic restructuring after the Asian crisis. It is also pointed out that Thai OTOP is a top-down scheme directed by the central government while the Japanese OVOP is bottom-up initiated by communities with support of local government (Fujioka, 2006). In Oita, OVOP is a truly local development policy. It was Mr. Harumi Yahata, the former-mayor of the village and the president of the Oyama Village agriculture cooperative, who had an insight of the local geography and poor situation, spent a long time exploring a new way to maximize local resources to increase local people’s income in a sustainable way (Pitchayapisut, N. 2008). Central government support comes in form of basic physical infrastructure to provide energy, water, materials, buildings, and mobility to facilitate economic efficiency of the project. This ultimately illustrates the core role of the local element in endogenous development theory discussed in the last section (Figure 3). Figure 3: Oita’s OVOP Administrative Structure

Source: htttp://www.ovop.jp/en/ison_p Figure 4: Thailand’s OTOP Adminstrative Structure

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Source: Regulation of the Office of Prime Minister on National OTOP Committee (No.2)B.E.2002 On the other hand, since OTOP is adopted as a national policy under the control of Ministry of Interior, OTOP was implemented by three administrative levels. First, local product is initiated by local sub-committee-Tambon Administration Organization TAO. The provincial and district OTOP Committee headed by governor and district major will integrate it into provincial plan and budget lines and developing product quality (JICA 2003, chapter 2/16). The OTOP office and “National One Tambon One Product Administrative Committee” is responsible for planning strategy, setting the standards, and engaging the participation of local government (Kurokawa, K, et al., 2010). The three-layer administration means that OTOP is created not only by local people and local government but also by governmental agencies. The necessary qualifications to participate in OVOP are also different in each case. In Japan, there are none. OVOP programs are open to local residents’ initiatives. In contrast, it is required to register with the local OTOP sub-committee. Hereby, OTOP violates fundamental points in the OVOP movement, making OTOP not a truly regional endogenous development policy. Nevertheless, it should be noted that there are some political dimensions to justify the central role of Thai government in OTOP program. On the one hand, in Japan, the Oita movement was an endogenous one without any precedent and the prefectural government independently developed it. For Thailand, the success of the replicated model depends on whether the central government had the capacity to sustain it. The problem emerges because local governments in Thailand cannot replace the central government when it comes to the limited finance, management to ensure the success of the policy. On the other hand, OTOP is one of pro-poor policies initiated by former Prime Minister Thaksin Shinawatra who aims to exert a greater influence on the rural poor. The basic motivation of the former Prime Minister Thaksin was to get support from the farmers and to show his capacity to foster coordination among government program for Thai people’s lives. The success of the policy contributes to the greater approval of the majority in society for his position of the Prime Minister his incoming election victory. Only by top-down mechanism of policy implementation can the result come out quickly and widely. Human Resource Development: Oita government is fully aware of the double mission of developing physical products and enhancing people’s skills and knowledge. Oita local government has a plan to develop entrepreneurship for local people in each community so that some trainees can become future leaders in their communities. It was done by establishing training schools named ‘Toyo no Kuni Development School” (Pitchayapisut, 2008). The characteristics of the schools depend on the local demand of learning, including Agricultural Training School, a Commerce School, and a Tourism School. The local residents come to class to learn from experienced business owners, or experts in the fields of their products to learn how to create a product, deal with finance, and manage operational activities effectively (Pitchayapisut, 2008). With the same aim of human resources development, Thai government also organizes training for local resident. However, the difference is the training just provides basic vocational knowledge instead of specializing in the local product. Thus, they find the class not much useful for local projects. This is understandable because local people are not involved in the selection of trainers. The training is organized by national government who does not understand the demand of local people; thus select the trainers whose knowledge is not applicable in the unique local resources (Kaoru, et al. 2011). Consequently, local people find it hard to map their comparative advantage and to empower themselves. Finance Management :Difference in finance management can be clearly found in two cases. According to the OVOP principle, local people should be self-reliant and creative in generating capital for their projects without national governmental subsidies. However, the budget for the local enterprises in OTOP program comes from governmental special grant. Since 2001-2002, annual grants for OTOP were directly allocated from the Bureau of Budget to related agencies (OSMEP, 2008). Moreover, the Thai OTOP is active in connecting its program with Bank for Agriculture and Agricultural Cooperatives (BAAC) credit in addition to low interest loans from government saving banks and direct government subsidies. BAAC started a new credit scheme (group joint liability credit) when the OTOP program was officially launched. Therefore, local people cannot recognize the importance of their participation in grass-root development, and are not motivated to maximize their entrepreneurship to overcome their poverty. Governmental subsidy does not contribute to empower the rural poor in the long term, but making them more dependent on external financial assistance and less accountable to the project that they themselves initiate in OTOP program. Marketing Promotion: Marketing assistance is an important area of OVOP activities. In OVOP, it is suggested that local government should provide local people with marketing local products. Firstly, the governor tried to establish local stores, building outstanding viewboard to show the products for regional customers. Besides, the image of different kind of local products were displayed everywhere in the town to popularize them. Secondly, the local government attempted to promote its products in a number of foods fairs, luxury restaurants and markets in Tokyo. Last but not least, local products were also advertised on website as another channel to bring local products to international market (Pitchayapisut, N, 2008). In order to achieve this, the local people emphasized on establishing brand names for local products. The local manufacturers created their own logo with the hope that the brand logos help to deliver the value of local product. The promotion of OTOP products owes much resemblance to OVOP program, mainly through two prominent measures of

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) OTOP brand making using a common logo and Internet marketing27 (Community Development Department. 2002). Nevertheless, OTOP was designed to become mass production-oriented rather than regional development-oriented with a series of government-led marketing activities such as the brand marketing strategy for export, OTOP Product Champion (OPC) scheme in 200328, “matching buyers to OTOP producers” in 2007. Interestingly, in the OPC scheme, the 3-star or higher stars manufacturers will be able to access to the socalled “OTOP City” for grant29 (Kaoru Natsada, et al.). Four-star or five-star awardees have better chances of obtaining public subsidies or being sent overseas for training. In this way, OTOP continued to support the advantaged CBEs, and ignored the disadvantaged. These substantial financial supports go a long way in challenging the self-reliance, and sustainability of CBEs towards local development. Also, the OTOP logo was created by the government and five-star goods are promoted for export, rather than reinforcing the pride in local quality. 5.Conclusion It is undeniable that the OVOP model for developing countries is designed to create a unique value for national economy in a globalized and competitive world trade. While the health of the world economy is unpredictable, the idea of grass-root empowerment tends to be a good answer for developing countries to strive on its inner strength and to be less vulnerable to external factors. As soon as regional assets are prepared, rural entrepreneuralism can promote sustainable regional development, in terms of the revitalization of rural society, reduction of income gaps, alleviation of poverty, and expansion of employment opportunities. The study also shows that in applying OVOP model, due to political interests of Thai government, and economic incapability of local governments, it is difficult maintain the original principles in the OTOP movement. Therefore, there are differences in terms of administration, human resources management, finance management, and marketing promotion between OVOP and OTOP program. For these reasons, in many cases, OTOP project has ended up as nothing more than a government-led project for the manufacturers of new local specialties. The findings and arguments in the paper so far contribute to prove the hypothesis that there are differences between the original bottom-up OVOP in Japan and the replicated top-down OTOP in Thailand because of some political, economic and social factors. Significantly, it should be noted that these differences are can be found in other developing countries. Therefore, it is necessary to provide suggestions for future applications of OVOP in other developing countries. Recommendatıons: Software (Process) Financial Support :In developing countries, it is so difficult for small-scale enterprises in a village to raise an initial investment that they themselveshave to prepare or borrow money from their relatives, from moneylenders, loan sharks, and pawn brokers to start their business (Shinawatra, 2005). High interest keeps them in the cycle of debt and poverty. Regarding this, micro financial loan should be used as a way to make sure grass-root finance to be asset-creating rather than debt-generating. When the poor shares risk, they are likely to work harder than if the money were simply handed over as a grant. This is why an integrated portfolio of micro financial grant should be introduced provide “seed money” for the local people. Production Development :Many developing countries have fallen in line with the model of mass manufacturing, (Shinawatra, 2005). This mass production–based economy and export-led growth strategy is suitable for a development phase of a country which is no longer able to rely on the hand-down industries or low-value manufacturing assembly. Value creation through local highly-quality products tends to be an effective response to challenges of competition in the global trade. Hence, how much emphasis is to be put on export is the question for developing countries. If these questions are not well examined, some developing economy will fall in the trap of mass production-based and export-oriented model of local specialties again. Hardware (Physical infrastructure): One of the limitations in developing is inadequatetransport infrastructure that obstructs local products from participating in national and global value chains. Reportedly, 61 per cent of the world population will live in urban areas by 2030 (UNHABITAT, 2011). Hence, it is recommended that nationwide delivery services and transportation networks need to be expanded and improved. Heartware (People): Because of the short history of decentralization and local government incapacity, the role of central government in developing countries tends to outweigh the local government to ensure the implementation of the national policy of OVOP. From the viewpoint of endogenous development theory, the governmental participation can weaken community’s effort, but in some developing countries which are lacking in basic environment for people’s initiative as well as the basic structure for community-based movement, the involvement of central government is necessaryin budget, human resources, time and other resources in project management. The important point here is the adequate mixture of residents’ movement from the bottom and the involvement of government from the top. In order to avoid problem, the policy implementation should be assigned to only one ministry. As in the case of Thailand, central government established OTOP central committee and OTOP coordination office. Four Ministries, namely Ministry of Industry, Ministry of

27 Thai Tambon dot com” has been developed jointly by the Ministry of the Interior, Ministry of Commerce, Ministry of Agriculture and Cooperatives, Bangkok Metropolitan Authority, and Internet Thailand, Ltd. This website (http://www.thaitambon.com/English/AboutTTB.htm) is a non-profit venture which offers information on Tambon based on a large and comprehensive database. The information includes location maps, features of local occupation groups, OTOP products, and links to thousands of export companies. It has introduced e-commerce for OTOP product 28Since 2003, individual entrepreneurs, CBEs or SMEs, who are registered as OTOP manufacturers, are entitled to participate in the OPC contest. In this contest, OTOP registered products are graded from 1-star (the lowest) to 5- star (the highest) certificated products by an independent committee. The assessment criteria emphasizes: i) export potential through strong brand capacity; ii) stability and production sustainability and stability of quality; iii) level of consumer satisfaction; and iv) the background of the product, particularly the use of locally available resources, knowledge and culture. 29Under this scheme, 3-star producers can access a maximum amount of 500,000 baht. By the same token, 4-and 5-starts producers can obtain a maximum amount of 750,000 and 1,000,000 baht, respectively

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Agriculture and Cooperative, Ministry of Home Affairs and Ministry of Trade were directly participating through five small committees30. Close intra-governmental coordination was needed for a successful mobilization of local human and material resources. Lastly, it is necessary to emphasize the leadership of local people invisions for future development, awareness of local situation, proactive decision. Also, the role ofMr. Harumi Yahata, and the former Prime Minister Thaksin is undeniable in promotion of the initiatives. More importantly, it is necessary to keep an eye on political participation, since OVOP movement and regional development can be political tool. Otherwise, the grass-root development turns out to be a short-term policy to gain vote in political game. References Bornstein, David. (2007). How to Change the World: Social Entrepreneurs and the Power of New Ideas (2nd ed.), New York: Oxford University Press. Dees, Gregory (2007). Taking Social Entrepreneurship Seriously, Society, 44(3), 24-31. Friedman, John. (2007). The Wealth of Cities: Towards an Assets-based Development of Newly Urbanizing Regions. Development and Change, 38(6), 987-998. Fujioka, R. (2006). Thai OTOP Project: Lights and Shadow of Grassroots Development Policy. Chapter 6, OVOP and Developing countries. Institute of Developing Economies, Japan External Trade Organization (IDEJETRO), ISBN4-258-29003-3 Hiramatsu, M. (2008).One Village, One Product Spreading throughout the World.Oita Japan: Office: Oita OVOP International Exchange Promotion Committee. Igusa,K (n,d). Globalization in Asia and Local Revitalization Efforts: A view from One Village One Product (OVOP). Retrieved fromhttp://www.ide.go.jp/English/Ideas/School/pdf/igusa.pdf JICA. OVOP Cases. Tokyo: JICA Jonathan M. Harris. (2000). Basic Principles of Sustainable Development.Global development and environment institute working paper 00-04. Tufts UniversityMedford MA, USA. Kaoru Natsuda, Kunio Igusa, Wiboonpongse Aree, Cheamuangphan Aree, Shingkharat Sombat, and Thoburn John. (2011). One Village One Product- Rural Development Strategy in Asia: The Case of OTOP in Thailand, Ritsumeikan Center for Asia Pacific Studies RCAPS Working Paper, 11 (3). Retrieved from http://www.apu.ac.jp/rcaps/ Kirzner, I.M. (1997).How Markets Work: Disequilibrium, Entrepreneurship and Discovery.London: The Institute of Economic Affairs Kuhonta, Erik M. (2003). The Political Economy of Equitable Development in Thailand.American Asian Review, 21 (4), 69-108. Kilkenny, Maureen, Nalbarte, Laura and Besser Terry. (1999). Reciprocated Community Support and Small Town Small Business Success, Entrepreneurship & Regional Development, 11, 231-24 Kurokawa, K., Tembo F. and Dirk, W. V. (2010).Challenges for The OVOP Movement in Sub-Saharan Africa -Insights from Malawi, Japan and Thailand.JICARI Japan International Cooperation Agency Research Institute no.18. Retrieved from: http://www.isn.ethz.ch/isn/DigitalLibrary/Publications/Detail/?ots591=0c54e3b3-1e9c-be1e-2c24a6a8c7060233&lng=en&id=116727 Lyons, Thomas (2002). Building Social Capital for Rural Enterprise Development: Three Case Studies in the United State, Journal of Developmental Entrepreneurship, 7(2), 193-216 Marshall, A. (1948), Principles of Economics: An Introductionary (8thed).London, Macmillan and co. limited. Missingham, Bruce (2003). Forging Solidarity and Identity in the Assembly of the Poor: From Local Struggles to a National Social Movement in Thailand”, Asian Studies Review, 27 (3), 317-340. National Sustainable Development Strategy: A Guidance Manual. (2008). The Office of National Economic and Social Development Board, United Nations Environment Program, and Thailand Environment Institute. Nixon, James (2009). Sustainable Economic Development: Initiatives, Programs, andStrategies for Cities and Regions. Urban Sustainability Associates.Sustainable System, Inc. Pitchayapisut, N. (2008). The Roles of Government and Social Sectors in “Local Revitalization” in Japan: The Case of Oita’s OVOP (One Village One Product). Unpublished Master Thesis, Thammasat University, Thailand OSMEP. (2008) OTOP Summary Report 2003-2008. The Office of Small and Medium Enterprises Promotion (OSMEP). Shinawatra Thaksin (2005). Empower the Grassroots - Essential Factors for Sustainable Development. Government Saving Bank, Bangkok, Thailand. Schumpeter, J.A. (1991), Assays on Entrepreneurs, Innovations, Business Cycles and The Evaluation of Capitalism, New Brunswick and London, TransactionsPublications. Torri, Maria-Costanza. (2009). Community Entrepreneurship among Lower Castes in India: A Grassroots Contribution toward Poverty Alleviation and Rural Development under Conditions of Adversity and Environmental Uncertainty Journal of Developmental Entrepreneurship, 14 (4), 413-432. Torri, Maria-Costanza. (2010). Community-based Enterprises: A Promising Basis towards an Alternative Entrepreneurial Model for Sustainability EnhancingLivelihoods and Promoting Socio-economic Development in Rural India”, Journal of Small Business and Entrepreneurship, 23(2), 237-248. Wahlin, Willhemina and Natsuda, Kaoru. (2008). One Village One Product: Japan’s Rural Entrepreneurial Scheme Goes Abroad.Japan Inc., 75, 60-61.

30(1)

Management subcommittee, (2) Marketing subcommittee, (3) Production promotion subcommittee, (4) Product standard and quality development subcommittee, (5) Regional and provincial subcommittee

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The Relationship between Firm Strategy, Capital Structure and Firm Performance *Abbas Talebbeydokhti1, Alireza Fazlzadeh2 Gachsaran Branch, Islamic Azad University, Gachsaran, Iran College of Economics and Management, University of Tabriz, Tabriz, Iran [email protected] Abstract: The present paper attempts to determine the relationship between corporate strategy, social structure and firm performance. In this regard, the financial statements of 78 companies listed in Tehran Stock Exchange since 2003 to 2010 were analyzed. In the current study, firm strategy (sales growth, liquidity) and capital structure (debt ratio) were used as independent variables, and firm performance (return on equity, return on assets, free cash flow for the firm, free cash flow per share) were applied as dependent variables, so as to study the relationship between corporate strategy, capital structure and firm performance within a 8-years period from 2003 to 2010. The data collection method was library and field-based. To test the hypotheses, single variable linear regression method was used and their significance was evaluated using Statistics T (t-test) and F (Fisher). The study results indicate that there is a significant positive relationship between sales growth variables and two types (among four types) of performance criteria in the study, namely return on equity and return on assets. And there is a positive significant relationship between firm liquidity and three criteria of firm's performance in the study namely return on equity, free cash flow per share and return on assets. Also, debt ratio has a positive significant relationship with free cash flow for firm and a negative significant relationship with return on assets. Keywords: Capital Structure, Corporate Strategy, Liquidity, Firm Performance, Free Cash Flow for Firm 1. Introduction Firms to develop and grow require financial resources, and decision making regarding using different financial resources and determining a sufficient capital structure which maximize stockholders wealth is considered as a one of the most significant issues encountered by managers. Nowadays, credit rating of firms depends largely on its capital structure, and in fact the basis for the production and the delivery of service depend mainly upon supplying and using funds (Mires et al., 2003). Notably, the social structure of each firm is an initial precaution in connection with its financial problems, and in corporate strategic planning, it is necessary to determine the factors influencing the efficacy of their financing. Firms nowadays work in an increasingly developing and competitive environment. To survive, they are forced to deal with many national and international competing factors and to develop their activities through new investments. The significance of capital structure attracted more attention since the studies conducted by Modigliani and Miller (1958). They believed that there is no difference between financing through return on equity and debt considering firm value. Therefore, different methods of financing have no extra value for firm, and there is no limitation for manager. But experimental evidences showed that the above issue does not practically exist and Modigliani and Miller in 1963 indicated new results, and the significance of firms' social capital was determined more than before (Asadi et al., 2010). Key point for firm performance is firm strategy formula and executive decisions (Hill and Jones, 1995). The present study attempts to investigate the relationship between firm performance by using two variables, namely corporate strategy (sales growth strategy and liquidity) and social capital. 2- A review of theoretical fundamentals and research background Strategic thinking is considered an undeniable prerequisite to management in the third millennium. Increasingly changing and wonderful evolutions in all commercial and economic aspects indicate a taking privilege of a strategic thinking. To effectively formulate strategies, financial strengths and weaknesses of each firm must be determined. Liquidity, loan amount, flowing capital, profitability, efficient use of assets, cash flows and return on equity must be in a way that some strategies discarded. Regarding the effect of strategy on performance, it could be said that return on equity could be regarded as a linear function of assets growth, sales growth, growth potential and liquidity, which assets growth has the maximum effect on stockholders salary yield rate and sales growth, growth potential and liquidity has the minimum effect. Whatever the recent strategic and financial performance of the company is better, a well-designed and well-executed strategy more likely exists. Weak strategic and financial performance is a sign of the existence of a weak strategy or inefficient administration of strategy or both of them (Khalili Iraqi et al., 2009). Literature on strategic trends considers strategy from three aspects: descriptive approach, classification approach and adaptive approach (Manian et al., 2009). Evolution of strategy paradigm: Phase 1: financial planning, Phase 2: planning based on prediction, Phase 3: planning based on external environment, Phase 4: strategic-phase management, Phase 5: strategic thinking Different theories on firm capital structure: The theories associated with the choice between debt and equity 1traditional theory 2Modigliani and Miller Theorem 3The theory of the hierarchy of financing options 1 4Theory of Static equilibrium: A) representation theory B) firm control C) debt tax saving benefits and the expenses of its financial turmoil D) capital market timing Theories associated with the choice between public and private debts 1information asymmetry theory 2debt representation costs 3re-negotiations 4management discretion One criterion to select investment opportunities is firms' financial performance which is influenced by different factors. One of the most significant motivations of investors to enter capital market is to achieve an appropriate yield and consequently increase in the wealth of

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) stockholders. The success of corporate strategies can be reflected in its performance and firm performance could be regarded as the firm success in creating values for different parts of market, but the performance of commercial firms is determined based on access to business objectives and using different units of such firms. In today's increasingly changing and complex environment, firms need to design and adapt strategies that enable them to improve increasingly their performance. Because in such an environment, the firms are able to survive that maintain their proactiveness and match with dynamic and variable situation of today's competitive market (Brumrac, 1998). Studying the performance of Iranian firms, it is possible to observe varying and controversial trend of the growth and rate of return on investment over the ten past years. Meanwhile, experts consider the potential of the present firms in Iran capital market in terms of performance higher than its reported rate. In fact, the main obstacle to improve the performance of firms is the selection of the most efficient and optimal strategy considering organization features, which such strategies has been reported as the most significant challenge to recent investigations and studies (Siemons, 2006, p. 44). The results from studies conducted have led to following four approaches regarding performance criteria" 1Accounting approach: in this approach, the values included in financial statements such as profit, profit per share, operational cash flows, return on assets and return on equity to evaluate performance are used (Ansari and Karimi, 2006). 2Economic approach: based on this approach in which economic concepts are used, the performance of commercial unit is evaluated by underlining profitability, firm assets and considering return rate and capital cost rate (Anvari Rostami et al., 2003). Economic value added, modified economic value added and market value added are categorized in this group. 3Integrated approach: in this approach, a combination of accounting and market information to evaluate performance is applied such as Tobinُ s q ratio and price/earnings ratio (Malekian and Asgari, 2006). 4Financial management approach: according to this approach, financial management theories such as Capital Assets Price Making Pattern (CAPM) and concepts such as risk and return are predominantly used. The approach mainly focuses on extra yield in each share (Ansari and Karimi, 2007). Research background: Li (2009) conducted a study on capital structure. In a part of this study, ROA (return on asset) and ROS (return on sale) were used as criteria and it was concluded that there is a negative and agreeable relationship between financial performance and leverage and short time debts ratio. Therefore, Chinese firms less use short time debts. Hong tom ketwan et al., (2010) in their study entitled "the relationship between firm strategy, capital structure and firm performance" concluded that liquidity strategies are not significantly related to firm performance. If managers attempt to consider firm performance, they must not waste their time to raise liquidity. Instead, they must focus on management and they concluded that capital structure influences overall performance of firms. Setaiesh et al. (2010) in a study entitled "Factors influencing the capital structure of the companies listed in Tehran Stock Exchange" came to this conclusion that. During whole study period, about 49% of the changes in firms' capital structure were influenced by variables such as equity cash benefit, profitability, business risk, assets structure, liquidity, the size and growth of firm. Among them, two variables, namely firms' liquidity and growth had negative effect and other variables had positive effect on capital structure. Saeidi et al. (2011) in a study entitled "Corporate Governance System and capital structure in the companies listed in Tehran Stock Exchange came to this conclusion that about 95 % of changes in capital structure is explained through rate of return on assets, firm size, market value to book value of return on equity, net assets, machinery and equipment, and standards of Corporate Governance System. Hypotheses: The first main hypothesis: there is a relationship between firm strategy and firm performance 1there is a relationship between sales growth and return on equity 2there is a relationship between sales growth and free cash flow per share 3there is a relationship between sales growth and return on assists 4there is a relationship between sales growth and free cash flow for firm 5there is a relationship between liquidity and return on equity 6there is a relationship between liquidity and free cash flow per share 7there is a relationship between liquidity and return on asset 8there is a relationship between liquidity and free cash flow to firms The second main hypothesis: there is a relationship between social capital and firm performance Secondary hypotheses 1there is a relationship between debt ratio and return on equity 2there is a relationship between debt ratio and free cash flow per share 3there is a relationship between debt ratio and return on assets 4there is a relationship between debt ratio and free cash flow for firm The study statistical sample and community: The study statistical community is composed of the companies listed in Tehran Stock Exchange. The study statistical sample includes financial information of exchange stock firms since 2003-2010 which has been audited by Iran Audit Organization or the Iranian Association of Certified Public Accountants, which using a series of sample conditions, 78 firms were selected in 8 years, among firms listed on Tehran Stock Exchange. Data Collection : Information on research literature and theoretical basics are collected using a library-based method and compiled from Persian and English books and foreign specialized magazines. Information in the second section is related to the firms listed in Tehran Stock Exchange which their financial information and relevant explanatory notes from 2003 to 2010 must have been provided and we collected them from Tehran Stock Exchange website and using TadbirPardaz and RahavardNovin software. Data analysis: In the present study, SPSS software was used to analyze data and to assess the effects of variables, single variable and correlative and linear regression statistical tests was applied.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) independent variables 1Corporate Strategy Sales growth: the first aspect of corporate strategy structure is sales growth which has been examined from 2003-2010 in the present study. *100sales last year - this year's sales = sales growth Last year sale 2. Liquidity: the second dimension of corporate strategy is liquidity. Cash + short-term investment= liquidity Total assets 3. Capital structure: in this case, debt ratiofor the period 2003-2010 is used. Total debt=debt ratio Total assets Dependent variable 1.Firm performance : Criteria to evaluate firm performance in this research include: 1. Return on equity (ROE( This variable provides a measure of performance. ROE = corporate net profit Return on ordinary equity 2.Return on assets (ROA): This ratio indicates the ability of the business unit in application of its total assets. ROE = corporate net profit Total assets 3.Free cash flow for the firm: it is a criterion to measure performance which shows a certain amount of cash created for firm and includes costs, taxes and changes in Net Working Capital and investments. Table 1: calculating free cash flow for the firm Description

Amount

Profit is deducted after deducting extra tax Depreciation of tangible and intangible assets Increase in working capital Increase in other assets Gross investments in fixed assets Interest received Book value of fixed assets sold and excluded

xxx xxx (xxx) (xxx) (xxx) xxx xxx

free cash flow for the firm

xxx

It must be added that to normalize data in the study, firm free cash flow is divided by the assets of the end of period. Free cash flow per share: it is the ability of each firm to pay debts, cash profit, redemption of shares and business growth facilities. Also, such measure presents an initial prediction of future equity price. Number of shares issued / free cash flow for firm=free cash flow per share = company Descriptive statistics: in this method, some tables are presented and descriptive statistics measures such as central and scattering indices are applied to describe the study data, in turn, the issue become more transparent. Calculating Central Indices: In this study, given that the measurement scale is quantitative, average is used. In addition, the maximum and minimum values of variables are determined in this stage. Calculating scattering indices: scattering indices are different from central indices. They show the amount of scattering or changes between data of a distribution. In the present study, standard deviation is used. Table 2 shows the results from central and scattering indices. Table 2: The Study Data Descriptive Analysis The number of Variable Abbreviation Observations Return On ROA 610 Assets Return on Equity ROE 610 Liquidity LI 610 Sales Growth SG 610 Free Cash Flow FCFe 610

Mean

Standard Deviation

Minimum

Maximum

0/159

0/103

0/011

0/54

0/423 0/064 0/191 -316/86

0/231 0/071 0/240 110/11

0/006 0/002 -0/59 -464/39

1/47 0/57 1/08 246/15

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Per share Debt Ratio Free Cash Flow for the Firm

DR

610

0/603

0/194

0/006

0/91

FCFF

610

-0/154

0/296

-2/32

1/181

Based on the results from descriptive statistics including scattering and central indices, the standard deviation of most variables except for free cash flow per share was lower, which indicates that data has been scattered in a small area about the mean. Variables normality test: in this phase, Kolmogorov - Smirnov test is used to check whether the sample has been obtained from a population with a normal distribution or not.

3: Results of Kolmogorov – Smirnov Test Description Abbreviation Return On Asset ROA ROE Return On Equity LI Liquidity SG Sales Growth

Z Statistics P-Value 1/130 0/071 1/101 0/084 3/818 0/010 1/070 0/097 FCFe 1/073 0/091 Free Cash Flow Per Share DR Debt Ratio 2/592 0/001 FCFF Free Cash Flow for the Firm 1/007 0/092 The (K-S) test indicates that the study dependent variable scattering and also some independent variables follow a normal distribution. Correlations between variables: In this study, in order to determining correlation between quantitative variables, Pearson correlation is used which the matrix of correlation between variables has been presented in Table 4 Table 4: Pearson Correlation Matrix Variable Abbreviation Return On Asset ROA Return On Equity

ROE

Liquidity

LI

Sales Growth

SG

Free Cash Flow Per Share

FCFe

Debt Ratio

DR

Free Cash Flow for the Firm

FCFF

ROA 1 0/671 0/000sig 0/360 0/000sig 0/204 0/000sig 0/087 0/033sig -0/317 0/000sig

ROE

LI

SG

FCFe

DR

0/144 0/000sig 0/202 0/000sig 0/058 0/156sig 0/070 0/082sig

0/050 0/220sig 0/090 0/048sig -0/109 0/087sig

-0/041 0/316sig 0/071 0/071sig

-0/016 0/702sig

1

0/099 0/014sig

0/112 0/006sig

0/046 0/260sig

-0/016 0/686sig

0/564 0/000sig

0/082 0/043 sig

FCFF

1 1 1 1

1

Based on the Pearson correlation coefficient between sales growth and return on equity which 0.202 at a significance level of 5% and also sig in Table 000/0, it could be concluded that there is a significant relationship between sales growth and return on equity. The second secondary hypothesis in the study indicates that there is a relationship between sales growth and free cash flow per share. Based on the Pearson correlation coefficient between sales growth and free cash per equity which shows -0.041 in the significance level 5%, it could be concluded that there is a negative relationship between sales growth and free cash flow per equity, but according to sig in Table 4 which is 0.316, such conclusion cannot be obtained. All the hypotheses are interpreted as above. 3. Results In this part, based on the study hypotheses which are composed of main and secondary hypotheses, the hypotheses are tested. The first main hypothesis: there is a relationship between sales growth and firm performance. To test the first hypothesis, eight secondary hypotheses have been proposed which are based on four types of performance criteria and test the effect of firm strategies on its performance According to the first hypothesis: there is a relationship between sales growth and return on equity. In order to test the first secondary hypothesis, this model has been used:

ROE i ,t    1(SGi ,t )   i ,t

Table 5: Resultsof the first secondary hypothesis test Variable

β

)β Coefficient

t Statistics

P-Value

Constant Value

α

0/386

32/65

0/000

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Sales Growth Total Regression Model

β1 Statistics F

0/195

5/07

0/000

P-Value

25/69

0/000

0/141 R2 =0/109= AdjR2 The coefficient of determination and the adjusted coefficient of determination

Based on the results of the first secondary hypothesis test presented in Table 5, the significance level of F Statistics (0.000) is below the acceptable leveled of error (5 percent) and the whole of the regression model is significant. Based on the insignificance of (P-value) tstatistics of an acceptable level of error for coefficient 1, the results of the test indicated that sales growth has a significant and positive impact on return on equity. Therefore, the first hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the variable entered in the regression model can explain 14% of the variability of the dependent variable. According to the second secondary hypothesis there is a relationship between sales growth and free cash flow per share. To test the second hypothesis, the following model is used: FCFei ,t    1 (SGi ,t )   i ,t

Table 6: Results of the second secondary hypothesis test Variable

β

)β Coefficient

t Statistics

Constant Value Sales Growth

α β1 F Statistics

-78/86 -20/46 P-Value

1/007

0/313

-12/62 0/000 -1/003 0/316 0/002 R2 =0/000= AdjR2 The coefficient of determination and the adjusted coefficient of determination

Total Regression Model

P-Value

Based on the results of the second secondary hypothesis test presented in Table6, the significance level of F Statistics (0.316) is below the acceptable level of error (5 percent) and the whole of the regression model is not significant. Based on the insignificance of (P-value) t-statistics of an acceptable level of error for coefficient 1, the results of the test indicate that sales growth has no impact on free cash flow per share. Therefore, the second hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model cannot explain the variability of the dependent variable. According to the third secondary hypothesis there is a relationship between sakes growth and return on assets. To test the third hypothesis, the following model is used:

ROAi ,t    1(SGi ,t )   i ,t Table 7: Results of the third secondary hypothesis test )β Variable β t Statistics P-Value Coefficient α 0/142 26/866 0/000 Constant Value 0/088 5/111 0/000 Sales Growth β1 F 0/410 R2 =0/041= AdjR2 P-Value Statistics Total Regression Model The coefficient of determination and the adjusted 26/120 0/000 coefficient of determination Based on the results of the third secondary hypothesis test presented in Table 6-4, the significance level of F Statistics (0.000) is below the acceptable level of error (5 percent) and the whole of the regression model is significant. Based on the insignificance of (P-value) tstatistics of an acceptable level of error for coefficient 1, the results of the test indicate that sales growth has a significant and positive impact on return on assets. Therefore, the third hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model can explain 4 % of the variability of the dependent variable. According to the fourth secondary hypothesis there is a relationship between sales growth and free cash flow for the firm. To test the fourth hypothesis, the following model is used:

FCFFi ,t    1(SGi ,t )   i ,t Table 8: Results of the fourth secondary hypothesis test Variable

β

)β Coefficient

t Statistics


α β1 F Statistics

-0/153 -/020 P-Value

0/163

0/686

-9/935 0/000 -0/404 0/686 0/160 R2 =0/000= AdjR2 The coefficient of determination and the adjusted coefficient of determination


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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Based on the results of the fourth secondary hypothesis test presented in Table 8, the significance level of F Statistics (0.000) is above the acceptable level of error (5 percent) and the whole of the regression model is not significant. Based on the significance of (P-value) tstatistics of an acceptable level of error for coefficient 1, the results of the test indicate that sales growth has no impact on free cash flow for firm. Therefore, the forth hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model can explain the variability of the dependent variable. According to the fifth secondary hypothesis there is a relationship between liquidity and return on equity. To test the sixth hypothesis, the following model is used: ROE i ,t    1 (LI i ,t )   i ,t Table 9: Resultsof the fifth secondary hypothesis test Variable

β

Constant Value Liquidity

α β1 F Statistics

)β Coefficient 0/393 0/469 P-Value

t Statistics

P-Value

31/344 3/586

0/000 0/0

0/121 R2 =0/102= AdjR2

Total Regression Model 12/862

0/000

The coefficient of determination and the adjusted coefficient of determination

Based on the results of the fifth secondary hypothesis test presented in Table 9, the significance level of F Statistics (0.000) is below the acceptable level of error (5 percent) and the whole of the regression model is significant. Based on the insignificance of (P-value) tstatistics of an acceptable level of error for coefficient 1, the results of the test indicate that liquidity has a significant and positive impact on return on equity. Therefore, the fifth hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model can explain 11% of variability of the dependent variable. According to the sixth secondary hypothesis there is a relationship between liquidity and free cash flow per share. To test the sixth hypothesis, the following model is used:

FCFei ,t    1 (LI i ,t )   i ,t Table 10: Resultsof the sixth secondary hypothesis test Variable

β

)β Coefficient

t Statistics


α β1 F Statistics 2/922

-89/54 118/84

-13/682 0/000 1/709 0/048 0/055 R2 =0/053= AdjR2 The coefficient of determination and the adjusted coefficient of determination


P-Value 0/048

P-Value

Based on the results of the sixth secondary hypothesis test presented in Table10, the significance level of F Statistics (0.048) is below the acceptable level of error (5 percent) and the whole of the regression model is significant. Based on the insignificance of (P-value) tstatistics of an acceptable level of error for coefficient 1, the results of the test indicate that liquidity has a significant and positive impact on free cash flow per share. Therefore, the sixth hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model can explain 5.5 % of variability of the dependent variable. According to the seventh secondary hypothesis there is a relationship between liquidity and return on assets. To test the seventh hypothesis, the following model is used:

ROAi ,t    1 (LI i ,t )   i ,t Table 11: Results of the seventh secondary hypothesis test )β Coefficient 0/125 0/525

Variable

β


α β1


F Statistics

P-Value

90.433

0/000

t Statistics

P-Value

23/685 9/510

0/000 0/000

0/129 R2 =0/ 128= AdjR2 The coefficient of determination and the adjusted coefficient of determination

Based on the results of the seventh secondary hypothesis test presented in Table11, the significance level of F Statistics (0.000) is below the acceptable level of error (5 percent) and the whole of the regression model is significant. Based on the insignificance of (P-value) tstatistics of an acceptable level of error for coefficient 1, the results of the test indicate that liquidity has a significant and positive impact on return on assets. Therefore, the first hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the variable entered in the regression model can explain

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 13% of variability. According to the eighth secondary hypothesis there is a relationship between liquidity and free cash flow for firm. To test the eighth hypothesis, the following model is used:

FCFFi ,t    1 (LI i ,t )   i ,t Table 12:Resultsof the first secondary hypothesis test Variable

β

)β Coefficient

t Statistics


α β1 F Statistics

-0/167 0/190 P-Value

2.908

0/260

-10/309 0/000 1/126 0/260 0/046 R2 =0/002= AdjR2 The coefficient of determination and the adjusted coefficient of determination


P-Value

Based on the results of the eighth secondary hypothesis test presented in Table12, the significance level of F Statistics (0.260) is higher than the acceptable level of error (5 percent) and the whole of the regression model is not significant. Based on the significance of (Pvalue) t-statistics of an acceptable level of error for coefficient 1, the results of the test indicate that. Liquidity has no impact on free cash flow for firm. Therefore, the eighth hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model cannot explain the variability of the dependent variable. The second main hypothesis: there is a relationship between capital structure and firm performance To test the second hypothesis, the four secondary hypotheses have been provided which are based on four performance criteria and considers the test of the effect of corporate capital structure on its performance. According to the first hypothesis, there is a relationship between debt ratio and return on equity. To test the first hypothesis, the following model is used:

ROE i ,t    1 (DR i ,t )   i ,t Table13: Results of the first secondary hypothesis test Variable

β

)β Coefficient

t Statistics

Constant Value Debt ratio

α β1 F Statistics

0/373 0/084 P-Value

3.030

0/082

12/216 0/000 0/741 0/082 20/005 R2 =0/003= AdjR2 The coefficient of determination and the adjusted coefficient of determination


P-Value

Based on the results of the first secondary hypothesis test presented in Table 13, the significance level of F Statistics (0.082) is above the acceptable level of error (5 percent) and the whole of the regression model is not significant at the significance level of 95%. Based on the significance of (P-value) t-statistics of an acceptable level of error for coefficient 1, the results of the test indicated that debt ratio has no impact on return on equity at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model can explain 5% of variability of the dependent variable. The second secondary hypothesis: there is a relationship between debt ratio and free cash flow per share. To test the second hypothesis, the following model is used:

FCFei ,t    1 (DR i ,t )   i ,t Table 14: Results of the second secondary hypothesis test Variable

β

)β Coefficient

t Statistics


α β1 F Statistics

-75/ 54 -95/24 P-Value

0.146

0/702

824/40/000 -0/383 0/702 0/000 000R2 =0/= AdjR2 The coefficient of determination and the adjusted coefficient of determination


P-Value

Which is acceptable (5 percent) and total regression model is not significant at the level 95% is not significant. Based on the significance of (P-value) t-statistics of an acceptable level of error for coefficient 1, the results of the test indicated that debt ratio has no impact on free cash flow per share. Therefore, the second hypothesis of the study cannot be accepted at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the independent variable entered in the regression model cannot explain the variability of the dependent variable. There is a relationship between debt ratio and return on assets. To test the third hypothesis, the following model is used: ROAi ,t    1 (DR i ,t )   i ,t Table 15 Results of the third secondary hypothesis test

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Variable

β

)β Coefficient

t Statistics

Constant Value Debt Ratio

α β1 F Statistics

0.261 -0/ 169 P-Value

67/708

0/000

20/087 0/000 -8/228 0/000 0/100 099R2 =0/= AdjR2 The coefficient of determination and the adjusted coefficient of determination


P-Value

Based on the results of the third secondary hypothesis test presented in Table 15, the significance level of F Statistics (0.000) is below the acceptable level of error (5 percent) and the whole of the regression model is significant at the level 5%. Based on the insignificance of (P-value) t-statistics of an acceptable level of error for coefficient 1, the results of the test indicated that debt ratio has a significant and negative impact on corporate assets. Therefore, the third secondary hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the variable entered in the regression model can explain 1% of variability of the dependent variable. According to the fourth secondary hypothesis there is a relationship between debt ratio and free cash flow for firm. To test the fourth hypothesis, the following model is used:

FCFFi ,t    1 (DR i ,t )   i ,t Table 1:6 Results of the third secondary hypothesis test Variable

β

)β Coefficient

t Statistics


α β1 F Statistics

-0/230 0/ 125 P-Value

4/094

0/043

-5/890 0/000 023/2 0/000 0/082007R2 =0/= AdjR2 The coefficient of determination and the adjusted coefficient of determination


P-Value

Based on the results of the fourth secondary hypothesis test presented in Table 16, the significance level of F Statistics (0.043) is below the acceptable level of error (5 percent) and the whole of the regression model is significant at the level 95%. Based on the insignificance of (P-value) t-statistics of an acceptable level of error for coefficient 1, the results of the test indicated that debt ratio has a significant and positive impact on free cash flow for firm. Therefore, the first hypothesis of the study cannot be rejected at the confidence level of 95%. The coefficient of determination and the adjusted coefficient of determination also indicate that the variable entered in the regression model can explain 8% of variability of the dependent variable. Analysis and interpretation of the results, limitations and suggestions: Independent variable sales growth has a significant positive impact on return on equity and return on assets, i.e. by increase in the amount of sale growth, return on equity and return on assets increase. This indicates that the firms with a higher sales growth have a higher return on equity and return on asset, and by decrease in the amount of sales growth, return on equity and return on assets decrease. As we know, return on equity and return on assets are considered to be as profitability ratios; it is better to say whenever a net benefit for the performance evaluation of a formula is used, the evaluation of the profitability of the company is assumed. Therefore, based on the results of the present study, a firm with a high sales growth has a high profitability as well. The liquidity as an independent variable has a significant positive impact on return on equity, return on assets, and free cash flow per share. It means that a firm with higher liquidity has a more improved performance. If liquidity of a firm increases, free cash flow per share increases and a high free cash flow per share indicate that profit per share must be increased, because free cash flow per share is an indicator to measure change in profit per share, and is regarded to be a signal of firm's ability to pay debts, cash profit, share redemption and business facilities. Analysis and interpretation of the results of the second main hypothesis test: Debt ratio as an independent variable has a significant impact on free cash flow for firm and return on assets, which this has a positive impact on free cash flow for firm and a negative impact on return on assets. After confirming four secondary hypotheses formulated for main secondary hypothesis test, two third and fourth secondary hypotheses are also confirmed. It could be concluded that by increase in debt ratio, free cash flow for firm increase and return on assets decreases. Using this ratio, the total amount of contributions provided through debts can be calculated. This ratio is used as an indicator to determine firm financial risk, because using non-equity resources increases the likelihood of firm disability in repayment of loans. Therefore, lenders and credit institutions pay special attention to this issue. If these organizations feel that the firm applying for loan has a high debt ratio may cancel the loan or demand additional collateral.It could be concluded that by increase in debt ratio, assets created by debts and also free cash flow per share decrease, because firms to pay their debt use their cash surpluses, and so return on assets increase. Suggestions A) Analysts and those active in capital market pay attention to sales growth, firm liquidity, debt ratio and also profitability criteria when they attempt to consider firm performance. B) It is better investors consider the negative significant impact of debt ratio on return on assets and also consider the significant impact of sales growth and liquidity on firm performance. C) The validity lending institutions pay attention to negative significant impact of debt ratio on return on assets when granting credit to firms D) Firm managers pay attention to significant positive impact of liquidity and return on equity and also the significant negative impact of debt ratio on return on assets.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) References AnvariRostami, AA. Tehrani, Reza. Seraji, Hassan. (2004). "The relationship between economic value added, earnings before interest and tax, and cash flows from operating activities with the stock market value of listed companies in Tehran Stock Exchange", Accounting and Auditing Reviews 37, pp. 3-21. Azerbaijan, Karim. Soroushiar, Afsaneh. Finding the best measures of financial performance", Hesabres Journal, XIII, No. 52. Setaiesh, MH. Kashanipoor, F. (2010). Factors influencing the capital structure of listed companies listed in Tehran Stock Exchange", Financial Research, 12( 30) Kurdistani, Gh. R. MazaherNajafi, Omran. (2008) An overview of the theories of capital structure", Journal of Accounting,; 23 (98) Manian, Amir. Mousikhani, M. Jamporazmi, Mona. (2009), "The relationship between IT alignment and business, and organizational performance in active firms of information technology, using structural equations model. Journal of Information Technology Management, 1 (3): 89-106 Malekian E. and J. Asghari, (2006). Studying the relationship between economic value added and rate of return on assets in order to evaluate the performance of Iranian Companies listed on the Stock Exchange, NYSE, No. 54, 24-33. Namazi, M. Heshmati, M. (2007) "Evaluation of the effect of structures and delayed variables on capital structure of the firms listed in Tehran Exchange Market, Journal of Accounting and Auditing Reviews, ,. 40, 139 -169. Namazi, M. Shirzad, J. (2007) Evaluation of the relationship between capital structure and profitability of the firms listed in Tehran Exchange Market, Journal of Accounting and Auditing Reviews, 42, 75-79 Nouri Far, Y. Dorostkar, Malihe. (2010). Effect of cost management strategy on the long term financial performance of the top companies listed in Tehran Stock Exchange". Yazdani, H. R. Jam PorAzNai, Mona. ZareiMatin H. (2010). Investigating the relationship between strategic orientation of the company with organizational performance using Balanced Scorecard approach", Business Management, 2(6). Li &Yue& Zhao. (2009), Ownership, Institutions, and Capital Structure: Evidence from China.

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Valıdatıon of a Turkısh Language Versıon of the Resıstance to Change Scale 1Aylin

Aktaş Alan, 2Ece Ömüriş, 3V. Rüya Ehtiyar, 4Cem O Guzeller* 1,2,3Akdeniz University Tourism Faculty, ANTALYA 4Akdeniz University Education Faculty, ANTALYA *[email protected]

Abstract: The purpose of this paper is to examine the validity of a Turkish Language version of the Resistance to Change scale. A sample of 318 travel agency employees from Antalya/Turkey was used in the analyses. Resistance to Change scale (Oreg, 2003), emotional exhaustion - one of dimension of Maslach's Burnout Inventory - and demographic information were collected from participants. Structural Equation Modelling was used to test the hypothesis. Exploratory factor analysis was used to find three factors. Additional confirmatory factor analysis further confirmed that this structure was valid. The results are limited within the sampled employees in travel agencies, so the results cannot be generalized to all types of enterprises in tourism industry. Results of the analyses suggest both construct structure and external validity of the scale. Keywords: Resistance to change, Scale validation, Turkish version 1. Introductıon In the 1990s, change events have become an important subject of both personal and organizational life. If organizations change with adequate speed, how continuous change can be implemented and how organizations can make themselves learning organizations are discussed even more than the necessity of change itself. Economic crises coupled with globalization, technologic innovation, accessibility of information, and repressive enterprise environments force organizations to make changes (Chiang, 2010). Change conditions are generally troublesome for organizations, especially on employees. A primary reason for resistance to change is that change may be advantageous for the organization but not always for the employee (Oreg, 2003). Change is often seen as a bothersome event since it challenges established norms and forces employees to give up methods and processes to which they have become accustomed. When employees face organizational change, they can feel negative emotions like disappointment, anger, and fear (Liu and Perrewe, 2005). At the same time in the organizational change process, culture is an important factor and tool as a determinant of change. In fact, there is a multi-directional relationship between organizational change and culture. Thus, enterprise culture has important effects on the nature of organizational change and employee acceptance or resistance to organizational changes (Şişman, 2002:160). Resistance to Change as a Construct: Dent and Goldberg (1999) evaluated change phenomena as a sensitive topic in the organizational behaviour literature by addressing resistance to change as a phenomenon managers must necessarily overcome. Organizational change causes individuals to experience a reaction process (Kyle, 1993). Resistance is a natural and normal response to change because change often involves going from the known to the unknown (Coghlan, 1993, Steinburg, 1992, Myers and Robins 1991, Nadler 1981, Zaltman & Duncan 1977) Not only do individuals experience change in different ways (Carnall, 1986), they also differ in their ability and willingness to adapt to change (Darling, 1993). Some people tend to move through the change process rather quickly, while others may become stuck or experience multiple transitions (Bovey & Hede, 2001b). The failure of any large- scale corporate programs can be traced directly to employee resistance (Bovey & Hede, 2001a). Many authors (Lawrence, 1954, Maurer, 1996, Strebel, 1994, Waddell & Sohal, 1998, among others) stress that the reasons for the failure of many change initiatives can be found in resistance to change. Resistance has also been considered as a source of information, being useful in learning how to develop a more successful in learning how to develop a more successful change process (Pardo del Val & Fuentes, 2003). Undoubtedly, resistance to change is a key topic in change management and should be seriously considered to help the organization to achieve the advantages of the transformation. Results of unsuccessful changes, such as a decrease in morale or productivity, may negatively affect an organization and ultimately lead to organizational failure (Chiang, 2009). Bovey and Hede (2001) suggest a relationship among irrational ideas, emotion, and resistance to change. They found that irrational ideas are positively correlated with behaviour intentions to resist change. Van Den Heuvel and Schalk (2009) studied the relationship between fulfilment of psychological contracts and resistance to organizational change. Their results suggest a significant negative relationship between fulfilment of the organization's side of the psychological contract and affective resistance to change. Oreg, Nevo, Metzer, Leder, and Castro (2009) examined the role that individuals’ orientation toward change plays in determining occupational choices and interests. They established that resistance to change is associated with occupational choice and that realistic and conventional occupations scored higher than scores for enterprising and investigative occupations. Few studies exist that examine how members of an organization perceive and manage change in the hotel industry. Lau and Woodman (1995) developed a change scheme with possible dimensions for use in the hotel industry. Okumuş and Hemmington (1998) examined sources of resistance to change in the hotel industry and pointed out changes under categories such as reappointment, remarking, installing and renovating computer systems, structuring the organization scheme, forming new management positions, introducing education program, changing menu cards and service systems in the food and beverage areas. Extant literature suggests that resistance to change is a multi-dimensional concept in the behavioural and perceptual sense (Judge, Thoresen, Pucik and Welbourne, 1999; Oreg, 2003; Arciniega & Gonzalez, 2009). Oreg’s (2003) multi-dimensional resistance to change is the focus of this study. Drawing from extant literature, Oreg determined six main dimensions that form the resistance to change scale including (a) reluctance to lose control, (b) cognitive rigidity, (c) lack of psychological resilience, (d) intolerance to the adjustment period involved in change, (e) preference for low levels of stimulation and novelty, and (f) reluctance to give up old habits. Seven studies were conducted to validate these constructs. In the first study, an exploratory approach was used to generate initial items for the scale. In studies 2 through 4, the scale's structure validation was described and convergent and discriminant validity were established. In studies 5 through 7, concurrent and predictive validities of the scale were established. In the final results of the analyses, four dimensions emerged (Oreg, 2003) including: (a) Routine Seeking: involves the extent to which one enjoys and seeks out stable and routine environments; (b) Emotional Reaction: reflects the extent to which individuals feel stressed and uncomfortable in response to imposed change; (c) Short-term Focus: involves the degree to which individuals are preoccupied with the short-term inconveniences versus the

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) potential long-term benefits of the change; (d) Cognitive Rigidity: represents a form of stubbornness and an unwillingness to consider alternative ideas and perspectives (Oreg et al., 2008). In recent years, many scales either have been developed in accordance with Turkish culture or have been made valid and reliable (Büyükşahin, 2004). Erdemir (2008) and Berkman (2009) stated that foreign scales developed in foreign cultures have been used only by a direct translation without adapting to the original cultural environment. In case the scale is adapted to the original culture, the results will be compatible with the original culture as well as being meaningful. Otherwise, the scale will be insufficient to explain the cultural facts. However, a scale dealing with resistance to change applied to the tourism sector in Turkey could not be found. More so today than ever before, information accumulates quickly and intercultural interactions continue to increase. Increasing international cooperation in scientific areas and studies of comparison in different cultures has become widespread. However, as Cronbach (1990) suggests, it is a reality that various cultures give different reactions to similar concepts (Deniz, 2007). From this point of view, adaptation of Oreg's (2003) Resistance to Change Scale to Turkish culture was undertaken in this study. As mentioned above, there is a limited number of resistance to change scales suitable for use in Turkish culture. No study applying resistance to change as a variable in the Turkish tourism sector exists in extant literature. Turkish tourism has been a major source of employment and income for many years. Since the beginning of the 2000s, changes experienced all around the world have affected tourism management in Turkey. Fundamental bases for dealing with these changes are human creativity, knowledge, intelligence, experience, and ability. Therefore, tourism employees have become the most valuable resource for change management and have proven to be a primary strategic element for business administration. The purpose of this study is to prove the validity and reliability of the Turkish version of the Resistance to Change scale developed by Oreg (2003). By this way, it will be possible to use the scale in Turkey safely. Also, the validity of the scale will be proven in another culture like Turkey which has collective properties. The objective of this study is to provide a method for determining tourism employees' resistance to change. 2. Methodology Instrument: Within the collection of the data for the Resistance to Change scale (Oreg, 2003), emotional exhaustion - one of dimension of Maslach's Burnout Inventory - and demographic information including age, gender, employment tenure, etc. were collected. Two burnout dimensions from the Burnout Inventory not considered to be associated with resistance to change were not included in this research. Küçükusta (2008) created a Turkish validation of the emotional exhaustion scale developed by Maslach and Jackson (1986). The Resistance to Change scale developed by Oreg is comprised of 4 factors measured with 21 items. The Routine Seeking (RS) factor is comprised of 8 items, Emotional Reaction (ER) is 6, Short-term Focus (SF) is 4, and Cognitive Rigidity (CR) is 3 items. From the results of analyses, 3 items in the RS dimension and 2 items in the ER dimension were extracted and the scale was thereby reduced to 16 items. The original scale uses a 6-point Likert (Strongly Disagree-Strongly Agree) scale for collection of data. In this study, the adapation of Oreg’s scale of 21 items was made using 5-point Likert (Never to Always) scale. As with the original Likert scaling, higher scores represent higher resistance to change. Translation of Data Collecting Tool: The original Resistance to Change (Oreg, 2003) instrument was developed in English. To translate the instrument into Turkish and subsequently detect its psychometric properties, consent of the original author was obtained. The instrument was first translated into Turkish by researchers and another group conducted back translation services into English. The original scale, the translation, and the back translation were presented to 3 teaching staff from the areas of measurement and evaluation, management, and English. This staff was asked to make evaluations on the resulting items to determine if they would likely measure the properties they were supposed to measure, if linguistic equivalence was accomplished, and if the translations were suited to the linguistic properties of the target group. In light of feedback from the staff, a final copy of the instrument was developed and administered to a group of 25 people who are fluent in both the Turkish and English languages. Time for filling out the final survey was calculated to be about 10 minutes. Participants: Given the nature of the resistance to change scale needed for subsequent research, a survey model was used for this study. Subjects included individuals employed in the tourism industry who worked in Antalya/Turkey travel agencies in 2009. Using a simple random sampling method, 330 employees were identified as potential participants. Simple random sampling was used because no information was available to indicate where, who, and how many individuals are employed in the tourist industry. After informing the potential participants about the opportunity to participate in the study, subjects stepped forward and agreed to participate. The researchers then collected the survey data. For the size of the sample to be sufficient for factor analyses, 50 is stated to be very poor, 100 poor, 200 acceptable, 300 good, 500 very good, and 1000 excellent. As a rule, at least 300 subjects should participate in the study. It is emphasized that to achieve adequate loading values, large samples are not necessarily required and that a sample size of about 150 is adequate (Tabachnick and Fidell, 2001). Bentler and Chou (1987) suggests that the number of subjects in a sample should be 5 to 10 times the number of parameters estimated. Kline (2005) recommends that the sample parameter ratio be 10 times or more. Therefore, the sample size used in this study can be considered large enough. After extraction of multivariate and univariate outliers from the data, statistical analyses were administered to 318 employees' data. The final sample consisted of 153 (48. 1%) females and 165 (51. 9%) males. Analysis: Exploratory Factor Analysis (EFA) was conducted to determine the factor structure of the Resistance to Change and Confirmatory Factor Analysis (CFA) was conducted to reveal if the factor structure represents a valid model. EFA is a technique often used to explore and reveal covariance and variance sources of observed measurements. This technique is especially useful in the first steps of a scale development process (Jöreskog and Sörbom, 1993). EFA explores a factor or factors based on relationships between variables (Tabachnick and Fidell, 2001). In EFA, it has been suggested that factor loadings be above 0.40 and the difference (overlap) between the same-items factor loadings in different factors be no more than (Büyüköztürk, 2006; Tabachnick and Fidell, 2001). In CFA analyses, it is necessary to determine under what implicit properties the theoretically defined variables exist, observe the definition of

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) the pattern obtained, and then test hypotheses statistically. Using this approach, it is possible to test if observed variables are true measures of the latent variables that were previously developed on a theoretical basis (Byrne 1994). In many studies, both EFA and CFA are used and it has been suggested that applying both techniques is desirable (Jöreskog and Sörbom, 1993). A LISREL 8.7 CFA was performed (Jöroskog and Sörbom, 2004) using maximum likelihood estimation. Some fit indexes (absolute, incremental, and parsimonious fit) were used to determine adequacy of the model tested in the previous EFA (Hair, Anderson, Tapham and Black 1998). Multiple fit indexes were used in this study including chi-square statistic (χ2), Goodness of Fit Index (GFI), Adjusted Goodness of Fit Index (AGFI), Comparative Fit Index (CFI), Root Mean Square Residuals (RMR), Root Mean Square Error of Approximation (RMSEA), Normed Fit Index (NFI), and Non-Normed Fit Index (NNFI). In addition, the χ2/df (degrees of freedom) ratio value was calculated to determine the effect of the sample size on the chi-square value (Hair et al., 1998, Bollen, 1989). All exceeding 0.90, adequate to good fit was suggested by the GFI, AGFI, CFI, NFI and NNFI fit indices and RMSEA and RMR were both under .08 (Browne and Cudeck, 1993; Hu and Bentler, 1999). It has been suggested that the calculated ratio (chisquare/df) is acceptable if the ratio is 3 or less and adequate up to a ratio of 5 (Kelloway, 1998, Marsh & Hocevar, 1988, Sümer, 2000). Similar scale validity was investigated through Pearson correlation coefficient. Cronbach’s α internal consistency coefficient and the item total correlations were calculated to determine reliability of the Resistance to Change construct and its sub-dimensions. Results indicate adequate values of greater than or equal to 0.70 for Cronbach’s α value and a greater than or equal to 0.25 value for item total correlations (Netemeyer, Bearden and Sharma, 2003, Nunnally and Bernsstein, 1994). A re-test method was used to reveal the continuity coefficient of the scale. 3. Results Findings Related to Linguistic Equivalence: To determine linguistic equivalence validity of the instrument’s original version and the Turkish language version, both forms were collected from two groups each consisting of 25 people that were composed of academicians who know both languages well. Then, the difference between scores obtained from the test’s original and target language forms was examined with a t-test. The t-test revealed that the difference was not meaningful [t (48) = 0.63, p > 0.05]. Based on this finding concerning the insignificant difference between forms, it is reasonable to consider that the two forms are linguistically equivalent. Resistance to Change Factor Structure Exploratory Factor Analysis: Before the application of the factor analysis, Kaiser-Meyer-Olkin (KMO) and Barlett tests were used to assess adequacy of the sample size. Results of the analyses determined that the KMO value was 0.793 and that the Bartlett test was significant (  2 = 1343.89; sd = 136; p < 0.000). Given these results, it can be concluded that the sample size is sufficient to continue with the factor analysis (Hair, Anderson, Tatham and Black, 1998; Şencan, 2005). In the EFA analysis varimax was applied as the rotation method and in consequence of the analysis, it was determined that 3 factors were present in the 21 items of the Resistance to Change instrument. When the original form and translation form of RC were compared, it was determined that the four factors structure in the original form was not evident. The items with low factor loading values overlapped and created difficulties in identifying the factors that were extracted with the EFA. Given these results, 5 items were removed from the analysis. In the result of the reiterated analysis, the factor structures and factor loadings obtained are shown in Table 1. Table 1: Rotated Factor Matrix for Exploratory Factor Analysis of RC Items (N=318) No Item

Rotated Factor Load Values Routine Seeking

Common Variance

Corrected Factor item-total correlations

Cronbach's Alpha if Item Deleted

Q15

Emotional Reaction 0.827

Cognitive Rigidity 0,726

0.664

0.829

Q14

0.764

0,592

0.534

0.832

Q13

0.635

0,413

0.378

0.821

Q17

0.612

0,458

0.443

0.818

Q18

0.575

0,400

0.396

0.817

Q11

0.565

0,353

0.432

0.829

Q9

0.552

0,368

0.449

0.824

Q16

0.489

0,304

0.360

0.825

Q4

0.699

0,498

0. 270

0.825

Q2

0.678

0,469

0.273

0.821

Q8

0.677

0,464

0.299

0.809

Q6

0.652

0,542

0.565

0.828

Q7

0.646

0,551

0.506

0.823

Q5

0.635

0,486

0.476

0.823

Q20

0.870

0,763

0.285

0.833

Q19

0.836

0,736

0.261

0.838

Eigen value Percentage variance explained

3.611

2.860

1.651

22.571

17.877

10.319

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Cronbach’s α (Total α:0.83)

0.786

0.803

0.716

As shown in Table 1, the factor loadings of the items ranged from 0.489 to 0.870 and the cumulative percentage of the contribution of factors to the total variance was 50.767. The item-total correlations ranged from 0.261 to 0.664. The total variance explained by the 3 factors was 41.97%. Considering this figure is above the 40% acceptable limit (Scherer, Wiebe, Luther and Adams, 1988; Tavşancıl, 2005), it is reasonable to suggest that that the variance observed in this study give rise to assume a three-factor scale. In the results of further analyses, it was demonstrated that internal consistency coefficients were 0.786 for the first factor (emotional reaction), 0.803 for the second factor (routine seeking), and 0.716 for the third factor (cognitive rigidity). In an analysis conducted for the scale as a whole, the internal consistency coefficient was calculated to be 0.834. It was determined that the item total correlations of all items were 0.25 or greater. Accordingly, it is reasonable to assume that the sub-dimensions and item-total correlation values of the entire instrument meet acceptable criteria. In addition, the test-retest correlations coefficient calculated from 22 random people from a group similar to this study group was found to be 0.73. Confirmatory Factor Analysis: A confirmatory factor analysis was conducted on the three-factor, sixteen-item model suggested by the preceding exploratory factor analysis. Fit indexes obtained from the CFA are shown in Table 2. Table 2: Fit Statistics of LISREL Models Model GFI AGFI CFI NFI NNFI RMSEA RMR 2 2 df

 / df



16 items model * p Êi,q, (b) neutral if Ei,q= Êi,q and (c) unfavorable if Ei,q< Êi,q. The three announcement groups are then categorized based on the market capitalization of the firm making the announcement. The market capitalization of the firms included in the sample ranged from PKR4.4 million to PKR173.7 million. The firms having a market capitalization of PKR442.4 million or lesser are categorized Table 1: Industry Composition of Sample Announcements

Firms

Chemicals

Industry

25

14

Construction and Materials (Cement)

41

22

General Industrials

11

7

Electronic and Electrical Goods

6

3

Engineering

16

10

Industrial Transportation

3

2

Automobile and Parts

28

15

Food Producers

14

10

Household Goods

5

3

Personal Goods (Textile)

74

46

Pharma and Bio Tech

9

7

Media

3

2

Travel and Leisure

7

4

Fixed Line Telecommunication

6

4

Electricity

21

13

Commercial Banks

40

22

Non-Life Insurance

26

16

Life Insurance

5

3

Real Estate Investment and Services

3

2

Financial Services

49

27

Equity Investment Instruments

41

32

Total

433

264

Table 2: Multiple Announcements in Sample Multiple Announcements

Firms

Announcements

1

95

95

2

169

338

Total

264

433

as relatively-small-capitalized-value (RSCV) firms and those having a market capitalization greater than PKR442.4 million are categorized as relatively-large-capitalized-value (RLCV) firms. For the purpose of categorizing the firms as RSCV or RLCV, the market capitalization values as of the beginning of 2010 (for the announcements made during the year 2010) and 2011 (for the announcements made during the year 2011) are used. Three announcement groups and

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Table 3: Distribution of Sample Announcements by Month and Year 2010

2011

Total

January

1

6

7

February

0

0

0

March

1

0

1

April

48

52

100

May

2

3

5

June

0

0

0

July

4

2

6

August

0

0

0

September

0

0

0

October

141

114

255

November

45

14

59

December

0

0

0

242

191

433

Total

two capitalization categories resulted in six subgroups of sample announcements. Table 4 presents the categorization of sample announcements by unanticipated quarterly earnings change and market capitalization of the announcing firm. Stock returns are observed for the event window which comprises of a period of 20 days before the earnings announcement through 20 days after the announcement date (day -20 till day +20). If the earnings announcements contain useful information content for investors, the magnitude of the price change (in either direction) should be larger during the days surrounding the announcement date. To reduce the effects of market-wide factors on the stock returns, abnormal returns (ARs) during the event window are calculated as the difference between actual returns and expected returns: ARit = Rit – E(Rit) where, ARit = Abnormal return for stock i on day t. Rit = Actual return of stock i at time t. E(Rit) = Expected return on stock i at time t. The following market model is used to calculate the expected returns on a stock: E(Rit)= αi +βiRim+ µi Table 4: Categorization of Sample Announcements by Earnings Change and Market Capitalization of announcing firm Announcements by RSCV Announcements by RLCV Unanticipated change Total firms firms Announcements Favorable

221

110

111

8

6

2

Unfavorable

204

101

103

Total

433

217

216

Neutral

Estimates of αi and βi are obtained using linear regressions calculated on stock returns of estimation period which comprises of 200 days prior to the event window (day -220 to day -21) for each quarterly earnings announcement in the sample. The period of 20 days prior to the announcement date is not included in the estimation period to prevent the event’s influence on the parameter estimates. The earnings announcement dates and the stock prices for surrounding days are obtained from Karachi Stock Exchange. 3. Empirical Results The analysis is performed first for the three groups (favorable, neutral and unfavorable announcements) and then for the six subgroups, (RSCV firms making favorable, neutral and unfavorable announcements and RLCV firms making favorable, neutral and unfavorable announcements). If the market are efficient with respect to quarterly announcements, then the favorable-change ARs should not be significantly greater than zero, the neutral-change ARs should not be significantly different from zero and the unfavorable-change ARs should not be significantly lesser than zero. The mean ARs and mean CARs realized by stockholders during the event window for each of the three groups of sample announcements (favorable, neutral and unfavorable) are presented in table 5. The t-statistics presented indicate whether the ARs are significantly different from zero. These results indicate that investors of the companies that announced quarterly earnings increases earned positive ARs on the day of earnings announcement, but these returns are not significantly greater than zero. Mean AR for the favorable announcement group on the announcement day is 0.008. However, there are significant negative mean ARs observed for this group on some days in the post-announcement period. Stockholders of the companies with no change in quarterly announcements earned negative abnormal returns on the earnings announcement day but these returns are not significantly

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) lesser than zero. The companies which announced decreases in quarterly earnings also reported negative abnormal returns for earnings announcement day. The mean negative AR on the announcement day for the unfavorable announcement group is -0.008 but is statistically significant. There are significant negative mean ARs observed for this group on some days in both pre- and postannouncement periods. The mean ARs and mean CARs for the subsamples of RSCV and RLCV firms are presented in tables 6 and 7 respectively. Mean ARs on the announcement day for both RSCV and RSCV firms making favorable earnings announcements are positive (0.012 and 0.004 respectively) but not significant. Mean ARs on the announcement day for RSMC and RSLC firms making unfavorable earnings announcements are negative (-0.009 and -0.006 respectively) but not significant. These results imply that the stocks with positive quarterly earnings change are not performing significantly better than stocks with zero or negative earnings changes in Pakistan. The CARs during the 41-day event window reported by three groups and six subgroups are plotted in Figure 1. For all the firms making neutral and unfavorable earnings announcements, the cumulative price change during the 41-day event window is close to zero. This result is evident for RSCV and RLCV firms as well as their combined group. For the group of all firms making favorable announcement and RSCV firms making favorable announcements, the cumulative price change during the event window is negative. For RLCV firms making favorable announcements, however, positive price change is observed for the event window. The result could be justified by the fact that in case of Pakistan, the companies with large market capitalization are not necessarily the ones with high liquidity, because of small market float or their high share price. Nevertheless, during the days surrounding their favorable earnings announcements, the liquidity of these stocks improve, hence, resulting in the increased stock price. Table 5: Mean ARs and Mean CARs Favorable Announcements a t-value

CAR

Neutral Announcements b AR

t-value

CAR

Unfavorable Announcements c

Day

AR

AR

t-value

CAR

-20

-0.003

-0.687

-0.003

0.036

1.073

0.036

0.000

-0.026

0.000

-19

-0.002

-0.553

-0.005

-0.076

-1.758

-0.040

-0.011

-2.057**

-0.011

-18

-0.007

-1.621

-0.011

0.020

0.666

-0.020

0.004

0.781

-0.006

-17

0.003

0.767

-0.008

-0.015

-0.396

-0.035

-0.009

-1.581

-0.015

-16

0.002

0.393

-0.006

-0.085

-1.554

-0.120

-0.005

-1.134

-0.020

-15

-0.003

-0.636

-0.009

0.015

0.691

-0.105

-0.001

-0.190

-0.021

-14

0.000

0.070

-0.009

0.026

0.642

-0.079

-0.010

-1.877*

-0.031

-13

-0.002

-0.389

-0.011

0.022

0.265

-0.057

0.007

1.463

-0.024

-12

0.003

0.839

-0.008

0.136

1.261

0.079

0.002

0.582

-0.022

-11

0.002

0.568

-0.005

0.006

0.624

0.085

0.001

0.237

-0.021

-10

0.004

1.052

-0.001

-0.072

-1.608

0.012

0.002

0.467

-0.019

-9

-0.002

-0.710

-0.004

0.023

0.424

0.035

0.004

0.727

-0.015

-8

-0.004

-1.398

-0.008

0.042

1.157

0.077

0.000

0.098

-0.014

-7

0.001

0.172

-0.008

-0.026

-1.518

0.051

0.000

-0.041

-0.014

-6

0.004

0.646

-0.003

-0.039

-0.908

0.012

0.010

1.703*

-0.004

-5

0.005

1.520

0.002

0.037

0.811

0.049

0.005

0.871

0.001

-4

-0.003

-0.844

-0.001

-0.019

-1.037

0.030

0.002

0.287

0.003

-3

-0.003

-0.923

-0.003

0.004

0.348

0.034

-0.002

-0.529

0.001

-2

-0.002

-0.543

-0.006

-0.008

-0.268

0.026

0.000

-0.044

0.001

-1

0.002

0.650

-0.003

0.019

0.326

0.045

0.002

0.334

0.002

0

0.008

1.507

0.005

-0.054

-1.072

-0.009

-0.008

-1.573

-0.006

1

-0.005

-1.205

0.000

-0.021

-0.747

-0.030

-0.001

-0.164

-0.006

2

-0.003

-0.836

-0.003

0.040

1.306

0.010

-0.007

-2.308**

-0.014

3

-0.005

-1.247

-0.009

0.008

0.733

0.018

0.000

-0.108

-0.014

4

0.002

0.603

-0.006

-0.028

-1.083

-0.010

0.003

0.474

-0.012

5

0.003

0.800

-0.003

0.034

1.083

0.024

-0.009

-2.087**

-0.020

6

-0.007

-2.033**

-0.010

-0.043

-2.117

-0.019

0.001

0.256

-0.019

7

0.001

0.198

-0.009

0.017

0.681

-0.002

0.005

0.835

-0.014

8

0.002

0.386

-0.007

-0.026

-1.351

-0.028

-0.004

-0.972

-0.017

259

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 9

-0.003

-1.444

-0.011

-0.012

-0.656

-0.040

0.004

0.899

-0.013

10

0.002

0.871

-0.008

-0.020

-0.365

-0.060

0.002

0.614

-0.011

11

0.002

0.736

-0.006

0.012

0.650

-0.048

-0.003

-1.149

-0.014

12

-0.006

-1.971**

-0.012

0.125

1.023

0.078

-0.008

-1.586

-0.022

13

0.001

0.319

-0.011

-0.023

-1.266

0.054

0.002

0.645

-0.020

14

-0.007

-1.762*

-0.018

-0.018

-0.555

0.036

-0.002

-0.669

-0.022

15

0.003

0.466

-0.015

0.001

0.141

0.036

0.001

0.207

-0.021

16

0.002

0.473

-0.013

-0.005

-1.007

0.031

0.002

0.521

-0.018

17

-0.002

-0.557

-0.015

0.032

0.504

0.063

0.003

0.641

-0.016

18

0.004

1.176

-0.010

-0.033

-1.392

0.030

0.001

0.221

-0.015

19

-0.003

-0.931

-0.014

-0.006

-0.234

0.024

0.005

0.782

-0.010

20 -0.001 -0.350 -0.015 -0.033 (a) 221 cases, (b) 8 cases, (c) 204 cases *significant at 5 percent level **significant at 2.5 percent level

-0.456

-0.009

0.009

1.498

-0.001

Table 6: Mean ARs and Mean CARs: RSCV Firms Favorable Announcements a t-value

CAR


t-value


Day

AR

-20

-0.005

-0.707

-0.005

0.038

0.823

0.038

0.001

0.107

0.001

-19

-0.004

-0.588

-0.009

-0.101

-1.831

-0.063

-0.019

-1.958*

-0.018

-18

-0.012

-1.523

-0.021

0.034

0.865

-0.029

0.011

0.997

-0.007

-17

0.005

0.675

-0.016

-0.025

-0.478

-0.054

-0.012

-1.153

-0.020

-16

0.001

0.085

-0.015

-0.114

-1.629

-0.168

-0.005

-0.534

-0.025

-15

-0.011

-1.543

-0.026

0.022

0.751

-0.146

0.001

0.125

-0.023

-14

0.003

0.248

-0.024

0.033

0.624

-0.112

-0.021

-2.124**

-0.044

-13

-0.006

-0.645

-0.029

0.026

0.232

-0.086

0.012

1.304

-0.032

-12

0.002

0.317

-0.028

0.182

1.282

0.096

0.001

0.190

-0.031

-11

0.004

0.457

-0.024

0.011

0.995

0.107

0.001

0.098

-0.030

-10

0.002

0.300

-0.022

-0.096

-1.658

0.011

0.004

0.577

-0.026

-9

-0.006

-0.846

-0.027

0.026

0.351

0.037

0.005

0.486

-0.021

-8

-0.007

-1.257

-0.035

0.055

1.150

0.092

0.001

0.127

-0.020

-7

-0.001

-0.107

-0.036

-0.036

-1.718

0.056

-0.005

-0.702

-0.024

-6

0.011

0.865

-0.024

-0.055

-0.948

0.001

0.019

1.672*

-0.005

-5

0.010

1.491

-0.015

0.051

0.842

0.052

0.002

0.177

-0.003

-4

-0.005

-0.851

-0.020

-0.024

-0.995

0.028

0.006

0.541

0.003

-3

-0.005

-1.009

-0.025

0.009

0.638

0.037

-0.004

-0.504

0.000

-2

-0.005

-0.594

-0.030

-0.012

-0.290

0.025

0.002

0.277

0.002

-1

0.008

1.201

-0.022

0.025

0.322

0.050

0.005

0.559

0.007

0

0.012

1.147

-0.010

-0.073

-1.106

-0.023

-0.009

-1.017

-0.002

1

-0.010

-1.406

-0.019

-0.020

-0.511

-0.043

0.004

0.386

0.002

2

-0.005

-0.712

-0.025

0.054

1.324

0.011

-0.013

-2.239**

-0.012

3

-0.007

-0.832

-0.031

0.014

0.984

0.025

0.005

0.612

-0.007

4

0.007

1.204

-0.024

-0.034

-0.981

-0.009

0.006

0.607

0.000

5

0.002

0.226

-0.022

0.041

0.967

0.032

-0.016

-2.031**

-0.016

260

CAR

AR

t-value

CAR

nd


-0.014

-2.027**

-0.036

-0.053

-2.010

-0.021

0.006

0.570

-0.010

7

-0.002

-0.260

-0.038

0.025

0.758

0.004

0.008

0.640

-0.002

8

0.009

0.905

-0.029

-0.041

-1.861

-0.037

-0.009

-1.256

-0.011

9

-0.005

-1.136

-0.034

-0.026

-1.230

-0.063

0.011

1.319

0.000

10

0.004

0.726

-0.030

-0.019

-0.247

-0.082

0.001

0.176

0.001

11

0.003

0.580

-0.027

0.022

0.918

-0.059

-0.006

-1.254

-0.005

12

-0.012

-2.257**

-0.039

0.161

0.984

0.102

-0.013

-1.440

-0.019

13

-0.003

-0.661

-0.042

-0.035

-1.513

0.067

0.003

0.428

-0.016

14

-0.013

-1.735*

-0.055

-0.012

-0.277

0.055

-0.007

-1.182

-0.023

15

0.008

0.701

-0.047

-0.003

-0.523

0.052

0.001

0.071

-0.022

16

0.003

0.382

-0.044

-0.009

-1.492

0.043

0.003

0.353

-0.019

17

-0.001

-0.234

-0.045

0.047

0.552

0.090

0.006

0.844

-0.012

18

0.005

0.669

-0.040

-0.043

-1.428

0.046

0.002

0.317

-0.010

19

-0.007

-0.978

-0.047

-0.010

-0.278

0.037

0.004

0.597

-0.006

20 0.002 0.369 -0.045 -0.042 (a) 110 cases, (b) 6 cases, (c) 101 cases *significant at 5 percent level **significant at 2.5 percent level

-0.423

-0.005

0.006

0.795

0.000

Table 7: Mean ARs and Mean CARs: RLCV Firms Favorable Announcements a Day

AR

t-value

CAR


t-value


CAR

AR

t-value

CAR

-20

0.000

-0.059

0.000

0.038

0.475

0.038

-0.001

-0.470

-0.001

-19

0.000

-0.060

0.000

-0.101

-1.057

-0.063

-0.002

-0.657

-0.004

-18

-0.001

-0.565

-0.002

0.034

0.499

-0.029

-0.002

-0.559

-0.005

-17

0.001

0.391

-0.001

-0.025

-0.276

-0.054

-0.005

-1.639

-0.011

-16

0.003

0.835

0.002

-0.114

-0.941

-0.168

-0.006

-1.922*

-0.016

-15

0.006

1.438

0.008

0.022

0.434

-0.146

-0.003

-0.838

-0.019

-14

-0.002

-0.685

0.006

0.033

0.360

-0.112

0.001

0.363

-0.018

-13

0.002

0.665

0.008

0.026

0.134

-0.086

0.002

0.680

-0.016

-12

0.004

1.109

0.012

0.182

0.740

0.096

0.003

1.033

-0.013

-11

0.001

0.406

0.013

0.011

0.574

0.107

0.001

0.439

-0.011

-10

0.006

2.569**

0.019

-0.096

-0.957

0.011

-0.001

-0.218

-0.012

-9

0.001

0.329

0.019

0.026

0.203

0.037

0.003

0.868

-0.009

-8

-0.002

-0.612

0.018

0.055

0.664

0.092

0.000

-0.122

-0.009

-7

0.002

0.918

0.020

-0.036

-0.992

0.056

0.005

1.427

-0.005

-6

-0.003

-0.807

0.018

-0.055

-0.547

0.001

0.001

0.362

-0.003

-5

0.001

0.389

0.019

0.051

0.486

0.052

0.008

2.414**

0.005

-4

0.000

-0.167

0.018

-0.024

-0.574

0.028

-0.003

-1.046

0.002

-3

0.000

0.047

0.018

0.009

0.368

0.037

0.000

-0.157

0.002

-2

0.000

-0.018

0.018

-0.012

-0.168

0.025

-0.002

-0.898

-0.001

-1

-0.003

-1.341

0.015

0.025

0.186

0.050

-0.002

-0.629

-0.003

0

0.004

1.363

0.019

-0.073

-0.639

-0.023

-0.006

-1.620

-0.009

1

0.000

-0.008

0.019

-0.020

-0.295

-0.043

-0.006

-1.570

-0.014

2

-0.001

-0.465

0.018

0.054

0.765

0.011

-0.002

-0.688

-0.016

261

nd


-0.004

-1.590

0.014

0.014

0.568

0.025

-0.006

-1.685*

-0.022

4

-0.003

-0.860

0.011

-0.034

-0.566

-0.009

-0.001

-0.429

-0.023

5

0.005

1.320

0.016

0.041

0.559

0.032

-0.001

-0.533

-0.024

6

-0.001

-0.441

0.015

-0.053

-1.161

-0.021

-0.003

-1.139

-0.028

7

0.004

1.451

0.019

0.025

0.438

0.004

0.003

1.073

-0.025

8

-0.005

-2.266**

0.014

-0.041

-1.075

-0.037

0.001

0.564

-0.024

9

-0.002

-0.964

0.012

-0.026

-0.710

-0.063

-0.003

-0.975

-0.026

10

0.001

0.485

0.014

-0.019

-0.142

-0.082

0.003

1.673*

-0.023

11

0.001

0.462

0.015

0.022

0.530

-0.059

0.000

-0.005

-0.023

12

0.000

0.047

0.015

0.161

0.568

0.102

-0.002

-0.743

-0.025

13

0.005

1.112

0.020

-0.035

-0.873

0.067

0.002

0.605

-0.023

14

-0.001

-0.403

0.019

-0.012

-0.160

0.055

0.002

0.790

-0.021

15

-0.003

-0.922

0.017

-0.003

-0.302

0.052

0.001

0.388

-0.020

16

0.001

0.413

0.018

-0.009

-0.861

0.043

0.002

0.677

-0.018

17

-0.002

-1.001

0.015

0.047

0.319

0.090

-0.001

-0.390

-0.019

18

0.004

1.667

0.019

-0.043

-0.824

0.046

-0.001

-0.241

-0.020

19

0.000

-0.011

0.019

-0.010

-0.161

0.037

0.005

0.542

-0.015

20 -0.005 -1.486 0.014 -0.042 (a) 111 cases, (b) 2 cases, (c) 103 cases *significant at 5 percent level **significant at 2.5 percent level

-0.244

-0.005

0.012

1.273

-0.002

Figure 1a: Mean Daily CAR Favorable 0.01

0.15

0.01

0.005

0.1

0

0

-20

Unfavorable

Neutral

-0.005

0.05 0

20

-20

-0.01

0 -20

-0.01

-0.05 0

0

20

-0.02

20

-0.015

-0.1

-0.03

-0.02

-0.15

-0.04

Figure 1b: Mean Daily CAR for RSCV Firms Neutral

Favorable

0.2

0 -20

Unfavorable

0

20

0.02

0.1

-0.02

0 -20

0 -0.04 -0.06

-20

-0.1

0

20

-0.02 -0.04 -0.06

-0.2

262

0

20

nd

Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Figure 1c: Mean CAR for RLCV Firms Neutral

Favorable

0.03

0.2

0.02

0.1

0.01

-0.01

0.01 0 -20

0 -20

0 -20

Unfavorable

0

20

-0.1

0

20

-0.2

-0.01

0

20

-0.02 -0.03

4. Conclusion The study examines the stock price reaction to the unexpected quarterly earnings announcements made by listed firms in Pakistan using the data of 433 announcements made by 264 firms for a 2-year period from 2010 to 2011. Positive and negative abnormal returns are observed for firms making favorable and unfavorable earnings announcements, respectively; but these returns are not statistically significant. The findings show that the unexpected quarterly earnings announcements do not have any significant price reaction in Pakistani market and over the period covered by the present study, investors could not have earned above average risk-adjusted rates of return by evaluating information contained in quarterly earnings announcements made by Pakistani companies. Furthermore, analyzing the subgroups of RSMC and RSLC firms and obtaining the similar results supports that in case of Pakistan, the price reaction to the quarterly earnings announcement is not related to the size of the firm. The study can be extended to more time periods to ensure the results apply more widely. Future studies can compare the price reaction surrounding the annual and interim earnings announcements. References Aharony, J. and Swary, I. (1980). Quarterly Dividends and Earnings Announcements and Stockholders’ Returns: An Empirical Analysis. The Journal of Finance, 35(1), 1-12. Atiase, R.K. (1985). Predisclosure Information, Firm Capitalization, and Security Price Behavior Around Earnings Announcements. Journal of Accounting Research, 23(1), 21-36. Ball, R. and Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6 (2), 159-178. Beaver, W. (1968). The Information Content of Annual Earnings Announcements. Empirical Research in Accounting: Selected Studies. Supplement to Journal of Accounting Research, 6, 67-92. Beaver, W. and Lambert, R. (1980). The Information Content of Security Prices. Journal of Accounting and Economics, 2, 3-28. Beaver, W., Clarke, R. and Wright, W.F. (1979). The Association Between Unsystematic Security Returns and the Magnitude of Earnings Forecast Errors. Journal of Accounting Research, 17 (2), 316-340. Buchheit, S. and Kohlbeck, M. (2002). Have Earnings announcements Lost Information Content? Journal of Accounting, Auditing and Finance, 17 (2), 137-153. Chen, G., Firth, M. and Gao, N. (2002). The Information Content of Concurrently Announced Earnings, Cash Dividends, and Stock Dividends: An Investigation of the Chinese Stock Market. Journal of International Financial Management and Accounting, 13 (2), 101-124. Cheng, L.T.W. and Leung, T.Y. (2008). Is There Information Content from Insider Trading Activities Preceding Earnings and Dividend Announcements in Hong Kong? Accounting and Finance, 48, 417-437. Cornell, B. and Landsman, W.R. (1989).Security Price Response to Quarterly Earnings Announcements and Analysts’ Forecasts Revisions. The Accounting Review, 4, 680-692. Fama, E.F., Fisher, L., Jensen, M.C. and Roll, R. (1969).The Adjustment of Stock Prices to New Information. International Economic Review, 10 (1), 1-21. Joy, O., Litzevberger, R. and McEnally, R. (1977). The Adjustment of Stock Prices to Announcements of Unanticipated Changes in Quarterly Earnings. Journal of Accounting Research, 15 (2), 207-225. Malik, A., Malik, M.S. and Abbasi, M.N. (2010). Post-Earnings Announcement Drift (PAD) Phenomenon in the Price/Earnings Relationship: An Evaluation of Existing Explanations. Pakistan Journal of Social Sciences, 30 (1), 1-8. May, R.G. (1971). The Influence of Quarterly Earnings Announcements on Investor Decisions as Reflected in Common Stock Price Changes. Empirical Research in Accounting: Selected Studies, 119-163. Oppong, A. (1980). Information Content of Annual Earnings Announcements Revisited. Journal of Accounting Research, 8 (2), 574-584. Patel, J.M. (1976). Corporate Forecasts of Earnings per Share and Stock Price Behavior: Empirical Tests. Journal of Accounting Research, 246-276. Pincus, M. (1983). Information Characteristics of Earnings Announcements and Stock Market Behavior. Journal of Accounting Research. 21 (1), 155 -183. Qureshi, M.A., Abdullah, A. and Imdadullah, M. (2012). Stock Prices’ Variability around Earnings Announcement Dates at Karachi Stock Exchange. Economics Research International, 2012.

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Sustainable Local Economic Development: The Role of Informatics in Determining Municipal Revenue Management Michael Twum-Darko Cape Peninsular University of Technology, Keizersgracht and Tennant Street, South Africa [email protected] Abstract: This paper discusses the challenges undermining the ability of smaller municipalities in South Africa (SA) to raise revenue to sustain local economic development (SLED). The concept of enactment of technology-in-practice (ETiP) of Structuration Theory (ST) was adapted as a lens to understand and interpret the factors hindering the implementation of relevant legislation e.g., the municipal property rates Act of 2004 (MPRA) for SLED. The focus of the study was the role informatics in the implementation of MPRA to institutionalise its provisions to improve revenue collection. An extensive investigation in twenty-five (25) smaller municipalities across SA indicated a number of predictors suggested by ETiP have impacted on the implementation of MPRA and property rates collection. The view is that implementation of legislation e.g., MPRA is similar to the deployment of ICT solutions in governments. Thus, in the world of social theory, legislation implementation is a socio-technical phenomenon with significant political, economic and social components (Twum-Darko, 2011, pp. 131-132). The findings of the study provides a general framework as a lens through which predictors can be interpreted to provide a richer understanding of the complexity associated with the role of informatics in government revenue management to support SLED. Keywords: Municipality; Information System; Legislation; Sustainability; Structuration Theory 1. Introduction One way of making lives better and creating wealth in developing countries, particularly in Africa, is to ensure that any new legislation contributes to wealth creation and local economic development that sustainable from an economic, social, and environmental point of view. This, to a large extent, is endorsed by Global Reporting Initiative (GRI) sustainable development strategy: Multistakeholder Engagement and Sustainability Reporting in Developing Countries (Global Reporting Initiative, 2012). The social and economic expectation of recipient of municipal services in many developing countries, especially in South Africa, is basic services such as good drinking water, affordable accommodation, accessible roads, basic education and good health infrastructure. Skill (2012, pp. 1-16) argues that this has largely come to be true for activities that influence the running of environment and in this paper, particularly, the management of revenue and/or funds to deliver on the mandate of municipalities (Municipal Finance Management Act, 2003). Skill (ibid.) further reiterated that this social and economic expectation does not necessarily imply that individuals change their rates and local tax obligations. The present situation is about the encounter between individual citizens, authorities and the political goal of sustainable development. In the case of South Africa, since the advent of the new political dispensation in 1994, there has been emphasis on reform initiatives which were meant to democratise the state and to empower and develop local communities (Benjamin in Heeks (ed.), 2000). This political changes since 1994 have had significant impact on the social structures of South African society. Twum-Darko (2011) argues that the changes have been driven mainly by legislation whose purpose is to institutionalise change across the country and to sustain local economic development. Legislation by its nature usually creates interactions and association, and in the case of South Africa and its new liberal constitution, between the National Government, the Provincial Government and the Municipal and Local Councils (Twum-Darko, 2011). Twum-Darko (ibid.) further argues that some of these interactions are so complex that they create new political and social processes at the strategy planning level and have technological and social implications. Such implications as argued by Twum-Darko (2011, p. 12) create different scenarios one of which is the implementation of such legislation which may require an information system not thought of during the legislation design and promulgation to ensure its provisions and procedures are interpreted consistently and uniformly applied across the country. The given scenario is which this study sought to address and is discussed in this paper. The study therefore examined the relationship between the provisions of the legislation using the Municipal Property Rates Act (MPRA) as a case study and the approach needed to implement it and where informatics (creating, storing, and finding, manipulating and sharing information) is considered as a major player in its implementation. The MPRA is designed to achieve two main objectives: to value all types of properties accurately and to accurately tax the owners of the properties. The study further brought together socio-technical approaches such as those found in the work of Rip and Kemp (1998), Rotmans et al. (2001), Smith et al. (2005) and others over the years were considered and applied to understand and interpret informatics and their influence on human actions and organisational reforms (Monteiro in Ciborra et al., 2001; Holmstrom & Robey, 2002). The study further used Structuration Theory (ST) and in particularly the concepts of Enactment of Technology-in-Practice (ETiP) as a lens through which to understand and interpret the provisions of MPRA as human actions resulting from their consciousness (i.e., of sustainable local economic development) and the structural conditions (i.e., the functionality of an information system) which make their activities possible (Andrade, 2007). Also, from the literature reviewed thus far, there is an area in legislation that drives social reform such as sustainable local economic development. This is true in most cases and in the context of South Africa, namely, the Municipal Systems Act, 2000 (Act 32 of 2000, p. 2) which provides for the core principles, mechanisms and processes that are necessary to enable municipalities to move progressively towards the social and economic upliftment of communities, and to ensure universal access to essential services that are affordable to all. Other large-scale legislation where the exact approaches (in the form of guidelines) which include(s) the role of technology and information system to implement such legislation have not been well chronicled. The work of Esslinger (2009), Andrade (2007) and Pozzebon & Diniz (2012) further points to the fact that the use of technology and information systems have become invasive in organisations and society and the interplay is viewed as a means to create and sustain effectiveness. It is therefore envisaged that there will be a variety of outcomes even from the same technology and information system (Robey & Boudreau, 2000). This is because the outcomes from the use of most technology and information systems are dependent on the social contexts in which they are enacted (Orlikowski, 2000, Esslinger, 2009, Pozzebon & Diniz, 2012).

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This paper presents an understanding and initial interpretation of a case study of challenges of implementing MPRA for SLED drawing on the concepts of ETiP as a lens through which to determine the role of informatics in implementing the MPRA as a major source of revenue for local government (municipal). The paper has two objectives: firstly, to present a theoretical understanding and interprets the concept associated with the point of view of using data from a real case study and secondly, to suggest a general framework that provides insight to the role of informatics in implementing MPRA to improve municipal revenue collection to sustain economic development initiatives and strategies. Given the above, this paper is structured as: A brief overview of Structuration Theory and the concept of enactment of technology-in-practice (ETiP) used in the analysis of the case study; 1. A summary of the methodology and the case narrative; 2. Reinterpretation of the case study from the perspective of (ETiP); and 3. Implications as a general framework Theoretical Framework Overview of Enactment of Technology-in-Practice (ETiP): The overview first traces the various attempts that have been made in literature to “reconcile” ETiP: a concept in Structuration Theory (ST) with a real challenge of gaining a deeper understanding of the role of informatics in implementing legislation such as MPRA for local economic development initiatives and strategies by municipalities. Twum-Darko (2011, pp. 48-49) commented that ETiP allows legislation (e.g., MPRA) driving SLED to be seen as a structure. In order to deepen the understanding of ETiP and how it is applied in the field of informatics which is relevant to this research, it is important to understand Giddens’ (1984, pp. 9-14) characterization of sociological enquiry, specifically of agency and structure as described in this section. Agency/Agent and Structure are two of the central constructs of ST. Giddens (1984, pp. 14) and Twum-Darko (2011) argues that human agency is the ‘capacity to make a difference’ (also known as ‘transformative capacity’) i.e., the flow or pattern of people’s action and not people’s intentions of doing things. Giddens (1984, pp. 17 & 377) further describes structure as resources and guidelines frequently implicated in the ETiP. According to Giddens (ibid.) guidelines are techniques used in the enactment of social practices. Therefore on-going use of informatics (technology and information systems) strengthens technology-in-practice and therefore becoming repeatedly used to carry out social life’s demands such as SLED. Hence deducing from Giddens (ibid.), ‘rules and resources’ are recursively implicated in the reproduction of social systems. Thus, structure is what gives form and shape to social life, but it is not itself the form and shape (Giddens, ibid). Structure, and in the context of this paper, Technologies-in-practice, exists only in and through the activities of human agents (Giddens 1989, p. 256). Walsham (1993, p. 34) describes action (or interaction) as having strongly routinized aspects which is both conditioned by existing cultural structures and also creates and recreates those structures through the enactment process. By theorizing this social system, Giddens (ibid.) urged for a conceptualization of the contextuality of duality of structure and hence argued that “the constitution of agents and structure are not two independently given sets of phenomena: a dualism, but represent a duality.” Thus, duality in ST refers to the way in which action and structure presupposes each other. Giddens (ibid.) further argues that “the structural properties of social systems are both medium and outcome of the practices they recursively organise.” The latter which relates to, such as legislation impact on SLED, is what this paper intends to elaborate. Drawing from the work of Walsham (1993) and Orlikowski (2000), Twum-Darko (2011, pp. 48-49) further argues that ETiP offers the window through which to analyse the structure and its formulation (action or interaction) as one that constitute a duality i.e., the structural characteristics affect the action, and in turn, the structure can be modified through action which results in a new structure which is the basis of the next change. Deducing from Orlikowski’s structurational model of the ‘duality of technology’ (Orlikowski, 1992 & 2000), Twum-Darko (2011) furthermore argues that explicitly introducing material technology into the structure/agency duality, and also suggesting that social rules may be ‘embedded’ in “informatics” solutions during their design, but insisting that they cannot be programmatically read off by humans in a determinist manner (interpretive flexibility), a topic which is outside the scope of this paper. Orlikowski (2000, p. 407) used ETiP (see Figure 1) to further elaborate on the two notions of emergent structures and enactment, and indicated that structures are embodied in technologies to be appropriated by users (e.g., municipalities); while users may appropriate these differently from time to time and how, in the case of this paper, to identify other sources of revenue to sustain local economic development. “That is, rather than starting with the technology and examining how actors appropriate its embodied structures, this view starts with human action and examines (e.g., legislation (i.e., MPRA), development (i.e., SLED agenda) how it enacts emergent structures (e.g., Automation to collect and analyse data) through recurrent interaction with the technologies at hand” (op.cit.). Therefore, this structurational model (Figure 1) which is based on Giddens’ model represents Orlikowski’s argument of technology appropriation. Twum-Darko (2011, pp. 92-101) in an attempt to further elaborate on Orlikowski’s (2000, p. 410) concise description of the structurational model, repeats it verbatim: “When people use a technology, they draw on the properties comprising the technological artefact – those provided by its constituent materiality, those inscribed by the designers, and those added on by users through previous interactions (e.g., specific data content, customized features, or expanded software/hardware accessories). People also draw on their skills, power, knowledge, assumptions, and expectations about the technologies and its use, influenced typically by training, communication, and previous experiences. Users also draw on their knowledge and experiences with the institutional contexts in which they live and work, and the social and cultural conventions associated with participating in such contexts.” The follow understanding and interpretation modalities were applied: Facility: Facility as one of the modalities that shape human interactions with structure, is a resource which is allocated such that it manifest itself to exert or exercise power (through ongoing, situated use of IS/Technology), and in turn produces and reproduces facilities influencing social structures of domination (i.e., Technologies-in-practice). Norm: Norms on the other hand as one of the modalities, refers to moral codes (e.g., millennium development goals), leadership, and echampions which provide understandings and endorsement for human interactions, which ultimately produces legitimation within structures (i.e., legitimizing - through continuous usage - the provisions of legislation as functionality of IS/Technology). Interpretive Schemes: Structure (i.e., technology-in-practice) and interaction (Ongoing, situated use of IT/Technology) are associated with each other

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) recursively via the linking modalities such as interpretive schemes (similar to Facility and Norm). As humans communicate, they use interpretive schemes (e.g., MPRA, SLED agenda) to help them make sense of their interaction and at the same time these interactions change or reproduce the same interpretive schemes (i.e., amendments to make them relevant) that are embedded in structures as signification (i.e., technology-in-practice in turn providing a new view of the world). Figure 14: Adaption of Enactment of Technology-in-Practice

Source: Orlikowski (2000) The Case Study Background and Revenue Management Challenges: The South Africa Constitution (Act 108 of 1996) provides for a three-tier government system: National Government, Provincial Governments and Local Governments (Municipalities). The provincial governments are the nine (9) main regions of South Africa and each region has a number of municipalities; about 264 in total across South Africa. The constitution mandates municipalities to deliver services to the citizens in their jurisdiction, with powers to raise revenue or “to secure sound and sustainable management of the financial affairs of municipalities and other institutions in the local sphere of government” (Municipal Finance Management Act, 2003 (Act 56 of 2003)) and to receive transfers from provincial and national governments i.e., service delivery accountability. It is this mandate which this paper attempted to determine the role of informatics to sources and manage needed funds or revenue to initiate and sustain local development. The Provincial Governments have the oversight role over Local Governments (Municipalities) and have exclusive powers of the National Government and concurrent powers as the National Government. The National Government has the mandate to formulate policies and regulations, an oversight role of both Provincial and Local Government and has major taxing powers. These mandates are distinctive in that each sphere has its own unique area of operation. The mandates are also interdependent which means that the three spheres are required to co-operate and acknowledge respective areas of jurisdiction and at the same time the constitutional mandates are interrelated ensuring that there is a system of cooperative governance and intergovernmental relations among the three spheres (section 40 of the South African Constitution, Act 108 of 1996). Given the above, a reasonable proportion of the revenue management challenges of municipalities in South Africa emanate from the diverse nature of properties and settlements under a municipality’s jurisdiction. Therefore, an understanding of property and settlement types is critical for policy-makers seeking to create appropriate municipal institutions. Municipalities therefore are faced with additional challenges, including the following: 1. Properties and settlement dynamics have a major influence on the resource demands made on municipalities, particularly demands for access to basic services and infrastructure. Factors such as the population density and economic base of settlement influence proximity to bulk services, the cost of installing services and levels of affordability for households. Property types and settlement conditions therefore need to be taken into account when defining approaches to service delivery and appropriate municipal institutional arrangements. 2. Changes in population distribution affect the size of suburbs and townships. Service delivery strategy needs to take into account, and anticipate, the population distribution and concentration which is to be served by any municipality. 3. Extreme concentrations of taxable economic resources in formerly white areas, demanding redistribution between and within local areas. 4. Huge backlogs in service infrastructure in historically underdeveloped areas, requiring municipal expenditure far in excess of the revenue currently available within the local government system.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 5. 6. 7. 8.

Great spatial separations and disparities between towns and townships and urban have spread out and as such municipalities in both rural and urban areas will need to develop strategies for spatial integration, while managing the continuing consequences of rapid urbanisation and service backlogs. Entrenched modes of decision-making, administration and delivery inherited from municipalities geared for the implementation of urban and rural apartheid. Inability to leverage private sector resources for development due to a breakdown in the relationship between capital markets and municipalities, the lack of a municipal bond market and the poor creditworthiness of some municipalities. The constitutional mandate of MPRA now enables municipalities to create and sustain humane, equitable and viable human settlements and property types and to generate revenue to sustain. It is doubtful whether most municipalities – as presently designed - are adequately equipped to fulfil this developmental mandate. Local government has been democratised, but the municipal systems are still structured to meet the demands of the previous dispensation. A fundamental transformation is therefore required.

3. Methodology The methodology is a case study approach located in an interpretive paradigm. The underlying objective of this approach is to understand and interpret the social phenomenon, i.e., the role of informatics in government revenue management to sustain local economic development. This is to optimize the understanding of this complex social reality from the perspective of the capabilities of informatics which can influence the implementation of business and/or community/local economic development strategies. Drawing from Twum-Darko (2011, pp.107-134), ETiP was adapted to develop a theoretical understanding which provided a comprehensive interpretation of the results in terms of the role of informatics to institutionalise the provisions of MPRA to collect more property taxes to sustain local economic development. It must be noted that data was collected for the overarching research project in business and community informatics and part of which are used in this paper. Data was extracted from Strategic Plan Documents, Annual Reports, Audit Reports, Technology Infrastructure Policies, Corporate Governance Policy, Enterprise Architecture Strategy, Legal Frameworks, Project Management principles and a conducted unstructured interviews with staff (Senior, Middle and Operational management) of twenty-five (25) smaller municipalities which are tasked with the implementation of MPRA and local economic development initiatives. Most of the interviews lasted between one and half to two hours and they were all fully taped and transcribed. The investigation did not include the seven (7) Metros Cities of South Africa (e.g. City of Cape Town, etc) as previous work indicated that they have improved their capabilities to effectively source in and manage revenue for sustainable development and services delivery. The data collected covered the following characteristics: Table 30: Key characteristics of data collected Informatics Type

Revenue Type 1 2 3 4 5

Property rates

1

Technology/Technical infrastructure

Service charges

2

Legal infrastructure

Rental of facilities and equipment

3

Institutional infrastructure

Interest earned/ Dividends/Public Contributions & Donations

4

Enterprise Architecture Human infrastructure Leadership & Strategic Thinking

Fines (traffic fines)/ Licences and permits

5

6

Government grants and subsidies

6

7

Other income

Note: The informatics type is adapted from Heeks (2008) “Success and Failure in eGovernment Projects.”

The creation of Enactment of Technology-in-Practice (ETiP): The role of informatics in the implementation of MPRA to support SLED at municipalities is considered as a process of ETiP. The promulgation of MPRA, according to Twum-Darko (2011, pp.136-153), is meant to improve revenue of municipalities and to address inequity in property valuation and taxation in South Africa. As a mandate from the two houses of South African parliament, municipalities, have to put in place the necessary infrastructure which includes adequate IT systems and infrastructure to effectively implement the MPRA. Therefore, the analysis started with the investigation of how MPRA has been implemented in the 25 municipalities. The rationale was on the assumption that one of the channels to source in and effectively manage revenue is through MPRA effective implementation and use; and that the role of informatics is a major ETiP already pursued or to be pursued by the management of municipalities interviewed. We then traced the ETiP in the context of the role of informatics in MPRA implementation and how the provisions of MPRA entrenched in the information system as functionality (Twum-Darko, 2011, pp. 156-208) will sustain local economic development at the selected municipalities. 4. Results and Discussion The Table 2 (see Appendix A) illustrates revenue type data collected from the 25 municipalities, each showing the average percentage contribution to the total revenue over 5 years. Given the Table 2, as a general framework using the ETiP, the implications are that there are factors that have prevented adequate implementation of MPRA as a means to source and manage additional revenue of 25 municipalities investigated which represent fairly, the situation at the remaining 210 municipalities in South Africa. Thus, from Table 2 in relation to the 25 municipalities interviewed, property rates collection contributes to an average of 17% of the total revenue of municipalities. This is far less than the global trend of 28-30% (Williams, 2010). This is a serous loss of revenue to the municipalities which should, in terms of the global trend, become one of the major contributors to the total annual revenue of the municipalities. Data collected indicated that the main sources of revenue for municipalities are service charges (i.e., water, electricity, sewerage and refuse) and national government grants and subsidy to them. The two sources amounted to 80% of the total annual revenue. In terms of the

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Municipal Systems Act, national government contribution to municipalities, annually, is 20% of total revenue. From Table 2, it appears only two municipalities (M1 and M18) survived with the 20% during the 5 years as the data has suggested. The rest had to ask for more funding above the 20% from the National Government to sustain local activities including economic development. Using the general framework: ETiP as a lens to determine what might have gone wrong, it became apparent that the following factors which are in 3 broad categories and illustrated in Table 3 (see Appendix A) prevented sufficient implementation of MPRA across the municipalities interviewed: Facilities: Unaligned business processes, the absence of effective mass appraisal systems which have created huge paper-based filing systems and extensive manual processes and limited integration of IT systems prevented the municipalities to determine the property rates revenue, improve collection and management thereof. The aforementioned limitations also affected quality of data collected and as such created pockets of inequality and inequity in the valuation rolls. Norm: The absence of eGovernment champions and inadequate ICT leadership; lack of coherent strategy for ICT for development; nonaligned governance structures impacting on ICT decisions; and lack of formalized reporting and management information system. Interpretive scheme: Inadequate knowledge of how to implement MPRA to derive maximum benefits from the provisions of the Act has affected their ability to use property rates as means to increase revenue for local development. Also politicisation of municipal services have led to nepotism and favouritism in service delivery due to bad judgment and poor property data collection thus leading to low collection of property rates/taxes. All the municipalities interviewed have no visible and predictable integrated SLED agenda. 5. Conclusion and Recommendations Municipalities are like any organization whose main mandate is to deliver basic services to the public. And as such are to be driven by informatics enabled organizational transformation initiative like automated mass appraisal (AMA) of properties. Therefore, the readiness of these municipalities to implement AMA on the back of MPRA can be studied using the concepts of ETiP as a lens through which to understand and interpret the role of informatics in municipal (government) revenue management to sustain local economic development. ETiP as a general framework, further demonstrates the importance for the role of informatics (see Table 3) in relations to sustainable local economic development and that it can be studied using technological determinism, social construction of technology perspective as argued by Twum-Darko (2011: 46-50). The outcome of the study recommends the following (Note: Table 3: 5 = Success and 1 = Fail): Facilities : Given Table 3 (see Appendix A), strategic and technology partnership with the private sector will improve the technical infrastructure of the majority of the municipalities to: 1. Develop new business processes and 2. Implement automated mass appraisal systems to improve the collection of property valuation data, improve quality of property valuation data to create equality and equity in property rating; 3. Implement enterprise content management to improve document management, workflow and access to information; and 4. Proper, strategic and effective integration of IT systems to collect and manage the property rates and revenue. Norm: The need to introduce eGovernment champions and to establish ICT leadership was identified (Table 3 – Appendix A). A need was identified to ensure coherent strategy for ICT for local economic development to reverse growing poverty. It was also identified that all governance structures impacting on ICT decisions need to be aligned and that formalized reporting on the achievement and success of sustainable development goals is required to measure the extent of the implementation of the provisions of the legislation. Interpretive scheme:Table 3 (see Appendix A) illustrates the need to increase, among municipal staff (not only the finance department), the MPRA knowledge and the benefits of implementing it through the use of informatics to institutionalize the provisions of the Act as it is routinely used via an information system - AMA. The “spirit” of MPRA and which this paper determined, is to derive adequate taxation or rating of properties in the jurisdiction of municipalities to bring in the needed revenue for development and to sustain development. Thus, effective MPRA implementation is the use of informatics to rollout automated mass appraisal (AMA) to support property rating. This was found to be the means with which municipalities can improve the property rates contribution of the total annual revenue from 17% to 30% in line with global trend. Though the study did look at the challenges of revenue collection e.g., indigent citizens, they are not considered in this paper. It is envisaged that AMA will eliminate bad judgment and poor property data collection thus leading to increased collection of property rates/taxes. AMA will therefore drive the municipalities to have visible and predictable integrated SLED agenda. There was also the need to improve the e-Leadership capabilities of municipalities to drive not only AMA but also IT infrastructure integration. References Barley, S. (1990). The Alignment of technology and structure through roles and networks. Administrative Science Quarterly, 35, pp. 61103. Benjamin, P. (2001). Community development and democratisation through information technology: building the new South Africa. In Reinventing Government in the Information Age, R.B. Heeks (ed.), Routledge, London, 194-210. Department of Provincial and Local Government, (2007). Policy Process on the System of Provincial and Local Government; January, 2007. Dernbach, J. (2008). Navigating the U.S. transition to sustainability: Matching national governance challenges with appropriate legal tools. Tulsa Law Review. (44), pp. 93-120. Giddens, A. (1984). The constitution of society: Outline of the theory of structuration. Berkeley CA: University of California Press. Giddens, A. & Pierson, C. (1998). Conversations with Anthony Giddens. Cambridge: Polity Press. Global Reporting Initiative. (2012). Annual Report: 2011/12. Retrieved March 4, 2013, from: https://www.globalreporting.org/resourcelibrary/GRI-Annual-Report-2011-2012.pdf. Heeks, R. & Dave, R. K. (2008). Avoiding eTransparency Failure: Ideas about Politics and Self-Interest. Retrieved September 12, 2013, from: https://www.egov4dev.org/transparency/techniques/factors_politics.shtml.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Irani, T., Rudd, R., Gallo, M., Ricketts, J., Friedel, C., & Rhoades, E. (2007). Critical thinking instrumentation manual. Retrieved March 15, 2013, from: http://step.ufl.edu/resources/critical_thinking/ctmanual.pdf. Jenkins, V. (2002). Placing sustainable development at the heart of government in the UK: The role of Law in the evolution of sustainable development as the central organising principle of government. Legal Studies (22), pp. 578-602. Koutifaris, K. & Mangioni, V (2012). Rates versus Developer contributions as revenue sources for local government. Commonwealth Journal of Local Governance, (11), pp. 53-75. Retrieved August 17, 2013, from: http://epress.lib.uts.edu.au/ojs/index.php/cjlg Orlikowski W.J. (1992). The Duality of Technology: Rethinking the Concept of Technology in Organizations. Organization Science 3(3), 398-427. Orlikowski, W.J. (2000). Using technology and constituting structures: A practice lens for studying technology in organizations. Organization Science, 11(4), 404-428. Porritt, J. (2009). The standing of sustainable development in government, p. 10; Retrieved September 12, 2013, from: http://www.jonathonporritt.com/pages/2009/11/the_standing_of_sustainable_ de.html. Pozzebon, M. and Diniz, E. H., (2012), Theorizing ICT and society in the Brazilian context: a multilevel, pluralistic and remixable framework. BAR, Braz. Adm. Review. vol. 9, n.3 pp. 287-307. Retrieved October 16, 2013, from: http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1807-76922012000300004&lng=en&nrm=iso. ISSN 1807-7692. http://dx.doi.org/10.1590/S1807-76922012000300004. Robertson, R. (1992). Globalization: Social Theory and global culture. London: Sage. Robey, D. & Boudreau, M. C. (2000). Organizational consequences of information technology: Dealing with diversity in empirical research. In: R. W. Zmud, (Ed.), Framing the domains of IT management: Projecting the future through the past. Cincinnati: Pinnaflex Education Resources. Rolland, K. H. & Monteiro, E. (2002). Balancing the local and the global in infrastructural information systems. The Information society. 18, (2), pp. 87-100. Ross, A (2010), It’s Time to Get Serious - Why legislation is needed to make sustainable development a reality in the UK. Sustainability. Vol 2, pp. 1101-1127. Retrieved August 16, 2013, from: http://www.oalib.com/paper/170223#.Uq96beJvVsw. ISSN 20711050. www.mdpi.com/journal/sustainability. Ross, A. (2008). Why legislate for sustainable development? An examination of sustainable development provisions. In UK and Scottish statutes. J. Environ. Law, 20, 35-68. Sahay, S. & Walsham, G. (2005). Proceedings of the 8th International working conference of IFIP WG 9.4, Abuja, Nigeria. May 2005: 4151. Skill, K. (2012). The What, Who, and How of ecological action space. Sustainability 4, no. 1, pp. 1-16. Retrieved October 16, 2013, from: http://www.mdpi.com/2071-1050/4/1/1. EISSN 2071-1050. www.mdpi.com/journal/sustainability. Williams R. (2010). State and local tax policy: What are the sources of revenue for local governments? In: The tax policy briefing book: A citizens' guide for the 2008 election and beyond p. 2. Retrieved from: http://www.taxpolicycenter.org/upload/Statelocal/IV1STATEOFLOCALTAXPOLICY.final.pdf. Twum-Darko, M. (2011). The Role of Information Systems in Legislation Led Reform: A case study in the context of the new municipal property rates Act of South Africa, LAP Lambert Academic Publishing; Germany. pp. 46-50, 202-203. Walsham, G. (1993). Interpretive information systems in organizations. Chichester: John Wiley & Sons. Walsham, G. (1995). Interpretive case studies in IS research: nature and method. European Journal of Information Systems, 4, 74-81.

Appendix A Table 31: Percentage contribution to total revenue by revenue type T W EN TY FI VE (2 ) M U NI CI PA LI TI ES IN VE ST IG A TE D AV G M 25 M 24 M 23 M 22 M 21 M 20 M 19 M 18 M 17 M 16 M 15 M 14 M 13 M 12 M 11 M 10 M 9 M 8 M 7 M 6 M 5 M 4 M 3 M 2 M

1 Re ve nu e Ty pe

Pe rc en ta ge of To tal An nu al Re ve nu e 14

18

13

16

13

18

14

15

18

17 %

50

53

55

47

53

30

51

51

30

46 %

1

1

1

2

1

2

1

1

2

1 %

0

2

0

1

0

1

1

1

1

1 %

1

0

0

1

0

1

0

0

0

1

0

1 %

0

0

0

0

0

5

0

4

1

1

4

2 %

0

0

0

0

0

1

0

2

1

1

2

1 %

2

0

1

2

4

1

1

0

0

1

0

1

1

50

0

3

1

51

1

0

1

0

18

0

0

0

8

19

2

1

0

0

2

4

1

0

0

13

2

1

30

2

1

0

0

2

28

1

0

1

2

1

18

43

1

0

2

1

19

38

1

1

1

46

14

51

1

1

19

13

51

2

1

1

16

56

1

1

0

17

31

2

5

1

19

50

1

0

18

51

0

1

17

1

51

19

47

17

18

2 Int er est ea rn ed 0 Lic en ce s an d pe rm its

54 Se rvi ce ch ar ge s 0 Fi ne s (tr aff ic fin es )

17 Pr op ert y rat es 1 Di vi de nd s/ Pu bli c Co nt rib uti on

1 Re nt al of fac ilit ies an d eq ui p m

269


nd

23

27

31

19

30

23

27

35

27

25

35

28 %

4

3

4

4

6

1

4

6

8

4

4

8

4 %

8

22

35 10

1

41 3

28

35

1

1

28 0

44

30

5

0

22 1

2

21 4

24

23 6 Ot he r inc o m e

24

19 Go ve rn m en t gr an ts an d su bsi

10 0 % 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0

To tal

AV ER A GE T O T AL IM PA CT Ta bl e 32 : Re ad in es s fo r Au to m at ed M as s Ap pr ai sa l (A M A) in Pr op er ty Ra tin g IN FO R M A TI CS TY PE M

1 2 3 4 5 M 25 M 24 M 23 M 22 M 21 M 20 M 19 M 18 M 17 M 16 M 15 M 14 M 13 M 12 M 11 M 10 M 9 M 8 M 7 M 6 M 5 M 4 M 3 M 2 M 1

Fa cil iti es

3

2

2

3

3

2

2

2

3

3

2

2

3

3

2

2

4

3

2

4

4

3

3

3

3

3

4

3

2

4

4

3

3

3

3

3

3

3

3

2

2

3

3

2

2

2

2

2

3

2

2

3

3

2

2

2

2

2

X

4

4

1

1

2

1

1

1

2

2

2

2

2

1

2

1

1

1

2

2

2

2

2

X

4

3

3

3

3

2

3

3

3

3

3

3

3

3

2

3

3

3

3

3

3

3

2

X

4

5

3

3

3

2

2

3

3

2

2

2

2

2

2

2

3

3

2

2

2

2

2

2

X

3

4

3

2

3

2

2

3

3

2

2

2

2

2

3

2

2

3

3

2

3

3

2

2

X

3

3

4

3

3 AV ER A GE IM PA CT

No r m

2

3

4

3 eLe ad er shi p

X

2

4

3

3 Hu m an Inf ra str uc tu re

In te rp re tiv e Sc he m e

3

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Advertisement Reading Manner: A Reception Study Atılım Onay Anadolu University, TURKEY [email protected] Abstract: It is easy way to ban a media text thinking it is detrimental for the society or the society’s norms. It is controversial to decide which media texts are detrimental. If a media text is detrimental for the society all individuals who constitute the society should read the media text in the same detrimental way, but we also know that according to active audience theorem same media text can be read differently by different audiences. In this study, advertisements and audiences are addressed together. 4 advertisements, in sequence, Ikea, Alpet, Toyota Yaris and Körpe advertisements which drawled reaction at the time of the first broadcast and then banned, were showed to the participants one by one and tried to understand advertisement reading manner. Advertisement reading manner of the participants are evaluated by means of media text reading manner categories of Stuart Hall. It is found out that the result of the study support “active audience” theorem. Each advertisement is read in different forms as indicated in 3 reading forms of Hall. The thesis saying that the same media message may be read differently by different audiences is verified in this study. Key words: Advertisement, reception, Ikea, Alpet, Toyota Yaris, Körpe 1. Introduction The importance attached to advertisements and advertising in consumption based developed economies continue increasingly with consideration to the leading role of consumption in proper functioning of the system. Advertisements that trigger consumption and contributes to the functionality of the system have developed and became diversified through media which is also diverse at present. Today, seeing advertisements merely as a series of persuasive written and visual material prepared for encouraging consumption signifies a rather shallow evaluation of the significance of advertisements. Advertisements come out in the end of a creative process. World of advertisements created for target audience pushes the limits of creativity and brings new meanings to audiences beyond consumption. This world contains values with visual, written and audible elements. Studying world of advertisements means considering the meanings and values they carry. In addition to this world, there are the worlds, meanings and values of audiences. The subject of this study is these two worlds that may have both similarities and conflicts. Understanding reception analysis: Reception analysis which collects methods of commenting through analysis from literary tradition and communication designs and cultural processes as socially designed discourse from cultural works carries out a comparative reading of audience discourse and media discourse in order to understand reception process. Audience processes are generated within small scale empirical designs especially based on profound conversations and participant observations. Reception works that compares these discourses with the structure of the media content indicated how certain types and themes could be excluded by special audiences. Reception analysis refers to audience background variants as well as other cultural and political institutions and it discovered the contribution of audiences to social meaning production and to cultural structures in general by participating in special interpretive communities. The manner of meaning in media to direct social action and perception remains as a problem to be dealt with by more comprehensive audience searches (Jensen andRosengren, 2005:72). According to a popular view, mass communication needs to be considered as a cultural process where meaning is verbally generated. This point of view regards mass communication tools as the starting point of social production of dominant symbols but they are not final determinants. There is a special emphasis on the effective role provided to audience as the joint producer of meaning [Jensen, 2005:132]. Cultural studies are merged with reception analysis by various aspects. In this context, reception analysis covers various units of qualitative empiric audience researches; and they attempt to combine social-scientific and human perspective regarding reception at various extent (Jensen andRosengren, 2005:62). Audience searches carried out within British cultural studies use the triple reading manner developed by Stuart Hall. According to triple reading manner, audience may read a media message in three ways: 1. 2. 3.

Dominant/hegemonic reading: the audience/reader acts in a manned encoded by the author. Audience takes the connotations in the text fully and as correct. This is perfect transparent communication. Negotiated reading: the audience knows what is dominantly defined and professionally interpreted. But he, though limited, produces meanings that fit in his own position and therefore he may usually contradict with the proffered reading; Oppositional reading: in this reading manner where the audience perfectly understands the discourse literally and connotationally, the message is decoded oppositionally and re-established within the framework of an alternative reference. Audience opposes the meaning of text. Oppositional reading is evaluated as a way of reading where there is conflict in the discourse (transferred by: Yavuz, 2007:74)

In this model developed by himself, Hall shows that the audience may not decode a text as the encoder desires. Triple distinction has been first empirically tested by Morley and Brundson (1980). This research examined a news programme called Everyday Television Nationwide (Yavuz, 2007:74). According to Hall, communication process has to be addressed as a whole as the conduction moment of the programme and the perception moment of it by the audience. Hall noticed that media “language” was not an obvious “tool” to transfer ideas nor a transparent “window” of social world; however, this is unavoidably a refractive sign system. The essence of the article was expressed by the sentence “codes of encoding and decoding may not create a perfect symmetry” (Moores, 1995:16-17). Codes of encoding and decoding may not be perfect symmetry. The level of symmetry, in other words the level of “understanding” and “misunderstanding” in communicational exchange depends on the level of the symmetry/asymmetry (equivalence relations) between the positions of the encoder-producer and decoder-receptor (Hall, 2005:88). This potentially asymmetrical position has two important grounds. First, the situation is the intrinsic polysemy of meaning all text (Moores, 1995:18). Meaning is polysemic by its nature and

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) inherently contextual. Meaning functions like a language not like a mirror. Meaning is not a thing but it is a practice. We need to understand how languages build meaning in representing world in different manners and how symbolization functions (Hall, 1997:90). Meanings are included totally in social relations and structures. They function socially through some cultural and political practices to an extent they can be articulated to various social positions and create social subjects. Currently, there are no fixed, bewildered social subjects who may be addressed as constantly passive audience. Meaning cannot be conceptualized out of the game field of power relations (Hall, 1997:91). This is to be open to reading rather than a likely reading. Second is caused by the problematic and broad nature of reading practices. Social subjects that decode a media message may not be the same with the covert or preferred readers of text. These subjects may have a creative communication with text and use the symbolic resources offered to them in a productive way. Audience searches should be involved with the placement of important groups of meaning. Audience search should reveal the social and inconsistent positions of readers and the map of lines added to these groups (Moores,1995:18). “Whatever encoded in the message, decoding leads to rescue. Dominance of media is weak and ineffective, hence people create their own meanings and tastes”. In other words, “there is no need to worry about the people who watch TV for several hours everyday and consume images and values. People are not cultural imbeciles directed by media but they are critical, effective viewers and listeners” (Morley, 2005:102). With sentences above, Morley rescues audience from passive position but it is not possible to think that each audience groups may always be “critical”. Yavuz who states, “how to receive/read any text is understood when text is met by the audience” (2007:87) emphasizes that the environment, time and internal factors are effective in the reception of media text. Reception analysis develops an analysis with qualitative and empirical nature on the relation of audience and content. It obtains empirical data on audience with profound conversations and observations and uses qualitative methods that compare this data on content data. The objective is to be able to develop an attitude regarding the use and effects of media content by examining reception related processes (Jensen andRosengren, 2005:63). 2. Methodology This study is a qualitative case study involving total 21 men and women participants from different cities of Turkey and from different education levels (12 people with an education of high school and below, 9 people with an education of above high school). Qualitative search: In social events, it is virtually impossible to control and limit variants unlike nature sciences. Human kind tends to change affected by the social environment. Therefore, we are supposed to study human kind with a flexible approach not within limited patterns. Qualitative searches have emerged as a result of this requirement (Demir, 2009:287). In this study that aims to reveal how audience reads the same advertisement text, we decided to carry out a case study based on questions like how and why and allowing detailed examination of a case that cannot be controlled by the researcher. The objective of this study that was designed as a case study was to define the way of reading the same advertisement texts by different viewers. As required by the ethics of qualitative study, names of participants were not included while interview numbers and nicknames were used instead. Participants were askedto watch from the personal notebook of the researcher four commercial videos of Ikea, Alpet, Toyota Yaris and Körpe to find out their advertisement readings. The commercial videos used in the study were those that were controversial / criticized and/or discontinued when they were broadcast. Commercial videos: The commercial videos used in the study were commercial videos of Ikea, Alpet, Toyota Yaris and Körpe that were controversial / criticized and/or discontinued when they were broadcast. Ikea commercial: A woman finishes shopping and pays the amount at the checkout where she checks the receipt and gets surprised. She hides the receipt in her chest and starts running with Ikea bags in her hands. She runs and calls out her partner’s name to leave the shopping centre. “It is not a mistake” reads on the screen. She gets in the car and shouts out in joy with her partner when leaving the shopping centre. The commercial is based on woman’s idea that there was a mistake in the invoice and she paid less when attempting to leave the place as soon as possible. The commercial was highly criticized from this aspect. It was not regarded as an approved behaviour to think paying less and leaving the place in rush instead of having the receipt corrected. It was considered that this behaviour disregarded values like “honesty and righteousness”. Alpet commercial: Mehmet Aurelio seen in his car sings along the Turkish National Anthem played by the car audio. He stops at Alpet petrol station. Staffs of the station and customers are “order arms” position and Mehmet Aurelio also gets off the car to take “order arms” position. Turkish flag is seen next to Alpet flags and voice over reads “Alpet wishes success to our national team”. The commercial was criticized when broadcast. The criticisms were that the National Anthem was used in an advertisement that is a commercial means and that the anthem was listened in a car like listening to music. Toyota Yaris commercial: There is man wiping the windows of a building on a long ladder. The ladder slips and the man get hung on the wall of the building. A woman in her bathroom hears the “help” shouts of the man and goes to the balcony to understand what is going on. She sees that the man is about to fall from the wall and shouts “stop, hold on, I am coming” before getting out of the building. She gets in her car and drives it away from the spot where the man would possibly fall to. The commercial was criticized when broadcast based on the argument that material values (woman’s car) were more important than human life as emphasized by the fact that woman drove her car away instead of helping the man hung on the wall. Körpe Commercial: A man sleeping alone in his bed wakes up with noises of moaning. In the next flat, there is a top-naked man sitting on the edge of bed and a woman standing with her head near to the lap of the sitting man. Moaning continues. The man understands that the noises are coming from the next flat and reacts by hitting his head to the wall. Next flat is seen again where there is a tray with various meat products on it being eaten by the man and woman with moaning noises. Voice over reads “moaning taste from Körpe ….hot dog, salami, sausage, jambon, etc…”. The commercial was heavily criticized due to its sexual connotations.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 3. Findings and Interpretation Ikea commercial: Dominant/Hegemonic reading: It can be said that ten out of twenty one participants in the study read the Ikea commercial in the manner of dominant/hegemonic reading as included in the triple reading pattern in Hall’s encoding/decoding model. The following is Songül’s evaluation according to this reading manner where the commercial is perceived in the manner encoded by the producer: … the woman sees shocking prices at the market, I believe that she purchases so many items with so less money, in some markets there are very favourable credit card instalments, spreading the payment over months and purchasing all needed for our house are good, it is not useless…. I found it to be exaggerated. There is a mistake in the receipt and she wants the leave as soon as possible, it is obvious that a huge market won’t do such a mistake, they could explain it in a better language… Negotiated reading: It can be said that seven out of twenty one participants in the study read the Ikea commercial in the manner of negotiated reading as included in the triple reading pattern in Hall’s encoding/decoding model. Followings are the views of Meltem who perceives what is defined as dominant in the commercial but who also has some disliked parts in the commercial: …. shopping woman sees a price which is lower than what she expects and thinks that this is a mistake. She wants to get out of the place as soon as possible. Actually, it is okay if it is an emphasize on low prices …….it is not bad focusing on prices and keeping the commercial short as I don’t like long commercials … O didn’t like her shouting … I think it is exaggerated … But normally one knows the price of the item that is purchased, so if it there was a mistake I would replace the item, I mean I would not be surprised at the checkout … Oppositional reading: It can be said that four out of twenty one participants in the study read the Ikea commercial in the manner of oppositional reading as included in the triple reading pattern in Hall’s encoding/decoding model. It is understood that Beyzaoppositionally decoded the message in the text and re-established it within the framework of an alternative reference: …. well a woman gets surprised when she sees the amount to be paid at the checkout. She thinks that she pays less and runs away with the items. There is an emphasis on low prices. When I watched the commercial, I though it wasn’t suitable for Turkey. I witness many times that people here in Turkey warns the shopper when they see any mistake in the bill so that they won’t cheat. I would warn too. I should keep the save and run away, that is not good for me. That’s why I didn’t like it… Alpet commercial: Dominant/Hegemonic reading: It can be said that eight out of twenty one participants in the study read the Alpet commercial in the manner of dominant/hegemonic reading as included in the triple reading pattern in Hall’s encoding/decoding model. Participants in this category state that they were proud to listen to the national anthem and to see Turkish flag. It can be said that playing national anthem and using flag created positive feelings on these participants that were reflected on the brand advertised. Viewer/reader may act as encoded by the producer. Sebahat’s statements are remarkable: … good thing about it is that our anthem is played in the beginning. That is what I liked. Our flag is used in the end that I like and care. Anthem is also good. Yes this is an advertisement and they put our anthem, it is very good. I like it…. I also liked that our flag was waving. They play national anthem, so I think it is a quality fuel oil. So thanks God our anthem is played, our flag is in the sky, so Alpet must be a good brand of fuel oil. I didn’t use it but our anthem and flag made me close to the brand… Negotiated reading: It can be said that six out of twenty one participants in the study read the Alpet commercial in the manner of negotiated reading as included in the triple reading pattern in Hall’s encoding/decoding model. Participants considered among this category in accordance with this reading manner where audience produces favourable meanings although limited reflect their own point of view about the commercial. Most of the criticisms is related to listening to and singing national anthem in the car. What Sadık says on this is remarkable: … I would prefer that the football player stops the car and gets “order arms” position when the national anthem was played initially after that he would listen to or sing along the national anthem. Just for respect to our national anthem… yes he was singing. But whether he sings the anthem or it is played otherwise, I would prefer him to stand up and then listen to or sing... yes. Whatever the reason, we should definitely stand in silence… Oppositional reading: It can be said seven out of twenty one participants in the study read the Alpetcommercial in the manner of oppositional reading as included in the triple reading pattern in Hall’s encoding/decoding model. The basic criticism to this commercial

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) in this reading manner where the message was decoded oppositionally consists of nationalist feelings. Beyza strongly criticized the commercial with following remarks: …. it is a disgrace, very bad commercial. National team should of course put forward national feelings, Aurelio may be a good choice but he may eat kebab for instance, or do something specific to Turks etc, that would be more effective but this is very bad… National anthem is very important, it makes one’s hair stand on, that’s why they did this commercial but it didn’t affect me. No one plays national anthem in a car.Mehmet Aurelio never does it. They did this commercial since it looks always good when a foreigner tries to speak Turkish.. Normally I am very far from militarist feelings but apart from that, I would do a similar advertisement if I was asked to make a commercial for the national team but this was also done very badly. There are no feelings like having hairs stand on. It is like comedy, everyone is at order arms position, very surreal and so absurd that I cannot describe…. Toyota Yaris commercial: Dominant/Hegemonic reading: It can be said that six out of twenty one participants in the study read the Toyota Yaris commercial in the manner of dominant/hegemonic reading as included in the triple reading pattern in Hall’s encoding/decoding model. Audience acts as encoded by the producer in this reading manner decoded where the message is decoded as desired by the producer. Melike emphasizes on the difference between “normal” life and commercials with the following words: … a man is wiping the window on a ladder, suddenly ladder slips and man shouts for help. A woman hears this call but runs to save her car instead of man so that the man would not fall on her Toyota… Normally, one doesn’t act like that and tries to save the man, not the car. That could be a meaningful idea to emphasize on the car, Toyota, to use it in the commercial. I can say that this is a memorable commercial.. Normally, no one does that, people would try to save the man, not the car, when the man was falling down. But this weirdness is the reason of being memorable, I guess… Negotiated reading: It can be said that nine out of twenty one participants in the study read the Toyota Yaris commercial in the manner of negotiated reading as included in the triple reading pattern in Hall’s encoding/decoding model. Followings are the remarks of Songül in accordance with this reading manner where audience produces meanings suitable for their own position: ... It was a commercial of Toyota telling that the price of the car is twenty billion. I was expecting that the man to fall down, but he didn’t… She drove her car away so that the man wouldn’t fall down on the car and damage it. I think it was an irrelevant commercial, not good for a Toyota commercial. It would be better if the internal space, traction and comfort of the car were introduced. Only thing for me is that the cost is twenty billion. She drove her car away because the top of car was weak. I mean that wasn’t a good commercial…. Oppositional reading: It can be said six out of twenty one participants in the study read the Toyota Yaris commercial in the manner of oppositional reading as included in the triple reading pattern in Hall’s encoding/decoding model. In this category where the dominant view is that material cannot be more important than human life, this commercial was criticized for its view disregarding human life and evaluated by different opinions. What Sadık says is remarkable here: … I was disturbed by this commercial… Of course woman’s action, driving her car away from the man to avoid hitting by him disregarding human life, it was very disturbing. One shouldn’t do that, it means human life is less valuable than car. No, human life is more important. There was a ladder next to her car, she was supposed to use the ladder and save the man. Car must be insured anyway, if there is a damage, insurance would pay it. It is not more important than human life, I was disturbed by this commercial…. Körpe commercial: Dominant/Hegemonic reading: It can be said that two out of twenty one participants in the study read the Körpecommercial in the manner of dominant/hegemonic reading as included in the triple reading pattern in Hall’s encoding/decoding model. The followings are the remarks of Kemal who decoded the meanings in the commercial text as desired by the producer: ..here there is conversation between two neighbours. There are moanings due to the taste of the sausage being eaten while the neighbour thinks of sexual acts. So they emphasized that sausage was so tasty and pleasing. It is a nice commercial, a funny one… I liked it, yes it is a good commercial. Negotiated reading: It can be said that sixteen out of twenty one participants in the study read the Körpecommercial in the manner of negotiated reading as included in the triple reading pattern in Hall’s encoding/decoding model. In this reading manner where audience produces meanings suitable for their own position, it is noticed that basic criticism is about the “eroticism” of the commercial. People think that the commercial is not suitable for children. Erkan has following remarks:

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… what can I say about this commercial, sausage and hotdog are usually consumed by children, and this commercial is not suitable for them. I think this commercial should be broadcast after midnight. I couldn’t make any correlation… Of course I a am watching this with my children. When my child of 4-5 years old asks what these men are doing, I think it is far too much erotic… First, what sausage is eaten by woman is not clear. It is not seen first, viewers are mistaken like the neighbour with the noises. There is a man and a woman, no sausage but weird acts and noises. Too erotic a commercial… actually I liked it but thinking of children….” Oppositional reading: It can be said three out of twenty one participants in the study read the Körpecommercial in the manner of oppositional reading as included in the triple reading pattern in Hall’s encoding/decoding model. Kağan criticizes the commercial with a view of families with low purchasing power and of children and does not like the commercial for using sexuality and food based on religious and traditional values: … now there are two matters that disturb me in the commercial due to people with low purchasing power especially in the food sector. First, I have always been concerned about the commercials of good items that would be expensive for families with low purchasing power, where children may demand the items and their parents cannot afford. The effects on families with low purchase power, this was my concern. Sausage hotdog cannot be purchased by all families, but these are cheaper now maybe because of lower quality ingredients while high quality ones are really expensive. A sensitive parent would try to provide their children with quality ones which are expensive. Therefore, such tempting commercials would make the parents face their children. Personally I support that such food items should not be used as advertisement element. Another point that disturbs me is that our society is still under the influence of agriculture society no matter how we appear to be an industrial society. We have our own traditions and customs. And television is the only entertainment for many families. Therefore, I am always disturbed by the commercials with sex appeal and sexuality etcwhich may put family in a difficult position. That point was disturbing. When we think about the religious side of the matter, I was also disturbed by the correlation of food and sexuality. I may understand sexuality element in a car commercial or a furniture commercial, but I can say that I was a bit disturbed by the association of food and sexuality, with a view of our society which has a phenomenon of sins… 4. Results and Conclusion Looking at the commercial reading manners of participants, there are no surprising results. We faced “active” audience in this study, which is frequently emphasized in reception studies. All of the triple reading manners determined by Hall has been seen in each of the commercials. This result is remarkable as the commercials studied caused controversy at the time of broadcast, created complaints and banned. Likewise, even the commercials that were complained or banned based on the thesis that they contradict with the values of the Turkish society can be read in a “dominant” manner and liked by different audience in different ways. Considering the data obtained from the study, it can be said that it is not a good approach that commercials should be banned based on non-conformance with the values of the Turkish society. This puts advertises in difficult position and limits the commercial creators. It can also be recommended that this kind of commercials should be broadcast at times when children at ages unable to perceive the messages of the commercials with a critical point of view should be sleeping and advertisers may be asked to observe this recommendation. References Demir, O. Ö. (2009). Nitel Araştırma Yöntemleri. Sosyal bilimlerde araştırma yöntemleri. (Editör: Dr. K. Böke). İstanbul: Alfa Basım Yayım. Hall, S. (2005). Kodlama, kodaçımlama. Medya ve İzleyici Bitmeyen Tartışma. (der: Ş. Yavuz, çev: Y. Yavuz). Ankara: Vadi Yayınları, 85-99. Jensen, Klaus B., Rosengren, Karl E. (2005). İzleyicinin peşindeki beş gelenek. Medya ve İzleyici Bitmeyen Tartışma. (der: Ş. Yavuz, çeviren: Ş. Yavuz). Ankara: Vadi Yayınları, 55-85. Jensen, Klaus B. (2005). Sosyal kaynak olarak haberler: Danimarka televizyon haberleri hakkında nitel ampirik bir çalışma. Medya ve İzleyici Bitmeyen Tartışma. (der: Ş. Yavuz, çev: Ş. Yavuz). Ankara: Vadi Yayınları, 131-159. Jensen, Klaus B. (1991). Receptionanalysis: Masscommunication as thesocialproduction of meaning. A Handbook of QualitativeMethodologiesforMassCommunicationResearch, (der: K. B. Jensen ve N. W. Jankowski). London: Routledge, 135149. Morley, D. (2005). Etkin izleyici kuramı: Sarkaçlar ve tuzaklar. Medya ve İzleyici Bitmeyen Tartışma. (der: Ş. Yavuz, çev: Y. Yavuz). Ankara: Vadi Yayınları,99-105. Moores, S. (1995). Interpretingaudiences: tneethnography of mediaconsumption.London: Sage Publications Ltd. Yavuz, Ş. (2007). Reklamları izlediniz.Ankara: Ütopya yayınevi.

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Status of Divine Word Colleges in Region 1, Philippines Maria Veronica,Callanta-Fontanilla, Ed. D. Gyeongju University, Gyeongju-si, South Korea [email protected] Abstract: This study aimed to determine the status of Divine Word Colleges in Region I, Philippines, with the use of a self-devised questionnaire. Majority are 31 – 40 years old, females, married, Bachelor’s degree holders with units in the Master’s program, ranked instructor I-IV with 1-10 years of working experience and with monthly salary of Php. 9,001-12,000. Majority of the students are taking up Nursing, aged 19-22 years and females. In terms of the status of the colleges along ten dimensions, an overall descriptive rating of ‘high’ was achieved. There is a significant difference existing between the colleges with eight variables except instruction and library. A relationship exists between civil status and the variables among the administrators, and between highest educational attainment of the respondents and faculty. On the other hand, a negligible and direct perfect degree of relationship was obtained along monthly salary and non-teaching staff variables. Keywords: Divine Word Colleges, Philippines, Region1 , Status 1. Introduction Among the tertiary catholic private schools established in the Philippines, the Divine Word Colleges are making waves. As catholic institutions, they aim of putting Christ as the center of every academic endeavor, with greater emphasis on quality education.Divine Word Colleges are found on Christian principles which cater to the needs of modern men, as manifested by a flexible and serviceoriented academe composed of the administration, faculty and support staff of the society of the Divine Word (SVD). SVD schools are scattered in the Philippines. In region I, these private tertiary institutions comprise the Divine Word College of Loaog in Ilocos Norte, Divine Word College of Vigan in Ilocos Sur, and Divine Word College of Urdaneta in Pangasinan. This Divine Word Colleges in the North respond to the needs of the people providing socially-responsive programs and innovative curricula, which are just some of the primary considerations for education. The present political and economic crisis, however, has created an impact to quality education. The soaring prices of petroleum products, uncontrolled vehicular fares and devaluating peso, have, more or less, created a drastic effect in the educational system, most particularly among private tertiary institutions like the Divine Word Colleges. Admittedly, this unwanted scenarios, have direct and indirect effect on the clienteles, the students, who take the main role in the education field. In view of this, it is imperative that educational institutions, like the Divine Word Colleges, must see to it that they meet the stringent requirements for quality education as set by the Commission of Higher Education (CHED). Findings of this study may pave the way for SVD administrators to integrate effective strategies for the growth and development of their respective schools to improve policies in administration and supervision; For the teaching personnel, for them to determine their strength and weaknesses in instruction, and further analyze their important roles as agents of change for development; For the non-teaching personnel, that they may be able to become partners in the delivery of services to the clienteles, and that, for them to realize their significant roles in the implementation of policies, goals and objectives of their institutions; Finally, to the students, for them to realize the importance of education, and the effect of their being enrolled in private educational institutions. Statement of the Problem: This study looked into the status of Divine Word Colleges in Region I. It sought to answer the following questions: 1. What is the profile of the personnel-respondents in terms of their : 1. age, 2. gender, 3. civil status, 4. higher educational attainment, 5. rank, 6. length of working experience in the institutional, and 7. monthly salary? 2. What is the profile of the student-respondents in terms of their : 1. age, 2. gender, and 3. course? 3. What is the status of Divine Word Colleges in Region I in terms of : 1. purposes and objectives, 2. instruction, 3. faculty, 4. research, 5. extension services, 6. library, 7. laboratory, 8. physical plant and facilities, 9. student services, and 10. administration? 4. Is there a significant difference in the status of Divine Word Colleges in Region I by school along: 1. purposes and objectives, 2. instruction, 3. faculty,

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 4. research, 5. extension services, 6. library, 7. laboratory, 8. physical plant and facilities, 9. student services, and 10. administration? 5. Is there a significant relationship between the status of Divine Word Colleges in Region I and the 1. Administrator-related factors, 2. Faculty-related factors, and 3. Non-teaching staff-related factors? 2. Methodology Research Design: This study has utilized the descriptive method of research. As cited by [1] Domingo (1999), descriptive research involves collection of data in order to test hypotheses or to answer questions concerning the current status of the subject of the study. Population and Sample: Tertiary administrators, faculty, non-teaching personnel and graduating students of the Divine Word College of Laoag (DWCL-Laoag City, Ilocos Norte), Divine Word College of Vigan (DWCV-Vigan City, Ilocos Sur) and Divine Word College of Urdaneta (DWCU-Urdaneta City, Pangasinan) were taken as respondents. (Please refer to Table 1 in the Appendices) Data Gathering Instrument: A self-employed data gathering questionnaire-checklist was employed in gathering the data needed in this study. The questions in the checklist dealt on the determination of the status of Divine word Colleges in Region I in the different areas, namely Purposes and Objectives, Instruction, Faculty, Research, Extension Services, Library, Laboratory, Physical Plant and Facilities, Student Services and Administration. The tertiary administrators, faculty and non-teaching personnel of the Divine Word College of Vigan, Divine Word College of Laoag, and Divine Word College of Urdaneta, served as the respondents of the study. The first part of the questionnaires elicited information of the profile of the respondents as regard to their age, gender, civil status, highest educational attainment, rank, length of working experience and monthly salary. The second parts of the questionnaire comprise the different areas or dimensions, which served as the gauge in measuring the status of the above-mentioned status of Divine Word Colleges in Region I. The items that were included in the questionnaire were based from the PAASCU manual, while the rest of the questions, were formulated by the researcher. Statistical Treatment of Data: The data that were gathered in this research were treated statistically in the following manner: 1. The responses to the questionnaire of the respondents were tallied and analyzed using tables of frequencies and percentages. 2. Weight Mean was used to determine the status of the Divine Word Colleges in Region I along purposes and objectives, instruction, faculty, research, extension services, library, laboratory, physical plant and facilities, student services and administration. 3. One-factor Analysis of Variance (ANOVA) was utilized to determine the differences in the status of the three Divine Word Colleges in Region along the above-mentioned dimensions. Scheffe’ test was further utilized to determine school efficiency. 4. Simple Linear Correlation Analysis was used to determine the relationship of the profile of the respondents and the different dimensions like purposes and objectives, instruction, faculty, research, extension services, library, laboratory, physical plant and facilities, student services and administration. Summary: This study attempted to determine the status of the Divine Word Colleges in Region I. Specially, it sought to answer the following questions: 1. What is the profile of the personnel-respondents in terms of their? 1. age, 2. gender, 3. civil status, 4. highest educational attainment, 5. rank, 6. length of working experience in the institution, and 7. monthly salary? 2. What is the profile of the student-respondents in terms of their: 1. age, 2. gender, and 3. course? 4. What is the status of the Divine Word Colleges in Region I along: 5. Purposes and Objectives, 6. Instruction, 7. Faculty, 8. Research, 9. Extension Services, 10. Library, 11. Laboratory, 12. Physical Plant and Facilities, 13. Student Services and, Administration? 1. Is there a significant difference in the status of the Divine Word Colleges in Region I by school along: 2. Purposes and Objectives, 3. Instruction,

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) 4. Faculty, 5. Research, 6. Extension Services, 7. Library, 8. Laboratory, 9. Physical Plant and Facilities, 10. Student Services and, Administration? 3. Is there a significant relationship between the status of the Divine Word Colleges in Region I and the 11. administrator-related factors, 12. faculty-related factors, and 13. non-teaching staff-related factors? 3. Findings Based on the data gathered, the following are obtained: On the profile of the Personnel-Respondents Majority of the respondents are between the age range of 31-40, most of them are females, many are married, while majority are bachelor’s degree holders. On the other hand, many among the respondents are ranked as Instructor 1-4, majority have 1-10 years of working experience and many are receiving Php. 9,000 - 12,001 in terms of salary. On the profile of the Student-Respondents: Majority of the student-respondents are within the age range of 19-21, many are females and most of them are graduating nursing students. Purposes and Objectives: DWCV got an overall mean of 3.96, which is “high”; DWCL has 3.99 (high) while DWCU has 3.19 (fair). As a whole, a mean of 3.92 was calculated which is “high”. Instruction: A mean of 3.90 (High) was calculated for DWCV and 3.95 (high) for DWCL. Meanwhile, DWCU got a mean of 3.71 (high). As a whole, a mean of 3.92 (high) was achieved by the three colleges. Faculty: A 3.94 (high) mean for DWCV and DWCL has achieved, 3.94, while a “fair” mean of 3.36 was obtained by DWCU. A mean of 3.91 (high) was calculated by the three colleges, as a whole. Research: Along this area, a mean of 3.72 (high) was attained by DWCV, DWCL has 3.87 (high), while DWCU got a very low mean of 2.36. However, a mean of 3.73 (high) was attained for this item as a whole. Extension Services: A descriptive rating of “high” was attained by DWCV, with a mean of 3.77; DWCL has 4.00 (high) while a “low” rating was achieved by DWCU with 2.78 mean. As a whole, a mean of 3.73 was attained. Library: The overall mean for DWCV is 3.74 (high), while DWCL has 3.92 (high). On the other hand, DWCU has 3.62 mean which is “high”. As a whole, a mean of 3.85 (high) was obtained. Laboratory: A 3.78 mean was obtained by DWCV, while a mean of 3.85 was achieve by DWCL (high). On the other side, DWCU achieved a mean of 3.26 (high). As a whole, a 3.78 mean was obtained. Physical Plant and Facilities: DWCV got a mean of 3.80 (high), DWCL has 3.98 (high) while DWCU has 3.59. as a whole, a “high” mean of 3.90 was attained. Student Services: A mean of 3.88 (high) was achieved by DWCV; DWCL has 4.00 (high), while DWCU has 3.31 (fair). As a whole, a mean of 3.91, was attained by the three colleges. Administration: A 4.03 (high) mean was calculated by DWCV, 3.78 (high) mean by DWCL and 2.75 (fair) by DWCU. As a whole, a mean of 3.70 (high) was attained. The summary of the status of the Divine Word Colleges in region I, reflects an overall rating of 3.83 (high) for DWCV, 3.92 (high) for DWCL and a “fair” 3.31 rating for DWCU. As a whole, a mean of 3.85 (high) was obtained by the three colleges along the ten dimensions mentioned above. It can be gleaned in the table, however that a “fair” descriptive rating was achieved by DWCU along research. This could be due to the fact that there is no intensified research program implemented by the school. On the significant difference in the status of the Divine Word Colleges in Region I along: (Please refer to Table 5 in the Appendices) Purposes and Objectives: A significant difference exists between the colleges in Region I and the dimension cited. This had led to the rejection of the null hypothesis. Instruction: No significant difference exists between the Divine Word Colleges in region I along this area. With this, the null hypothesis is accepted. Faculty: A significant difference exists between the colleges in region I. As exhibited by its significance at 0.05 level. Therefore the null hypothesis is rejected. Research: There is a significant difference between the colleges in terms of this dimension. The t-probability is lesser than 0.05, therefore, the null hypothesis is rejected. Extension Services: A significant difference exists between the colleges as exhibited by the rejection of the null hypothesis tested at0.05 level of significance. Library: No significant difference exists between the colleges as exhibited by the acceptance of the null hypothesis where t-probability was tested at 0 .05 level of significance. Laboratory: There is a significant difference existing between the colleges as exhibited by the acceptance of the null hypothesis. The tprobability was tested at 0.05 level of significance. Physical Plant and Facilities: A significant difference was found to exist between the colleges. The t-probability was tested at 0.05 level of significance, therefore, the null hypothesis was rejected. Student Services: There is a significant difference between the colleges along this area and their status. This has therefore led to the rejection of the null hypothesis which was tested at 0.05 level. Administration: A significant difference exists between the colleges along this dimension and their status. The null hypothesis was rejected tested at 0.05 level of significance.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) On the Significant Relationship between the status of the Divine Word Colleges of Region I and the administrator related factors: No significant relationship was found to exist between the status of the Divine Word Colleges in Region I and the administrator-related variables, namely age, gender, civil status, highest educational attainment, rank, working experience and monthly salary. On the Significant Relationship between the status of the Divine Word Colleges of Region I and the Teacher-related factors: No significant relationship was found to exist between the status of the Divine Word Colleges in Region I and the teacher-related variables cited above. On the Significant Relationship between the status of the Divine Word Colleges of Region I and the Non-Teaching Staff-related factors: No significant relationship was found to exist between the status of the colleges with the non-teaching staff related variables but there exists a significant relationship between sex and administration and highest educational attainment and library. Recommendations: Based on the data gathered, the following are highly recommended: 1. More personnel should be motivated to undergo post-graduate studies. This will help them become abreast with the trends in education for professional and personal growth. 2. Marketing of courses should be conducted so as to attract more students to enroll, especially in the Divine Word College of Urdaneta, Pangasinan, Philippines where enrolment is low. 3. Research as an area should be intensified, as well as the conduct of more extension services not only in the school community but also outside the school community. Further, more budget should be allocated to meet the projects and activities of the program. 4. The Divine Word College of Urdaneta, Pangasinan, Philippines, should look into the possibility of opening a research program that will look into the needs of the community. In this way, research findings will be promptly reported and presented in conferences and/or symposia. Apart from this, it has to consider the possibility of going into accreditation to further improve in the different areas of concern. More male personnel should be encouraged in the administrative task. Male administrators are more firm and decisive in terms of organizational problems. References Domingo, Arsenia C., “Environmental Awareness And Practices of The Administrators and Students of Selected Universities and Colleges Of Region I-III”, Unpublished Dissertation, University of Northern Philippines, Vigan City, 1999.

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Natural Disasters, Family Expenditures and Food Demand 1Eny

Sulistyaningrum, 2Ian Walker, 3Kwok Tong Soo 1 Gadjah Mada University, Indonesia 2,3 Lancaster University Management School

Abstract: Natural disasters are always associated with the disruption of local economies and hurting local people. Using around 20,000 households from 2000 and 2007 Indonesia Family Life Survey data, this paper discusses the pattern of food demand along with the response of household expenditures when the disasters occur, and examines whether there is any different impact of different types of disasters. The price and expenditure elasticities of food demand, and the effect of disasters on living standards are estimated by using a Linear Approximate Almost Ideal Demand System (LA-AIDS). The findings show that there are no significant effects of disasters on household expenditures for households living in disasters region. For food demand estimations, rice and oil have price inelastic demand, while vegetable, meat, and fish are price elastic. Looking at the impact of disasters on living standard, poor households are more likely to have a greater negative impact than rich households. Key words: Natural disaster, expenditure, food demand, LA-AIDS 1. Introduction Natural disasters are always associated with the disruption of local economies and hurting the local people. Disasters are negatively correlated with human capital outcome and also have a large negative effect on the economy. The destruction of property, assets, infrastructure, and also crop loss will affect the local economy and the well-being of households who are directly affected. All those direct impacts of disasters automatically disturb the flow of goods and services and the production process as a result of scarce resources. Consequently, those conditions cause the price of goods and services to increase. Households usually respond to those difficulties by cutting their consumption especially for non-necessity goods. For necessity goods such as food, these households try to keep the same amount of consumption or only reduce consumption a bit although the price of food increases due to the scarcity of food because of natural disasters. Since we cannot live without food, so the pattern of food consumption is very important for economic analysis. Hence we are interested in looking at the pattern of food demand along with the response of household expenditures when the disasters occur. We have several objectives in this paper. First, we look at the way households cope with the effect of natural disasters on household expenditures. There are several types of expenditures to be observed with regards to the impact of disasters: total expenditure, educational expenditure and also food expenditure. In addition to household expenditures, we also estimated the impact of disasters on wages. The second main objective is to examine whether there is any different impact of different types of disasters. We observe three types of disasters: big earthquake, small earthquake, and floods. The third objective is to observe the price and expenditure elasticity’s of food demand by estimating a Linear Approximate Almost Ideal Demand System (LA-AIDS).As elasticity is a measure of demand response when there is a change in price because of disasters, we can predict the amount of food which should be provided. Related with the change in food prices, we also examined the effect of disasters on living standards of households, whether there is any different impact for the poor and the rich. Lastly, we tried to find out whether there is any different effect of disasters on household expenditures with and without controlling for market prices. This paper contributes to the international literature in several aspects. First, compared to other literature that discusses the impact of disasters on expenditure or budget, this study uses a variety of data of household expenditures. On top of that for food expenditures, there are two separate estimates for those who get food from market purchases and those who get food from own production from their farm. Second, we also investigated the net effect of disasters on share expenditures of main foods such as rice, vegetable, fish and meat. Another important contribution is about the consequences of natural disasters on food demand. Here, the impact of disasters can be observed in two ways: whether disasters increase the price of goods and whether disasters affect household spending independently of its effect on food prices. Lastly, we also provided the impact of disasters on living standard of different level of household expenditures. As natural disasters increased in number and also in the intensity of the destruction in the last few years in Indonesia, it becomes very important to examine the impacts of disasters on human being and local economy in disasters region. There are several types of disasters that often occurred in Indonesia from the less harsh to the most destructive ones such as floods, earthquake, tsunami, landslides, wind storms, drought, and volcanic eruptions. Natural disasters always leave serious problems for the human beings in disaster regions, especially for a country like Indonesia which is highly populated. A lot of literatures have confirmed that disasters are negatively associated with any aspects of human beings such as human capital outcomes, consumptions, local economy, and other aspects. Considering all these conditions, studies of the impact of disasters, especially for Indonesia are needed and becomes very important in order to have a better response when disasters occur in the future. Hence, we tried to capture any response of the previous disaster son household expenditures and also food demand. For our empirical analysis, we have determined disaster regions as DI Yogyakarta, DKI Jakarta and West Sumatera. We picked those three provinces based on the highest percentage for both dead and evacuated people in the region. Furthermore, natural disaster can be determined more specifically based on the occurrences of disasters in each disaster region. Yogyakarta with big earthquake has the highest percentage for both percentages of dead and evacuated people. For West Sumatera, in terms of percentage of evacuated people, West Sumatera with small earthquake is above average, and in terms of percentage of dead people, although West Sumatera is below average but the value is just below DI Yogyakarta which is quite high compare to other provinces. DKI Jakarta with floods, although the percentage of dead people is quite low but the percentage of evacuated people is above average and another strong argument is DKI Jakarta experienced flood almost every year and always present severe problems. This study uses panel data of Indonesian Family Life Survey IFLS4 (2007) and IFLS3 (2000). In addition, there are two other data sets used: an official disaster data base from National Disaster Management Agency (BNPB=BadanNasionalPenanggulanganBencana) of Indonesia and statistics of Indonesia data from Central Bureau of Statistics of Indonesia (BPS=BadanPusatStatistik). Moreover, we used two different methods for estimating. The first method is Difference in Differences (DID) analysis. We used this analysis for estimating the impact of disasters on household expenditures. As the key assumption of DID is on the potential outcome of the treatment group in the absence of natural disasters, and how to get this group

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) when there is no data on what would have happened to individuals affected by natural disasters if the disasters did not occur. Therefore, DID tries to find the solution to estimate this group by using other individuals that we cannot observe in the same time. Besides DID, we employ Linear Approximate Almost Ideal Demand System (LA-AIDS) model. In LA-AIDS model we look at the impact of disasters on food share expenditures controlling for prices. We use the parameter estimation from the LA-AIDS model to calculate the price and expenditure elasticities. According to Deaton and Meulbauer (1980), there are several reasons why LA-AIDS is preferred. First, LA-AIDS has a consistent functional form with known household-budget data. Second, It satisfies the axioms of choice. Third, LA-AIDS corresponds with a well-defined preference structure, since it is derived from a cost function, so that is very suitable for welfare analysis Our main findings are as follows. The first finding is related to the effect of disasters ontotal household expenditures. We find that being in disasters region, whether a household is affected by the disasters or not has no impact on total household expenditure. For the impact of disasters on food expenditures, there are differences between market purchased and own produced expenditures for household who are affected directly by disasters. Disasters are positively associated with market purchased expenditures, but negatively associated with own produced expenditures. There is a big reduction in own produced expenditure as households are more likely to buy food. Moreover, looking separately at different disasters, only households who are affected directly by big earthquake and floods reduced household expenditure and educational expenditure, and there is no serious impact for those who are directly affected by small earth quake. Furthermore, considering the net impact of disasters on household food expenditures, we found that in general, all proportions of total share expenditures on food in disaster regions (share expenditure on rice, vegetables, fish and oil) are negatively affected by disasters. In addition, for market purchased food share expenditure on rice, fish, and oil are negatively affected by disasters, while for own produced food, only the share expenditure of rice is negatively affected and significant. Overall, there are no additional impacts for households in disasters region who are directly affected by disasters for all expenditure types. With regards to the elasticities, all own prices elasticities are negative as we expected. Moreover, all values of income elasticity for total share expenditures are positive and less than 1. A positive income elasticity of demand is associated with normal goods and if income elasticity is less than 1, those goods are necessity goods. This paper is organized as follows. The next section presents about data sources and is followed by the methodology with Difference in Differences (DiD) model discussion. The forth section discusses the research finding by using DiD model. The fifth section is methodology with Linear Approximates Almost Ideal Demand System (LA-AIDS) model and is followed by the discussion in research finding with LAAIDS model. The last section concludes with some policy recommendations. Data Sources: This study uses panel data of Indonesian Family Life Survey IFLS4 (2007) and IFLS3 (2000) In addition, there are two other data sets used: an official disaster data base from National Disaster Management Agency (BNPB=BadanNasionalPenanggulanganBencana) of Indonesia and statistics of Indonesia data from Central Bureau of Statistics of Indonesia (BPS=BadanPusatStatistik). IFLS defines households as being affected by disaster if the disaster was severe enough to cause death or major injuries to a household members, cause direct financial loss to the household, or cause household member to relocate. IFLS reports several types of natural disasters such as earthquake, tsunami, landslide, flood, volcanic eruption, and windstorm. Another important definition is disaster region. Since most of the regions in Indonesia experienced disasters, it is important to determine which disaster region as treatment. Disaster region is defined as region which has stronger disaster than other regions. Neumayer and Plumper (2007), in order to measure the strength of disaster, use the number of people killed during the disasters divided by total population as a proxy of the strength of disaster, but this study uses two proxies as measurement of the strength of disaster. Besides using the percentage of number of people killed to total population, this study also uses the percentage of number of people evacuated to population instead. For this reason, the region which experiences disasters almost every year which affects the economy can be captured by using this proxy. We have determined disaster regions as Yogyakarta, Jakarta and West Sumatera. We picked those three provinces since only those three provinces are completely covered in IFLS survey data. Furthermore, a specific natural disaster can be identified in each disaster region. Yogyakarta with big earthquake in May 2006 has the highest percentage for both percentages of dead and evacuated people. In terms of percentage of evacuated people, West Sumatera with small earthquake in early 2007 is above average, and in terms of percentage of dead people, although West Sumatera is below average the value is just below Yogyakarta which is quite high compared to other provinces. Jakarta with floods in January 2007, although the percentage of dead people is quite low but the percentage of evacuated people is above average and another strong argument is Jakarta experienced flood almost every year and always presents severe problems. Based on the disaster information above, we define dummies D (Disaster region) and dummies A (being affected by disaster). D is equal to 1 if individuals are in disaster region and in the time of the disaster and A is equal to 1 if individuals are in disaster region and were affected by disaster. As explained above the individuals who suffered financial loss or one or more household member are dead or suffered major injuries are defined as affected by disaster. 2. Methodology DID Model: This section outlines the research methodology used in this chapter to examine the effects of natural disasters on family expenditures and food demand. We used two different methods for estimating. The first method is Difference in Differences (DID) analysis. We used this analysis for estimating the impact of disasters on household expenditures. The key assumption of DID is on the potential outcome of the treatment group in the absence of natural disasters, and how to get this group when there is no data on what would have happened to individuals affected by natural disasters if the disasters did not occur. Therefore, DID tries to find the solution to estimate this group by using other individuals that we cannot observe in the same time. Besides DID, we employ Linear Approximate Almost Ideal Demand System (LA-AIDS) model that is discussed in section 6. In LA-AIDS model we look at the impact of disasters on food share expenditures controlling for prices. We use the parameter estimation from the LA-AIDS model to calculate the price and expenditure elasticities. According to Deaton and Meulbauer (1980), there are several reasons why LA-AIDS is preferred. First, LA-AIDS has a consistent functional form with known household-budget data. Second, Itsatisfies the axioms of choice. Third, LA-AIDS corresponds with a well-defined preference structure, since it is derived from a cost function, so that is very suitable for welfare analysis.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) The concept of DID Model: There are two treatment groups: first group is households in disaster region and after disaster and, second group is households in disaster region who have been affected by disasters. Furthermore, the control group is comprised of households in non-disaster region and are not being affected by disaster. Following Angrist and Krueger (1998), the conditional mean function for household outcomes in DID model is: if the household is affected by disasters, and if the household is not affected by disasters The effect of disasters is simply by adding two constants to: , so that can be written as: = , or = or in another way by using regression: (1) (2) Note: and Where is potential outcome of household in time and region . γris region effect, νtis time effect, εhrtis random error. Dhrt=1 only for people in disaster region in the time after disaster, is a dummy variable equal to 1 if the household is directly affected by disasters and 0 otherwise. Ahrt=1 only for people in disaster region in the time after disaster who have reported that they have been affected by disaster directly (from interaction of Dhrtwith ahrt ). Furthermore, α1 and α2 are the parameters of interest. Overall, α1 + α2are the effect of disasters. When Dhrt=0 and Ahrt=0 then Yhrt=0, and when Dhrt=1 and Ahrt=1 then Yhrt= α1+α2. Ahrtis an intensity effect of disasters which is a subset ofDhrt, so Ahrt would be a marginal effect of being affected by disasters. The DID model can be expanded by including household covariates Xhrt and can be written as: (3) Thus, equation (3) estimates the effect of disasters (α1 + α2) on the potential outcome of household in time and region as measures by using household expenditures by controlling household covariates Xhrtsuch as area, household size, parental education background, number of household member per age categorized, and also region and year fixed effects respectively. Household expenditure equation: All the equations of DID models that are used in this chapter have the same variables on the right hand side, and we estimated separately all equations by using OLS. Complete DID model in this study can be written as:

The dependent variables in the equations above are Lhhexphrt, Leducexphrt, Lbuyexphrt, Lownexphrt, and . Lhhexphrt is log of total household expenditure. Leducexphrt is log of educational expenditure. Lbuyexphrt is log of food expenditure from market purchases. Lownexphrt is log of food expenditure by estimating values of own production. is log of head of household wages. All household expenditures and wages are measured using monthly household expenditures. The main explanatory variables are Dhrtand Ahrt that capture the natural disaster variables. Dhrtis a dummy variable, equal to 1 if household h was in the disaster region with expenditure after disaster. Ahrtis a dummy variable, equal to 1 if household h was in the disaster region and was affected by disaster. In addition, vector Xhrtcontains the other explanatory variables to capture household characteristics such as area where they live, household size, and number of kids or adults in certain age groups. The variables γrand νtare used to control for region and year fixed effects respectively. The inclusion of the regional dummy variables reduces the potential bias from unmeasured regional shocks. Year dummy variables are useful to control for year specific characteristics and control for other changes in the year before and after disasters. Moreover, in order to see whether different type of disasters have different impact on household expenditure, this chapter replaces the main explanatory variables which are dummies Dhrtand Ahrtby using dummy variables of Dhrtand Ahrt which belong to specific types of disasters. There are 3 dummies for Dhrt(for big earthquake, small earthquake and flood), and the same for 3 dummies for Ahrt. In order to check the sensitivity of dummy variables of interest (Dhrtand Ahrt), we also estimated DID model equation by dropping all the control variables except Dhrtand Ahrt. 4. Empirical Results: DID Model This section discusses the results of the impact of natural disasters on household expenditures. There are two main estimation results: (1) the average impact of natural disasters on household expenditures and food expenditures, (2) the impact of natural disasters on educational expenditure and wages. The Impact of Disasters on Total and Food Expenditures: In DID model, we estimated separately the impact of disasters based on the type of expenditures using OLS. Total household expenditures and food expenditures (market purchased and own produced expenditures) are presented together, since food expenditures have a bigger share on total expenditures. Table 1 presents the estimation results for total and food expenditures. There is no negative effect of being in a disaster region after a disaster. This is indicated from all of the coefficients of D. Households increased their expenditures of own produced food by approximately 20% on average at 10% significance level. This phenomenon could be true because these households were not directly affected so they preferred to consume more from their own production, since probably the price of foods in the market increased due to disasters. On the other hand, for households who were affected directly by disasters, their own production expenditures were also lower following a disaster perhaps because of destruction of their farm. Therefore, the households got their food from market purchases which cause expenditures on food from market purchased to rise although the values were not significant.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Table 1: Results of the Impact of Natural Disaster on Total Household Expenditures and Food expenditures total HH exp D A

Food exp: buy only

Food exp: own prod

1

2

3

4

5

6

-0.000792

0.0283

-0.00799

0.0236

0.172*

0.182*

(0.0663)

(0.0532)

(0.0663)

(0.0488)

(0.0817)

(0.0851) -0.197***

-0.00743

-0.101

0.0951

-0.00134

-0.192***

(0.0507)

(0.0592)

(0.0615)

(0.0731)

(0.0597)

Urban Household size

(0.0628)

0.324***

0.282***

-0.203***

(0.0229)

(0.0270)

(0.0424)

0.136***

0.156***

0.0456***

(0.00745)

(0.00848)

(0.0135)

-0.0742

-0.128

-0.194

(0.140)

(0.103)

(0.285)

Father higher education

0.399

-0.0231

0.289

(0.340)

(0.0798)

(1.128)

Mother secondary school

0.235***

0.178

-0.168

(0.0766)

(0.109)

(0.255)

0.521

0.675**

-0.252***

Father secondary school

Mother higher education Number of HH member age:

(0.336)

(0.291)

(0.0285)

-0.0993***

-0.0583***

-0.0692***

Under 6

(0.0109)

(0.0124)

(0.0165)

6 to 12

-0.0578***

-0.0558***

-0.0522**

(0.00716)

(0.00777)

(0.0222)

-0.00621

-0.0493***

0.0192

(0.00761)

(0.0111)

(0.0121)

13 to 18 19 to 23 24 to 60 Over 60

0.0246**

0.00565

0.0252

(0.00870)

(0.00788)

(0.0158)

0.0591***

0.0683***

0.0206*

(0.00565)

(0.00643)

(0.00980)

-0.101***

-0.123***

0.0200

(0.0105)

(0.00635)

(0.0192)

Region dummies

yes

yes

yes

yes

yes

yes

time dummies

yes

yes

yes

yes

yes

yes

Observation 20,791 20,791 20,682 20,682 15,797 Note: Robust standard errors in parentheses and asterisk denote statistical significance: *** 1%, ** 5%, * 10%

15,797

Moreover, looking at other explanatory variables, total household expenditures and market purchased expenditures in urban are higher than in rural, but own produced expenditure in urban is lower than in rural. It is true since all farms are located in rural areas. For household size, all values are positively correlated with expenditures and are highly significant. It shows that the bigger the number of total household members, the greater household expenditures will be. In general, father’s education background has no effect on expenditures, but maternal education background seems to have positive and significant effect on total and market purchased expenditures, but negatively correlated with own produced expenditures. It could be true, because household expenditures usually are managed by the mother and the higher the maternal education the greater the expenditures will be. As the higher the maternal education, the wealthier they are, and the more variety of goods are needed especially secondary or luxury goods. In addition, more highly educated mothers are less likely to be farm workers so they may have lower produced food expenditures. Besides that, total households member in each household up to 18 years old and over 60 years old are negatively correlated with all expenditures especially total and market purchased expenditures. While for total number of adults in households between 19 to 60 years old have positively correlated with expenditures. It indicates that the age group of household member under 18 and over 60 do not require a lot of expenditures, especially for those aged under 18, they are still in the age of schooling and do not need a lot of expenditure types. While for household member aged between 19 to 60, they need more expenditure, since all those household members are supposed to have a job and usually their needs are more varied.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Table 2: Results the impact of specific disasters on household expenditures total HH exp 1 D Big earthquake

A Big earthquake

D Small earthquake

A Small earthquake

D Floods

A Floods

buy only 2

3

own produced 4

5

6

0.0903**

0.0587*

0.134***

0.114***

0.0353

0.0326

(0.0332)

(0.0326)

(0.0375)

(0.0329)

(0.0577)

(0.0547)

-0.111***

-0.190***

-0.0422***

-0.133***

-0.206***

-0.205***

(0.000)

(0.00235)

(0.000)

(0.00234)

(0.000)

(0.00650)

0.0844**

0.123***

0.0138

0.0508

0.281***

0.325***

(0.0332)

(0.0313)

(0.0375)

(0.0320)

(0.0577)

(0.0531)

0.145***

0.0412***

0.282***

0.196***

-0.0470***

-0.0360***

(0.000)

(0.00560)

(0.000)

(0.00675)

(0.000)

(0.00973)

-0.0996**

-0.0419

-0.0939**

-0.0357

0.206***

0.197***

(0.0332)

(0.0328)

(0.0375)

(0.0327)

(0.0577)

(0.0558)

0.0121***

-0.0187***

0.105***

0.0658***

0.0314***

0.0154*

(0.000)

(0.00257)

(0.000)

(0.00296)

(0.000)

(0.00740)

Additional controls

no

Yes

no

yes

no

Yes

region dummies

yes

Yes

yes

yes

yes

Yes

time dummies

yes

Yes

yes

yes

yes

yes

Observation 20,791 20,791 20,791 20,791 15,797 Note: Robust standard errors in parentheses and asterisk denote statistical significance: *** 1%, ** 5%, * 10% Additional controls: urban, household size, parental educations, number of household members

15,797

Table 2 presents the impact of specific natural disasters on household expenditures. The results show that households in big earthquake region who were affected directly by big earthquake were badly affected. This is shown from the coefficient of all expenditure categories which are negatively correlated with A in Big earthquake. There was no serious effect of small earthquake disasters, in fact, those households who are not affected directly by small earthquake in small earthquake region have positive and significant impact of disasters on total household expenditures and for those households who are affected directly by disasters also have positive impacts of disasters on total expenditures and market purchased expenditures. Disasters are only negatively correlated with own produced expenditure for those household who are affected directly by small earthquake. That is very true since all the farms of households who are affected directly were destroyed during small earthquake. Moreover, for households in floods region, there was positive and significant impact of floods on own produced expenditures for those households who live in flood region but was not directly affected. This observation could be true since for those who are directly affected by floods, there was destruction on farm in flood region which lead to a reduction in production and cause an increase in the price of foods. So for those who are not directly affected by floods, they could get their food from their own production instead of buying from the market. In addition to own produced expenditure, for households in flood regions, floods has caused lower total and market purchased expenditures. Methodology: LA-AIDS Model: There are four important parts that are explained in this section: the concept of LA-AIDS model, elasticities, the procedure of LA-AIDS model, and measuring living standard. The concept of LA-AIDS model: This study employs demand function model which was proposed by Deaton and Muellbauer (1980) that was called the Almost Ideal Demand System (The AIDS) model. Deaton and Muellbauer defined the preferences as representation of the cost or expenditure function. The expenditure was defined as the minimum expenditure to attain a specific utility level at given prices. According to Poi (2002), in budget share AIDS model equation, household share expenditure for good can be written as: (9) Where is price for good , is quantity for good , and is the total expenditure on all goods in demand system. The equation of budget share form usually can be written as: (10) Where is the share of total expenditure allocated to the good, is the price of the good within the group, is total expenditure on the group of goods being analysed, is the price index, and are parameters, and the subscripts and denote goods ( , =1,…, n). Price index (P) is defined as: (11) Due to the difficulties as well as technical problem in estimating the price index (P) in the share equation, Deaton and Muellbauer (1980) suggest using a linear approximation to the price index using Stone’s price index. Stone’s price index (P*) that is used as a linear approximation can be written as: ∗ (12)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Where is share expenditure, little is an index and will be equal 1 if each household had the same tastes, so will be an index of the equality distribution of household budget. However this price index may cause a simultaneity problem when we use share expenditure as measurement of To avoid those problem, following Haden(1990), we use mean of share expenditure across all households instead of share expenditure for . ∗ (13) Where P* is Stone’s price index, is the mean of share expenditure, is the price of good. Therefore, the approximation of the AIDS demand function in budget share is: ∗ (14) ∗ This model started to be known as LA-AIDS, when Blanciforti, Green and King (1986) named this model as “Linear Approximation of the Almost Ideal Demand System” (LA-AIDS). Economic theory imposesthree sets of restrictions on the parameters of the AIDS model. Adding up: (15) Homogeneity: (16) Symmetry: (17) Where, the coefficient of represents the changes in relative prices, while coefficient represents the changes in real expenditure. The coefficient sums to zero and are positive and less than 1 for necessities, more than 1 for luxury goods and negative for inferior goods. If restrictions 1,2 and 3 hold, then the LA-AIDS share expenditure equation above represents a system of demand functions with the adding-up condition that the total share expenditure is equal to one ( ). Moreover, homogeneity and symmetry imply that the demand functions are homogeneous of degree zero in prices and total expenditure, and must satisfy Slutsky symmetry 37. Deaton and Muellbauer (1980) said that AIDS model can be used as the natural starting point for predictions. According to Poi (2002), error term is added to the budget share equation for estimation purposes. In addition, matrix of assumes that covariance matrix of budget share equation in AIDS demand system is singular with zero determinant. Therefore, the adding up condition implies that one of the demand equations is dropped from the system, so the estimation is performed on the remaining demand equations (n-1). Elasticities: For analysis of the impact of disasters on food demand by households, we can observe the response of food demand by looking at the values of elasticity. Following Green and Alston (1991), income (expenditure) elasticity of LA-AIDS model can be written as: (18) By using Stone’s price index (P*),

, so expenditure elasticity can be expressed as:

(19) Following Bues (1994) and Green and Alston (1990), uncompensated demand elasticity of AIDS and LA-AIDS ( (20) With

is the Kronecker delta where

for

and

for

) can be written as:

.

LA-AIDS estimation procedures: In estimating LA-AIDS model, there are 6 equations of budget share expenditures on rice, vegetables, meat, fish, oil and all other goods (everything else) with their respective prices and real expenditures. The LA-AIDS demand system can be written as: ∗

(21) ∗

(22) ∗

(23) ∗

(24) (25)

∗ ∗

(26) Where on rice,

are parameters to be estimated, are error terms. For share expenditures, we have: is share expenditure is share expenditure on vegetables, is share expenditure on meat, is share expenditure on fish, is share

The Slutsky symmetry restriction comes from the fact that the Hicksian (compensated) demand of the cost function is a symmetric matrix. Hicksian is from the change of Marshallian (uncompensated) demand in Slutsky equation which compensates to maintain a fixed level of utility. According to Haag et.al (2009), maximization of utility implies that consumer demand systems have a Slutsky matrix which is everywhere symmetric. Demand systems with nonlinear Engel curves, Slutsky symmetry could be imposed with linear or nonlinear cross-equation restrictions. 37

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) expenditure on cooking oil, and is share expenditure for everything else (all other goods). For price of goods, we used log of price from linear prediction (log price hat). In IFLS data, we generated price of goods at household level by dividing expenditures of certain goods with its quantity purchased. Since we used this price of goods from household levels, we worry about measurement error and endogeneity of the price, so we instrumented the price of goods at HH level by using price of goods at market level. Here, we estimated price for LA-AIDS model by using he following equation: (27) Where is log price of good i at HH level, is log price of good i at market level. In addition, we also add other explanatory variables in the model including dummy disaster regions ( ), and dummy affected by disasters ( ). Urban dummy is also included on the model, and variables γrand νtare used to control for regions and year fixed effects respectively. Once we get the result from the regression, then we can obtain the linear prediction of the log price of goods for LA-AIDS model. Therefore, we have for price of rice, for price of vegetables, for price of meat, for price of fish, for price of oil, and for price for other goods. We assumed that other goods are the numeraire good, so =1 and the prices of other goods are defined relative to . When we estimated LA-AIDS model, will be omitted since log of 1 is zero. By imposing homogeneity, adding-up, and symmetry, the equation for is dropped to avoid singularity due to the adding up condition. All equations above are estimated jointly using Zellner’sSemingly Unrelated Regressions (SUR) in Stata 12. Measuring Living Standard: According to Deaton and Muellbaur (1980), demand system can be derived from the expenditure function which shows the minimum income required to yield a particular utility, taking prices as given: (28) Where: (29) (30) Symons and Walker (1989) said that E(p,U) represents the minimum income needed for standard living of U in the price of goods p. So in order to measure living standard we can rewrite the equation to: (31) U is indirect utility of LA-AIDS model or living standard, can be poor or rich and can be measured by using money metric of utility, is price of foods, E is total expenditure. We have two conditions before disasters and after disasters which influence the value of price, and assume that before disasters the price is equal to 1, and after disasters the price is equal to 1 plus the change of price that we can measure from price estimation without controlling for price at market level. According to the above condition, we can write that before disasters as: = 0, =1, then , and after disasters as: = certain values, =certain values, then the value of depends on the category of as poor or rich. For poor, we used the income definition from Central Bureau Statistics of Indonesia of 250,000 rupiahs per monthand we also calculated for the poorest which is obtained from the lowest income of income distribution at 15,000 rupiahs per months. For rich, we used the income of 5 million rupiahs. Then we calculated for the welfare effect of disasters as: . Empirical Results: LA-AIDS Model: The LA-AIDS model was estimated using Seemingly Unrelated Regression (SUR) in STATA 12. The purpose of estimating using this model is to find out whether there is any different outcome if we control for prices of goods in estimating the impact of disasters on expenditures, since in DID regression prices are not included as explanatory variables. We considered that prices are also important variables that should be controlled for in the impact of disasters. First Stage Regressions: Predicting Household Prices: According to the previous research by Alboghdady and Alastry (2010) in estimating LA-AIDS, all the restrictions in the model cause a singular/covariance matrix of the errors. Therefore, one of the equations from the system, share equation of other goods was dropped from the system to avoid the singularity problem. Before estimating LAAIDS model, we obtained the predicted price of goods that are used on LA-AIDS system from the regression between price of goods at household level with price of goods at market level and several other explanatory variables such as D and A variables. Table 3: First stage least square regression for price of goods Deptvar: Log of household price rice vegetable log market price 0.0332*** 0.0736*** D A Urban

meat

fish

oil

0.0425*

0.00680

0.0348***

(0.00696)

(0.00812)

(0.0250)

(0.00714)

(0.0124)

0.00308

0.221***

-0.126***

0.204***

0.00667

(0.00994)

(0.0212)

(0.0136)

(0.0150)

(0.0108)

-0.0382***

0.0673**

0.0324*

-0.0391*

0.0570***

(0.0141)

(0.0302)

(0.0193)

(0.0212)

(0.0153)

0.0872***

0.0171**

0.0686***

0.0386***

0.0153***

(0.00393)

(0.00836)

(0.00534)

(0.00587)

(0.00423)

time dummies

yes

yes

yes

yes

yes

regional dummies

yes

yes

yes

yes

yes

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Observation 19,574 19,574 19,574 19,574 19,574 Note: Robust standard errors in parentheses and asterisk denote statistical significance: *** 1%, ** 5%, * 10% Table 3 presents the first stage least square regression for price of goods. The table shows the regression of price of good at market level, D and A variables on price of goods at household level. The predicted values of household prices from this regression are used in the second stage regression of the LA-AIDS model. Almost all prices of goods at market level are significant and positively correlated with price of goods at household level, only fish has no significant value but still positively associated with price at household level. D is positively correlated with price of goods at household level for rice, vegetable, fish and oil. It indicates that price of goods tend to increase when disasters occur.On the other hand, there are negatively correlated of A on price of rice and fish, and positively correlated of A on price of vegetables, meat, and oil. This indicates that especially for rice, all aid agencies have done a good job by bringing enough staple foods to disaster regions for all victims, so the price would be more stable, but for non-staple foods the price would be more expensive. Table 4: The effect of disasters on Price without controlling market price Deptvar: Log of household price rice vegetable meat D 0.00614 0.227*** -0.124***

fish

oil

0.203***

0.00899

(0.00975)

(0.0209)

(0.0134)

(0.0147)

(0.0106)

A

-0.0395***

0.0626**

0.0354*

-0.0386*

0.0410***

(0.0138)

(0.0296)

(0.0189)

(0.0209)

(0.0151)

Urban

0.0889***

0.0249***

0.0695***

0.0400***

0.0152***

(0.00384)

(0.00823)

(0.00527)

(0.00579)

(0.00418)

time dummies

yes

yes

yes

yes

yes

regional dummies

yes

yes

yes

yes

yes

Observation 20,079 20,085 20,015 20,089 20,086 Note: Robust standard errors in parentheses and asterisk denote statistical significance: *** 1%, ** 5%, * 10% Table 4 shows the results of price regression without controlling price at market level. This is to investigate the transmission mechanism of the disaster effect on price of goods. By controlling for market prices, as in table 3, we are only able to identify the additional effect of disasters on household prices beyond their impact on market prices. Here, we want to observe the total effect of disasters on the prices which households pay. This will be used later in evaluating the welfare impact of disasters.The results show that only price of vegetable, meat and fish that are positively associated with disasters. Price and Expenditure Elasticities: Table 5 shows price and expenditure elasticities obtained from the LA-AIDS estimation. For price elasticities, all values in bold are own price elasticities and others coefficient in the matrix of commodities are cross price elasticities. All own price elasticities are negative as we expected from the theory of demand. Table 5: Price and expenditure demand elasticities Price elasticities

Rice

Rice

-0.650*** (0.024)

(0.013)

(0.006)

Vegetable

-0.164***

-1.306***

-0.030***

(0.025)

(0.023)

(0.006)

Meat

-1.733***

-0.799***

-1.231***

(0.292)

(0.142)

(0.280)

Fish

-0.620***

0.717***

0.073***

(0.028)

(0.019)

(0.007)

Oil

0.194***

0.088***

0.135***

(0.063)

(0.031)

(0.024)

(0.026)

(0.056)

(0.096)

Other

1.972***

0.371**

0.086

-1.173***

-1.281***

-0.975*

(0.302)

(0.149)

(0.281)

(0.125)

(0.253)

(0.522)

0.818***

0.897***

0.938***

1.036***

0.916***

1.041***

(0.007)

(0.007)

(0.009)

(0.009)

(0.008)

(0.018)

Budget shares 0.109 0.058 0.051 0.039 0.024 Note: Standard errors in parentheses and asterisk denote statistical significance: *** 1%, ** 5%, * 10% All values on bold are own price elasticities;

0.720

Expenditure Elasticities

vegetable -0.071***

meat

fish

-0.034***

-0.211***

287

oil

other

0.045***

-0.079**

(0.010)

(0.014)

(0.033)

0.483***

0.032**

-0.015

(0.013)

(0.013)

(0.039)

1.234***

1.394***

0.134

(0.119)

(0.245)

(0.508)

-0.873***

-0.283***

-0.014

(0.021)

(0.016)

(0.043)

-0.460***

-0.907***

-0.051

nd

Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Rice has inelastic own price elasticity and significant. The possible explanation for this phenomenon is presumably because rice as staple food so the response of demand when the price increased is low. Fish also has inelastic own price elasticity. Furthermore, vegetable, and meat have highly elastic own price elasticities, so when the price of these foods increase, there will be a greater response in reducing consumption. On the other hand, oil has inelastic own price elasticity. It indicates that although the price of oil increase but the response on demand is quite low. It is true, since most households need cooking oil for cooking. For cross price elasticities, negative values show that both commodities are complements, while positive values indicate that both commodities are substitutes. For instance, rice has a complement relationship with fish (-0.620), and meat has a substitution relationship with fish (0.073). In expenditure elasticities, for rice, when incomes increase by 10% households would like to increase expenditure on rice by approximately 8%. In addition to rice, when income increase by 10%, households would like to spend more on vegetable, meat and oil by around 9% . Fish has unitary expenditure elastic. When there is an increasing in income by 10% household would like to spend more on fish by 10%. By comparing expenditure and price elasticity, we can suggest the income and price policies regarding to the food consumption. For the effect of disasters on household’s standard living, we used the information of price estimation without controlling for market price to get the total effect of a disaster on the price that households pay for their foods. We used equation 5.28 for estimating the impact of disasters on standard of living. By assuming that prices before disasters are 1, and prices after disasters are 1 plus the change in price that we obtained from price estimation, then we can calculate the effect of disasters on standard of living. We classified standard of living into three: poorest, poor and rich. For poor standard of living, as an extreme expenditure value of the poorest, we pick the minimum value of household expenditure at approximately Rp 15,000 per month. Another expenditure value for comparison is information of poverty line from Central Bureau of Statistics with Rp 250,000 per month. For rich standard of living, we used the expenditure measure of Rp 5 million per month. The effect of disasters on household’s standard of living is on table 5.17. For the poorest households, their living standard is lower by 2.42% and for the poor households is lower by 2.22% than their living standard before disasters. On the other hand, for the rich households, their standard living is lower by 2% than before disasters. As we expected poor households suffered more than rich households although the percentage is only slightly different with the rich, but overall effects are small compared to average annual change in incomes. Table 6: The effect of disasters on living standard Poorest 15,000

-2.42%

Poor

250,000*

-2.22%

Rich

5,000,000

-2.00%

Note: Note: 1 US$ = RP 10,000; * Indonesian poverty line on July 2012 5. Conclusion This paper finds that there are no significant effects of disasters on total household expenditures for households living in disasters region whether they are affected directly or not by the disasters. In the case of food expenditures, for households who are affected directly by disasters there are negative and significant impacts of disasters on own produced expenditures, but a positive impact on market purchased expenditures. For educational expenditures, only households who are affected directly by disasters have lower educational expenditures. Furthermore, there is no significant impact of disasters on wages.In addition, the results show that only terrifying and destructive natural disasters are associated with lower household expenditures. So the different types of disasters have different effects on household expenditures.In comparison with the results by controlling for prices, we got the net effects of disasters on household expenditures in addition to their impact on prices and in general there is negative and significant impact of disasters on expenditures after controlling for prices. For food demand estimations, the results show that rice and oil have price inelastic demand, while vegetable, meat, and fish are price elastic. In addition, expenditure elasticity of demand for rice is less elastic than other foods at approximately 0.8. For expenditure elasticity of demand for vegetable, meat and oil are about 0.9, while for expenditure elasticity for fish are unit elastic, as an indication that fish is luxury goods. By comparing expenditure and price elasticity, we can suggest the income and price policies regarding to the food consumption. For food with expenditure elasticity exceed the price elasticity, income policy for food consumption is more effective such as income transfer, and for food with expenditure elasticity fall behind price elasticity, price policy for food is more efficient such as intervene the price of goods in the market by using market operation for rice and cooking oil. Furthermore, looking at the impact of disasters on living standard, poor households are more likely to have a greater negative impact than rich households although the effect is quite small. Overall, there is no impact of disasters on total household expenditures, but we found net negative impact of expenditures by controlling for prices. These phenomena show that may be households are able to anticipate disasters or government and aid agencies are good at distributing disaster relief. Reference Deaton, A., & Muellbauer, J. (1980). An almost ideal demand system. The American Economic Review, 70(3), 312-326. Green, R., & Alston, J. M. (1990). Elasticities in AIDS models. American Journal of Agricultural Economics, 72(2), 442-445. Green, R., & Alston, J. M. (1991). Elasticities in AIDS models: a clarification and extension. American Agricultural Economics Association, 874-875. Haq, Z. U., Nazli, H., & Meilke, K. (2008). Implications of high food prices for poverty in Pakistan. Agricultural Economics, 477-484. Neumayer, E., & Plumper, T. (2007). The gendered nature of natural disasters: the impact of catastrophic events on the gender gap in life expectancy, 1981-2002. Annals of the Association of American Geographers, 97(3), 551-566. Poi, B. P. (2002). From the help desk: demand system estimation. The Stata Journal, 2(4), 403-410.

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A Public Sector Recruitment Policies: Efficiency, Effectiveness and Consequences 1Obianuju E. Okeke-Uzodike*, 2Pepukayi Chitakunye University of KwaZulu-Natal, Pietermaritzburg Campus South Africa *[email protected]

Abstract: A vast number of literatures have documented how corruption, insecurity, education, and ethnicity (amongst others) have served as obstacles to national development in Nigeria. These obstacles have posed serious developmental challenges which are evident in the dysfunctions in the management system leading not only to ineffective and inefficient delivery of public services but alsothe instability of the socioeconomic and political wellbeing of the nation. Accordingly, this paper attempts a re-examination of various government policies aimed at national development --particularly, human resources development. Clearly, human resources play a collectively vital role in the success or failure of any organization or nation. As such, this paper revisits recruitment policies, processes and procedures drawing insight from federal government ministries in Nigeria. Within emerging economies, there are few (albeit growing)studies linking recruitment policies and efficiency of the workforce to the realization of official goals and objectives. A combination of quantitative and qualitative research methods were used in the data collection process. Data sets were collected from 78 managers (comprising of lower, middle and top management levels) mostly involved in recruitment processes and procedures in Nigerian ministries. The results of the study provide insight into strategies for building human resource capacity and repositioning the Nigerian public sector (and Africa at large) towards resolving various debilitating developmental challenges. Keywords: Recruitment, Public sector, Policies, Efficiency, Effectiveness 1. Introduction Public sectors within some African countries are facing challenges of professionalism mostly attributed to the context of their environment. The Nigerian public sector is not an exception to this predicament. There are perceptions amongst the citizenry that bases for recruitment into the Nigerian public sector has largely shifted from the principles of meritocracy (educational qualification and experience) towards factors such as nepotism, political patronage (god fatherism), and ethnicity. As a result, the Nigerian public sector appears to have fallen short of expectations in terms of service delivery which have been mostly perceived from the government recruitment policies, processes and procedures. However, policy documents cited by Babaru (2003) stipulate that the recruitment into the federal civil service of Nigeria is determined by three factors, namely: vacancies, qualifications and federal character principle and also emphasize uniformity, standardization and transparency. The extent to which these principles are applied during recruitment processes in the federal government ministries needs further investigation. Indeed, public sector may have a qualified management team, but recruitment processes can face significant obstacles if not rightly implemented. Such obstacles noted by Cole & Kelly (2011) could be poor recruiting decisions resulting in a variety of problems such as poor performance, excessive cost to the organization, labour turnover, absenteeism, low morale, ineffective management and supervision, disciplinary problems, dismissals and possible unfair dismissal complaints. Thus this paper is aimed at the examination and understanding of the efficiency, effectiveness and consequences of the implementation of recruitment policies. Furthermore, it will recommend strategies towards building capable human resources for implementation of government policies and achievement of the national, regional and international goals in the Nigerian public sector. 2. Literature Review Human resource management and the public sector: An excerpt from The African Human Resources Managers’ Network (APSHRMnet) says: The quality of human resources is critical to the development of any country. Global, regional and national commitments to sustainable and poverty reduction such as the Millennium Development Goals (MDGs) need human capacities in the public, private, and civil society sectors to transform these commitments into results---------- (UNPAN 2008-2010). In support of the above excerpt, employees are considered the most essential and integral part of an organization, thus quality of the work force is critical to an organization’s success. Although African countries are diverse culturally, government policies are formulated to suit specific concerns of the environment and its people. Public sector mostly recognized as the highest employer of labour have recruitment policies specifically formulated to ensure fair representation of all races, ethnicity, disadvantaged groups, gender and so on. Given this context, the efficiency and effectiveness of the diverse workforce is a determinant factor in achieving developmental goals. In developed and developing countries, human resources are considered one of the critical factors for economic development. In support of this, studies have shown that governments that desire to be effective are increasingly realizing that of the varied factors contributing to the attainment of set goals and objectives, the human resource is the most critical factor for better service delivery and economic growth (Ayanda&Sani 2010; Gberevbie 2008). Recruitment and selection processes are vital for organizations competitiveness, performance and success. Recruitment policies are coined within the environment an organization operates. According to Cole &Kelly (2011), recruitment is the process of locating, identifying and attracting capable applicants. Similarly,Reichenberg(2009) defines selection as the process of differentiating between applicants in order to identify those with a greater likelihood of success in a job.The recruitment process provides the organization with a pool of potentially qualified job candidates. Based on these qualified candidates, selection can then be made to fill vacancies.Thus, the selection process is the most important phase in deciding on the best competent candidate for a post. According to Cole &Kelly (2011), policies are statements of conduct-principles designed to influence decisions and actions. Government policies are drawn within the context of the organization and its environment. Similarly, recruitment policies in the public sector are drawn to reflect the cultural diversity of the country and cover specific issues such as merit, affirmative actions etcetera. Recruitment policy stipulates the objective of the recruitment and also provides a framework for the implementation of the recruitment program (Richards 2011). Furthermore, recruitment policies in the public sector vary with respect to the size of the organization and are affected by factors such as organizational objectives, personnel policies of the organization and its competitors, government policies on reservations, preferred sources of recruitment and need of the organization (Richards 2011).

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) In this era of globalization and technology, recruitment and selection are taking new shape and putting competitive pressure on the labour market. The competition has forced organizations whether in the private or public sector to be sensitive towards hiring workforce. Managing organizations requires recruiting people who can think and act from a global perspective to achieve the aims and objectives of the organization. Public sector policies and programs are geared towards providing and maintaining quality services for the betterment of the citizenry. The quality of the workforce reflects in the quality of the services being provided. However, the need to achieve Millennium Development Goals (MDG) requires improving on the quality of their workforce. To support this, Aijala (2001) opined that the application of correct recruiting strategies which include increasing transparency, opening the recruitment system, assessing leadership and other skills etcetera are current areas targeted for improvement in the public sector. These strategies will not only position the public service to achieve their objectives, but also will enhance the effectiveness of the public sector to gain competitive edge and increase its market share. However, the Nigerian public sector seems not to be exempted from the inefficient and ineffective public services. The public sector human resources management has been tagged with inefficiency in delivering basic services. The developmental challenges facing Nigeria has been mostly attributed to incapacity of the available human capital. The literature reveals that much works, are still needed in the human resource management practices in the Nigerian public sector (Okpara& Wynn 2008). Nigeria has opened its door to foreign investments as part of the Nigeria vision 20:2020 to be one of the world leading economies by the year 2020;there is still need to establish deeper understanding of the implementation of recruitment policies. Thus efficient and effective human resource requires participation at all levels of management. Human resource management models: Literature has documented that effective government requires good people must be hired, trained and rewarded along with a properly designed system for managing people Bermanet.al(2010). Given that the decision regarding the abilities and quality of people hired are critical to the performance and achievement of organizational goals, this paper adopts a combination of three human resource management models. The first is Fombrun, Tichy and Devanna model or Michigan Model which emphasizes on selection (matching people to jobs) as one of its components (Bratton & Gold 2003). The second is the Harvard model, and it focuses on human resource management policy choices and human resource outcomes. Ultimately, human resource outcomes which include individual well-being, organizational effectiveness and societal well-being might lead to positive long-term consequences.These variables interact with and influence the situational factors and the stakeholder interests. This is in line with Kumar &Garg (2010)argument that human resource score card which include high performance work system consisting of human resource policies, processes, and practices reflects in effective organizational performance. Thus, the significance of efficient and effective implementation of recruitment policies in the Nigerian federal government ministries and the consequences of poor recruitment decisions cannot be overlooked. However, insights from these theoretical frameworks will be used to develop a deeper understanding of recruitment practices in the federal government ministries in Nigeria. Within this context, the formulated hypothesis reads as follows: Ho: There is no relationship between efficient recruitment process and organizational productivity. H1: There is a relationship between efficient recruitment process and organizational productivity. The context of the Nigerian civil service and recruitment system: The establishment of the Nigerian Civil Service dates back to 13 th March 1862 by the British colonial masters. As a result of interest of the British government declared in the Port and Island of Lagos, a government was constituted and provision was made for various posts such as Governor, Chief MagistrateColonial Secretary and Senior Military Officers. Following this was establishment of instruments of Law and Order such as Departments of Judiciary, Police, Prisons,andPublic Works etcetera. However, the real structure of civil service was put in place by Sir Hugh Clifford who succeeded Lord Lugard and was appointed Governor of Nigeria(OHCSF Hand Book 2011).In response to the growth of nationalism and demands for independence, successive constitutions legislated by the British government moved Nigeria toward self-government on a representative and increasingly federal basis which led to independence in October 1960. Following independence in 1960, Nigeria altered its relationship with the United Kingdom by proclaiming itself a federal republic in October 1963, and promulgated a new constitution which marked the beginning of the birth of a new Nigerian civil service (The World Fact Book 2010). The Nigerian civil service was mainly made up of employees in the Nigerian government agencies other than the military. The civil service consists of federal civil service, the autonomous state civil services, the unified local government services and several federal and state government agencies or parastatals(OHCSF Hand Book 2011). The federal and state civil services were organized around government departments, or ministries, and extra-ministerial departments and each of the federal and state civil services was spear headed by ministers and commissioners respectively who were appointed by the president and governors (The World Fact Book, 2010). Gradually, the post-1960 federal civil service role involved settling and coordinating state policies and programs in social and economic management, and the establishment of public enterprises for the provision of social services. In fact, literature documented that this development resulted in a more direct role of the federal civil service in the development of the country (Ogundiya 2007).According to Briggs (2007), civil service recruitment is the process through which suitable candidates are induced to compete for appointment into government jobs. In Nigeria public sector, recruitment into the federal government ministries and parastatals are done by the Federal Civil Service Commission as reflected under Section 153(1) d, Paragraph 11b of the 1999 Constitution of the Federal Republic of Nigeria(Nigeria Public Service Rules: 2000, Rule 02102).The policy document stipulates meritocracy and ethnicity amongst others as basis for recruitment into the public sector. It appears though that adherence to the basis of recruitment and selection especially educational qualification still remains a challenge facing human resource professionalsand the Nigerian public sector. Scholars have traced the recruitment pattern back to the colonial rule when the government hurriedly replaced foreign staff with locals mostly not properly equipped in terms of education or knowledge, but were employed on the basis of ethnicity, godfatherism and nepotism (Budhwar&Debrah 2001).Recent studies also have shown that recruitment processes in the Nigerian public sector is influenced by factors such as political consideration/godfatherism, nepotism, quota system, ethnicity (federal character principle) and government discretion (Inyang 2011; Gberevbie 2010&McOliver 2005). In addition Fajanaet al., (2011), suggested that factors such as culture, language, religion, gender and educational qualifications are part of the basis for determining who get employed in the civil service.The question still remains ‘to what extent are recruitment steps such as advertisement, test/interview and selection are applied during recruitment in the Nigerian public sector?’

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Given this context, there seems to be a gradual move away from merit based recruitment processes in the public sector. There have been various reforms launched by the past and present administration aimed at improving public sector human capacity to deliver services.Huge amounts of money have also been spent on administrative reforms such as training, improved conditions of service, flushing of ghost workers in the system etcetera. Irrespective of these efforts; Nigerian civil service system still remains characterized by its inefficiency and ineffectiveness in delivering basic social services (Nwanolue&Iwuoha 2012;Thomson 2005).Indeed, in the words of President Goodluck Jonathan, the developmental challenges Nigeria faces today is inextricably tied to the capacity of Nigeria’s public service to deliver promptly and efficiently the public goods that Nigeria needs to achieve evident accelerated development (NigeriaFirst 2011). This disease of inefficiency of the Nigerian public sector calls for re-examination of processes of recruitment into government ministries. It is without doubt that any amount of money spent on training the wrong candidate will not yield any significant positive result. 3. Methodology This study adopted a mixed method approach that includes a survey, in-depth interviews and a review of secondary data. Mixed method approach was used and considered helpful in eliciting information from the respondents from diverse cultural backgrounds. The research participants in this study fall within the category of: 1. Top management executives 2. Middle managers 3. Lower level managers 4. Human resource practitioners The researcher’s idea to involve different levels of managers was to incorporate insights and views from different levels management. It is also believed that these managers are mostly involved in the recruitment process and are familiar with the management environment within the context of Nigeria public sector. The study was conducted across nine federal government ministries including federal civil service commission in Nigeriawhich granted the researcher access for research purposes. The population under this study consists of 150 management employees and human resource professionals employed in nine federal government ministries including federal civil service commission in Abuja, Nigeria. The measuring instruments used for this study were questionnaires and in-depth interview. Respondents were required to complete the questionnaires and return them to the administrator. The majority of the questions contained in the questionnaire were closed ended with a few open ended questions. The questions were made simple and coherent. The questionnaire has six sections addressing the objectives of the study. Section A covers introduction and respondents biography; Section B covers recruitment procedures; Sections C and D cover possible challenging factors facing human resource management and professionals; Section E and F covers Control mechanism and improvement strategies respectively. The interviews were conducted using semi-structured interview schedules to explore and explain themes, which emerged from the problems under study. Semi-structured interview schedules also provided an opportunity for both the interviewer and the study participants to create a relaxed atmosphere. A simple random sampling technique was adopted for this study. Due to the representativeness of a sample obtained by simple random sampling, it is reasonable to make generalizations from the results of the sample back to the population. Another advantage of simple random sampling is that it permits an estimate of the error present that is the sampling error which can be minimized and calculated. In addition, the simplicity of simple random sampling also makes it relatively easy to assemble the sample, conduct the survey and interpret data collected (Yates et al. 2008). A trained research assistant was hired and charged with the responsibility of distribution and collection of the questionnaires. 4. Results and Discussion In Table 1, the response rate is presented as per the ministry or para statal participated in the study. Questionnaires were administered to 100 management employees but 67 questionnaires were considered ideal for the analysis. Similarly, a total number of 15 management employees were identified for interview but only 11 participated in the interview. The response rate for the study is 67.82% which is considered adequate and representative of the population under study. Table 1 Responses from the federal government ministries of Nigeria Ministries Questionnaires Questionnaires administered analyzed Nigeria National Assembly 8 6 Nigeria Investment and Promotion 15 12 Commission Federal Civil Service Commission 10 5 Mines and Steel 7 6 National Agency against Trafficking 8 5 In Persons (NATIP) Women Affairs 10 8 Sports Commission 9 5 Science and Technology 10 4 Foreign Affairs 8 6 Labour 15 10 100 67 Source: Filed survey 2008

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2 1

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1 2 2

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Test of research hypothesis: The results of this study were obtained by analyzing the data using descriptive statistics and presented in different tables in this article. The research hypothesis was tested using non-parametric test called Chi-Square test and Randomization test of goodness-of-fit for administered questionnaires and the interview session respectively. Five questions from the questionnaire were used to test the research hypothesis. The test statistics shows that the calculated X 2 = 40.65 at Degree of freedom 4 and Asymptotic significance of 0.03. To determine the critical value beyond which the researcher would want to reject the null hypothesis (H o) in favour of the alternate hypothesis (H1), the critical value for the Chi-square at a = 0.03 and v ≈ 4 is 11.14 which is less than the calculated X2 = 40.65. At this level the researcher rejects the null hypothesis and accepts the alternate hypothesis indicating relationship between efficient recruitment process and organizational productivity. Similarly, the qualitative data was analyzed using Statistical Analysis System (SAS) version 9.3 software by implementing the PROC FREQ procedure. The data from the test statistics for the interview session shows an average value of Randomization test of goodness-of-fit of 4.19 at Degree of freedom 1.71 and Asymptotic significance of 0.05. Based on the statistical result, the p-values are greater than 0.05 suggesting the rejection of null hypothesis and acceptance of the alternate hypothesis implying that there is a relationship between efficient recruitment process and organizational productivity. Statistical analysis for reliability and validity of the study: The reliability of this study for both the administered questionnaire and the interview session was analyzed using Statistical Package for Social Sciences (SPSS) version 19 software package. The scoring for sections B, C, D, and E of the questionnaires were mostly made on Likert-type scale. The possible answers provided in sections B, C, D of the questionnaire to enhance the quantitative analysis ranges from ‘poor to excellent’, ‘very unsatisfied to highly satisfied’ and ‘disagree to agree’. For the purposes of this study, Split half method was implored were variables (odd number questions in the questionnaire) were keyed in as item ‘a’ and even number questions as item ‘b’. Thus, the Spearman-Brown Coefficient which determines the level of reliability of the study is 0.833 as shown in Table 2 and 3 respectively. This value indicates that the reliability of the scale is reasonably high meaning that there was consistency in the study and the items measured. According to Rubin &Babbie (2011), validity refers to the extent to which an empirical measured adequately reflects the real meaning of the concept under consideration. The validity for this study was enhanced by means of triangulation which requires that various data sources, several investigators and various research methods should be used. To ensure that the validity was achieved, the researcher used primary and secondary data sources. The researcher used different respondents at different levels of management to provide different perspectives on the issue being investigated. In addition, the researcher used survey method and in-depth interview for data collection. As such the validity of this research is achieved. Table 2: Reliability statistics for the administered questionnaires Cronbach’s Alpha Part 1 Part 2

Value Number of items Value Number of items

0.185 9a 0.602 8b 17 0.169 0.289 0.290 0.283

Value Number of items Value Number of items

-2.833a 9b 0.269 8c 17 0.420 0.592 0.592 0.550

Total number of items Correlation Between Forms Spearman-Brown Coefficient

Equal length Unequal Length

Guttman Split Half Coefficient Source: adapted by the researcher Table 3: Reliability statistics for the interview session Cronbach’s Alpha Part 1 Part 2 Total number of items Correlation Between Forms Spearman-Brown Coefficient

Equal length Unequal Length

Guttman Split Half Coefficient Source: adapted by the researcher

The reliability coefficient varies between 0.0 and 1.0; Split half reliability varies between 0 and 1. When the coefficient is equal to 0.0, it means there is no correlation of the item with the other items in the domain; that is no reliability. When the coefficient is equal to 1.0, it means that the item correlates perfectly with all the other items in the domain; that is perfectly reliable. For a study to be reliable the coefficient has to be close to 1 and for research purposes, a reliability of 0.70 is acceptable. (O’Connor 2006). Outline of results: This study gave insights into recruitment policies and its implementation processes and procedures in the federal government ministries in Nigeria. The outcome of the study is the call for reinforcement of merit based principles in addition to federal character principle in the processes of recruitment for effective human capacity, performance management and achievement of developmental goals. A significant finding emerging from the respondents is that ethnicity still precedes merit (educational qualification and experience) within the system after over 50 years of independence. One would expect that there should have been a gradual move away from over dependence on ethnicity in building human resource needed to speedup with the country’s required development. The findings of this study reveal that processes and procedures of recruitment reflect in the Nigerian public sector service delivery. This is mostly evident in the ability of the workforce to carry out government policies and programs in an open competitive environment. It was also evident from the study that though there are rules and regulations stipulated in the recruitment policy to guide the recruitment

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) processes, implementation and adherence to these rules is a continuous challenge facing Nigerian public service human resource management and professionals. These challenges are attributed to the social structure and the political nature of the Nigerian system. Such variables which include, political consideration, nepotism, and ethnicity influence recruitment processes in the federal government ministries in Nigeria and inhibits developmental goals. These variables hold strong in recruitment processes irrespective of merit system (educational qualifications and experience). These findings are consistent with previous studies existing in the literature (Fajana et al. 2011; Inyang 2011; Gberevbie 2011: Briggs 2007; McOliver 2005). However, Nigeria is a country rich in both human and natural resources. Population wise, Nigeria is home to an estimated population 150 million people (United Nations Children’s Fund, 2007). In terms of natural resources, Nigeria is endowed with huge deposits of natural resources making her one of the world largest producers of crude oil. One would expect a high spate of development in terms of provision of basic amenities such as accessible roads, regular water and electricity supply, quality medical services, improved standard of education, and so on, but, rather the opposite is the case. According to a World Bank report (2008), at the dawn of the third millennium, ‘approximately 70% of Nigerians live on less than US$1 a day’. In support of this assertion, a United Nations Development Report in 2009 sighted by Ikenna, (2009) noted that Nigeria had degenerated further, with 87% of its citizens living on less than US$1 per day resulting in the rating of 154 on the world’s marginal poverty index out of 172 countries. Various reforms have come and gone and some are still going on, aimed at achieving national, regional and international goals. Most of these reforms are characterized with inefficiency which is assumed to be a reflection of the capacity of the public service work force (Nwanolue&Iwuoha 2012).The effect of political consideration, nepotism and ethnicity in recruitment processes has hindered effective management in the public sector and development in Nigeria. It is without doubt that education and training will go a long way in reducing the effect of nepotism in the public sector recruitment practices, however, the first step would be an overhauling of the perception that once a family member or friend is in a government office (for example an elected governor), it becomes an avenue for acquiring wealth opportunity for recruitment of siblings and friends. Thus, the key to efficient public sector lies on the human resource management policies and programs for staff recruitment and development. During the course of the research, important research questions were identified for future research purposes; 1. How does recruitment policy affect the realization of national goals? 2. What is the impact of recruitment policies on building capacity for developing countries? 3. Is there a gap between the recruitment process in the public and private sector in developing countries? 4. What is the impact of recruitment policies on service delivery in the public sector? These questions have been partly examined but require further in-depth investigation to ascertain the level of achievement of the various Millennium Development Goals in Nigeriaand Africa at large as the targeted year is around the corner. Future research may be conducted to identify the efficiency and effectiveness of recruitment policies at state and local government level in the Nigeria public sector. It might be worthwhile to study the efficiency of recruitment process in the private sector as a comparative analysis with the public sector in other African countries. This study provides a reasonable picture of the efficiency of recruitment processes as a measure of employees’ capacity and organization’s productivity within the Nigerian system. It sheds light on the extant of recruitment policy and processes from a developing country’s perspective. 5. Conclusion This paper focused on public sector recruitment policies in Nigeria and highlighted on the efficiencies and effectiveness of recruitment processes. It also discussed the consequences of influencing recruitment procedures. The study contributes to the knowledge of human resource management practices in Nigeria. Results reveal that there has been a move away from the concept of meritocracy in recruitment processes due to political considerations, nepotisms and ethnicity. As such these factors have impacted negatively on national developments and economic growth. However, these variables hold strong in staff recruitment processes and in turn affects public sector ability to recruit capable workforce to carry out government policies and programs. As opined by Agbodike (2003:185) “the result of the undue application of quota and lack of regard for merit in the application of federal character principle is that standards and professionalism are compromised and endangered”. The standards and professionalism needed in achieving the Millennium Development Goals and Nigeria vision 20:2020 has been severely damaged. The net outcome had been introduction of reforms aimed at re-positioning public service image. Though these reforms such as SERVICOM (Service Compact with all Nigerians) are in place, much will not be achieved if capable human resources are not in place. To achieve short or long term organizational goals, there is need for efficient workforce which can only be attained by recruiting people with the appropriate skills, qualifications and experiences. Strengthening appointments on merit which requires that the capable human resource be employed for governments to be able to execute their policies, become efficient and effective in delivering services is one simple and powerful way in which governments can improve the quality of their services and gain a competitive advantage (McCourt 2007; Brewster et al. 2003). Until the federal civil service of Nigeria acknowledges these statements, the efficiency of recruitment processes will remain an enduring challenge facing the country. This is because standards are compromised for political reasons and nepotism with the result that the state continues to experience setback in physical and economic development growth. References Agbodike, C.C. (2003). Federal Character Principle and National Integration. In K. Amuwo, A. A. Agbaje, R. T. Suberu, & G. Herault (Eds.),Federalism and Political Restructuring in Nigeria (pp.177-190). Ibadan: Spectrum Books Ltd. Aijala, K. (2001). Public sector – an employer of choice? Report on the competitive public employer project. Retrieved fromhttp://www.oecd.org/dataoecd/37/29/1937556.pdf Ayanda, O. J., &Sani, D. A. (2010). Strategic human resource management and organizational effectiveness in the public sector: Some evidence from Niger State. International Bulletin of Business Administration, (9), 142-156. Retrieved from http://www.eurojournals.com

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Babaru, A.S.M. (2003). Leading Public service innovation: The case of the Nigerian civil service and federal civil service commission. Paper presented at the commonwealth, New Zealand Agency for International Development (NEAID): Wellington, New Zealand. Berman, E. M, Bowman, J.S., West, J. P.,& Van Wart, M. R. (2010).Human Resource Management in Public Service: Paradoxes, Processes and Problems (3rded), Thousand Oaks: Sage publications, Inc. Bratton, J., & Gold, J. (2003) Human Resource Management: Theory and Practice (3 rded), London: Palgrave Macmillan. Brewster, C., Carey, L., Dowling, P., Grobler, P., Holland, P., &Warnich, S. (2003). Contemporary issues in Human Resource Management (2nded), Cape Town: Oxford University Press. Briggs, R.B. (2007). Problems of recruitment in civil service: Case of the Nigerian civil service. African Journal of Business Management, 1(6), 142-153. Budhwar, P. S., &Debrah, Y. A. (2001).Human Resource Management in Developing Countries. New York: Routledge. Cole, G.A., & Kelly, P. (2011).Management Theory and Practice. (7 thed), Singapore: South-Western Cengage Learning. Fajana, S., Owoyemi, O., Elegbede, T.,&Gbajumo-Sheriff M. (2011). Human resource management practices in Nigeria. Journal of Management and Strategy, 2(2), 57-58. Gberevbie, D. E. (2008).Staff recruitment, retention strategies and performance of selected public and private organizations in Nigeria.(Unpublished doctoral thesis).Covenant University, Ota, Nigeria. Gberevbie, D. E. (2010). Strategies for employee recruitment, retention and performance: Dimension of the federal civil service of Nigeria. African Journal of Business Management, 4(8), 1447-1456. Retrieved from http://www.academicjournals.org/AJBM Gberevbie, D. E. (2011).An appraisal of staff recruitment and retention policies of Delta state civil service in Nigeria.Petroleum-Gas University of Ploiesti Bulletin, 63(1), 16-28. Retrieved from http://www.upg-bulletin-se.ro/archive/2011-1/3.%20Gberevbie.pdf Ikenna, M. A. (2009). Understanding the crisis of development in Africa: Reflection on Bedford Umez’sanalysis.African Journal of Business Management, 3(9), 354-359. Inyang, J. B. (2011). Creating value through people: Best human resource practices in Nigeria. International Business and Management, 2(1), 141-150. Retrieved from www.cscanada.org Kumar, N. &Garg, P.(2010).Impact of online recruitment on recruitment performance.Asian Journal of Management Research327-336. Retrieved from http://www.ipublishing.co.in/ajmrvol1no1/EIJMRS1026.pdf McCourt, W. (2007).The merit system and integrity in the public service.Conference on public integrity and anti-corruption in the public service held in Bucharest organized by the OECD SIGMA programme. Hungary: OECD. Retrieved from http://www.sigmaweb.org/document/21/0,3343,en_33638100_34612958_38944213_1_1_1_1,00.html). McOliver, F.O. (2005). Management in Nigeria: Philosophy and Practice. International Journal of Communication and Humanistic Studies, 2(1), 17-31. NigeriaFirst. (2011, 30 March). Rule of law &good governance. Retrieved from www.nigeriafirst.org/article_10957.shtml Nigeria public service rules: The official Gazette Rule 02201. (2000) Nwanolue, B.O.G &Iwuoha, V. C. (2012). The Nigerian civil service and promotion of sustainable human development: A critical analysis. Arabian Journal of Business and Management Review, 1(9), 12-21. O’Connor, T. (2006). MegaLinks in Criminal Justice. Retrieved from http://www.apsu.edu/oconnort/ Office of the Head of Civil Service of the Federation (2011). Retrieved from http://www.ohcsf.gov.ng/about_civil_service.html Okpara, J. O. & Wynn, P. (2008). Human resource management practices in a transition economy: Challenges and prospects. Management Research News, 31(1), 57-76. Ogundiya, I. S. (2007). Minimizing the cost of governance in Nigeria through civil service reforms: Rightsizing, downsizing or retrenchment. In A. S.Akpotor, A. O.Afolabi, M. O.Aigbokhaevbolo, B. O. Iganiga and O. S. Odiagbe (Eds.)Cost of governance in Nigeria:An evaluative analysis. (pp. 5-20) Ekpoma: AmbroseAlli University Press. Reichenberg, N. (2009).International recruitment strategies.conference paper on international public management association for human resources (IPMA-HR) held in Alexandra, Virginia,Conducted by United Nations Public Administration network. Retrieved from www.unpan.org Richards l. (2011). Recruitment and selection policies and procedures.Hearst newspaper. 4 September 2011. Retrieved from http://smallbusiness.chron.com/recruitment-selection-policies-procedures-2528.html. Rubin A. &Babbie E. (2011).Research methods for social workers. (7thed), Belmont: Brooks/Cole. The World Fact Book.(2009). History of Nigeria.The library of congress country studies; central intelligence agency (CIA) World Fact book. Washington DC. Retrieved from Thomson, W. (2005).Delivering service in Nigeria: A roadmap report for the office for public service reform. Retrieved from http://www.servenigeria.com United Nations Children’s Fund (UNICEF) Nigeria. (2007).The Nigerian Situation. Retrieved from http://www.unicef.org/nigeria/1971_2199.html United Nations Public Administration Network –UNPAN (2008-2010). African public sector human resource managers’ network (APSHRMnet). Workshop of United Nations Department of Economic and Social Affairs (UNDESA) held at Arusha, Tanzania on the 27 February 2009. Retrieved from http:www.unpan.org/DPADM World Bank (2008).A world report on population and poverty. Washington DC: World Bank. Yates, D. S., Moore, D. S. & Starnes, D. S. (2008).The practice of statistics. (3 rded), CapeTown: Freeman Press.

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Global Governance and Turkey’s Position in the Post-Global Crisis Period 1Zehra Vildan SERİN, 2Beyza Oktay Fatih University, Department of Economics, Istanbul TURKEY 1,[email protected]

Abstract: Following the most recent global crisis, the necessity for a new structuring in which developing countries more actively participate in the processes of global governance has become a current issue. The aim of this paper is to offer answers to the question that how should be a governance model in which China, Turkey, Brazil, India and other G-20 countries are more active decision-makers, instead of an international monetary system dominated by the USA. Firstly, the cause of the crisis, that is, the fact that USD relatively ceased to be the reserve money will be analyzed. Secondly, the process of transformation in the IMF administration in a way to allow G20 countries a more active participation will be addressed. Finally, Turkey’s role in the restructuration of the global financial system -a process which had stemmed from the emergence of global governance through the integration of capital markets and excessive deregulation- will be analyzed, and policy recommendations for a better global governance will be discussed. Keywords: International reserve, Global Financial Crisis, G-20, Turkey, gold 1. Introduction In this article, we are going to analyse the aforementioned issue about the new international monetary system starting with the general frame of 2008 financial crisis. Then, the relative loss of US dollar’s reserve money characteristics and the decline of United States’ hegemonic power will be emphasized. Since it is a matter of debate, returning to a new structured gold standard will be discussed with the advantages and disadvantages. While the gold standard is going to be analysed, an empirical study on the factors influencing gold reserve levels of G-20 countries will be run in order to see which variables affect the reserve levels and to check whether the tendency is different for the G-8 and other G-20 countries. Since it is seen as a common tendency to hold more of gold reserves as buffer stock during the crisis times and also since gold has become a very important factor in global economy with its increasing value, this analysis is very crucial with its participation in the ongoing debate. Finally, Turkey’s role on the reconstruction of global governance will be discussed together with other G.20 2.Literature Review US have managed to create and sustain a hegemonic position in the global monetary order after the World War II. Today the system is giving change signals from unipolar which was dominated by US dollar and accompanied by other currencies pegged to the dollar (Bretton Woods system, 1944-1970), to multipolarity ((Eichengreen & Gupta, 2011). According to Venhaus US hegemonic power based on three central pillars: 1) institutional power (control over outcomes in the International Monetary Fund), 2) structural power (dollar/Wall-Street dominance, forming an ‘exorbitant privilege’) band, 3) ideational power (Neoliberalism as the leading politico-economic ideology -especially since the 1970s). Today the system is giving change signals from unipolar which was dominated by US dollar and accompanied by other currencies pegged to the dollar (Bretton Woods system, 1944-1970), to multipolarity (Aizenman & NBER, 2007). The United States’ panic environment following the financial crisis was the years after a very long term of current account deficits (Posen, 2008). There are many critics about dollar and its monopoly power after the financial crisis occurred in the United States and has spread all over the world. It has damaged the US reputation and confidence. The fact is seen as the US has misused its reputation as the world leading economy and currency. External debts have been built up and the US had no problem with this situation thanks to its recklessness. But the rest of the world did not want to continue with dollar to finance international trade and capital movements and they did not want to rely solely on US dollar no more (Tremblay, 2009). There are some facts and numbers about the US dollar dominance. The trade of other currencies for US dollars captures 85% of foreign exchange transactions. Also the price of oil is set in dollars. It is being used as currency of all international debt securities. Finally it is mentioned that more than 60% of the foreign reserves are in dollars. ((Eichengreen & Gupta, 2011) Additionally there is a study showing the dollar’s position as leading currency. According to this study the dollar’s percentage share in total world money supply declines from 90% in 1950s to 15% nowadays. It is also mentioned that other currencies such as the Yuan, the yen or the Euro have greater share of total world money supply (Cox, 2013). As the matter of content, in the Figure1, it can be obtained that the US dollar’s share in official global foreign-exchange reserves is declining. Canadian and Australian bond markets are too small. Brazilian and Indians are not worried about it but India preserves capital control and this strict mechanism is preventing foreign investors to reach Indian markets; Brazil increased the tax on purchase of securities for the foreigners. China also has capital controls. These are all limits to be reserve currency (Eichengreen, 2011). The closest substitute is Euro. It is being used by strong European economies. Also it is convertible and supported by money and capital markets. But Euro zone and European banks are facing an ongoing financial problems and is not trustful enough (Tremblay, 2009). This prevents Euro to meet criteria of being safe haven. The other substitute is Chinese renminbi. In reality, renminbi is not seen as a close rival for dollar because of China’s status as a country. China is described by Tremblay (2009) as “totalitarian, authoritarian and repressive state regime that does not recognize basic human rights, such as freedom of expression and freedom of religion, and which crushes its linguistic and religious “minority nationalities”. It is a country that imposes the death penalty, even for economic or political crimes.” Since it is not easy for China to change these features in near future, it has no chance to lead the world economy with its currency (Tremblay, 2009). Also the problem with Yuan (even the most important one) is liquidity and convertibility. Furthermore it is not much trustable because of its most important industries are state-owned (Delfeld, 2012). Cox (2013) makes a point clear by referencing Dick Bove, vice president of equity research at Rafferty Capital Markets, that if the dollar would lost its role to be the most reliable currency in the future, the US would not have right to print money to pay its debts. Rather it would be forced to pay. The existence of other profitable investment opportunities is also

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) reminded if the currency options might be varied in the future. After the financial crisis, it was not over but continued with the second wave for quantitative easing. These actions downgraded the dollar in foreign exchange markets. Also the Europe which has been affected by the crisis that spread all over the world had deep financial problems. Since the Europe’s position has got much worse, it is seen to be the case that Euro will be weaker than before and dollar will be stronger (Eichengreen, 2011). Inefficient Efforts of G-7 Countries vs. Increased Significance of the G-20 Countries: Our starting point was the Robert Zoellick’s suggestion of a new monetary system which will be developed by the active participation of developing countries’ currencies. His words about the return to a gold system were also an inspiring idea also for us. That’s why; our study and suggestions will heavily be on the gold reserves and gold gathering by some countries. Our thesis is that some countries trying to hold more of gold and gold will have a very important role in the future. Those people are the ones who can see it now and benefit from their actions in the future. That’s why; decreasing power of US and US dollar has been focused on in this section. In the forthcoming sections, more focus will be on the new international monetary system and gold reserve situations. Globalization process is being criticised heavily. There are some parts who argue that it should be rejected and some others, on the contrary, say that it is needed for sustainable growth. It is said that “no country has ever developed successfully without participating actively in the global economy” (Bergsten, 2004). A correlation between growth and globalization is also statistically approved by several of studies. Moreover, there was no study showing a connection between openness and slow growth till 2004. Countries such as China, India, Mexico and the US are the success stories in this concern. On the other hand, Africa and Brazil were two failure examples of globalization. Inside G-7, Japan and Germany has been seen as growth laggards while Japan’s globalization ratio was declining and Germany’s growth ratio was flat. Middle East was also one of the bad examples of globalization to the contrary of its quick repairmen in the first post-war decades and the rise in the oil prices. It is mostly an outcome of their lagging performance because some of the most crucial development successes have seen in the countries used globalization such as Mexico, China and Egypt (Bergsten, 2004). Globalization is a necessary condition for sustainable growth but it is not enough since it has also costs and losers. So called Washington Consensus plays an important role in this part. Still it is seen that the original Consensus was not successful to produce growth since there were some crisis and the vulnerability of countries were affecting the reform process. It is suggested that the G-20 should take an active role for the globalization process. By doing so, their effort would be crowned if they decide to seek a leader position in the governance of new world economic order. The regulation-free nature of the global financial system, excessive deregulations and asymmetric knowledge conduced towards financial markets’ high-risk and myopic behaviours. Inadequate institutional communication created disorganization in the operation of capital markets. Besides, low growth rates increased instabilities that cause inflation (Stiglitz, 2009). As Stiglitz suggests (2010); Bernanke and Greenspan doctrines have proved inadequate. Financial markets acted incorrectly in controlling risks and directing the capital to low-cost activities. Especially those countries that have independent central banks were more unsuccessful than those with dependent ones. The reason of this is the fact that countries with autonomous central banks focused solely on the target of combating inflation and threw targets such as growth, employment and financial stability out of focus. However, the effects of the crisis were bigger than the damages of inflation. In this period, G-7 countries began to fail to overcome the ambiguities that emerged in the international monetary system, because while developed countries were incurring current account deficits due to global imbalances, developing countries began to have current account surpluses and to increase their dollar reserves. Since G-7 mostly failed to make contribution to global stability and growth and G-20 may have a chance to replace G-7 in that matter. What was wrong with G-7 was mentioned as (Bergsten, 2004): “First, the G-7’s effort to manage a constructive adjustment of the global imbalances centred on the US current account deficit without putting excessive pressure on other individual components of the world economy (notably Europe) has achieved limited success, at least to date, in large part because the G-7 excludes countries whose participation in the necessary adjustment of exchange rates is essential… Second, it is also difficult for the G-7 to function as an impartial and thus effective arbiter in major debt cases. The creditor countries have traditionally been able to impose their views on the debtor countries, including through their voting control of the international financial institutions.” Also when we look at the G-7 countries share of world output, trade, monetary reserves etc., we can see a clear decline year by year. G-7 countries are not able to manage the world economy in a very effective way. Still it can be an option for them not to withdraw completely but instead it can be a council for the rich countries. Following the Asian financial crisis in 1997, the G-20 was formed in 1999.As a result, G-20 countries started to be included in the process more actively. G-20 countries, which constitute nearly 85% of the global economic magnitude, play important roles in making institutional reforms in the global system and developing new approaches. The EU has the largest share (26%) of the economic magnitude created globally; which is followed by the USA (23%), China and Japan (9%), and Germany (5%). In this ranking, the shares of the EU and the USA are notably high. For this reason, any kind of speculative news coming from these geographies has the capacity to positively or negatively influence the markets. G-20 countries dwell on institutional reforms not only to attain demand equilibrium but also to stimulate growth. Whereas China will need to provide more social services as it shifted its focus from export industries to new local businesses, the USA will have to deal with structural expenditures and bubbling debts, which will pressure the growth. The USA and China might agree upon steps that would support each other in order to enhance growth and define a route aimed at strengthening the Yuan. Zoellick, moreover, suggested that prominent economies, especially the G-7, need to abandon monetary interventions. G-20 can come up with various norms to guide the instrument that developing countries need in order to cope with short-term hot money flows. Zoellick also talked about the obligation for G-20 countries to support growth by focusing on supply-side bottlenecks in developing countries. Finally, in compliance with the common consensus on the dollar reserve system, he suggested that G-20 should finalize this program with a plan to construct a common currency that is reflecting the emerging economic conditions. This new system will most probably comprise dollar, euro, yen, pound and Yuan and an open capital account. In order to fight with global imbalances, which we see as the core reason for all the disasters faced in the world economy today, balancing of current accounts is recommended as a direct solution. The current account balance as a percent of GDP is a sign of international competitiveness for a country. Since surplus countries depends heavily on exports revenues with high saving ratings but weak domestic demand, they could increase service productivity and strengthen domestic consumption so that their imports increase. As it can be seen directly from Figure 2.3, these countries can be listed as Saudi Arabia, Germany, Russia, China, South Korea, Japan and Indonesia inside G-20. Deficit countries, on the other hand, depend heavily on imports, have a low saving rates and high personal consumption (% of

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) disposable income), could encourage exports and reduce domestic consumption (Velde, 2010). Furthermore, international reserves holds by surplus economies have an important role in stimulating global growth and development finance to developing economies. From figure 2.4, it can be depicted that China, Japan, Saudi Arabia, United States and Russian Federation are the first five countries holding the largest reserves inside G-20. Asian countries are holding reserves against the impacts of another economic crisis as insurance. This causes global imbalances again, so this position should be reversed and reserves should be used for development. This is possible by using the reserves as global investments (Velde, 2010). Figure1: Total Reserves of G-20 Countries as of 2011 (including gold)

Source: World Development Indicators International reserves can also be used to establish Sovereign Wealth Funds (SWFs). SWFs can be hold by the countries which has current account surpluses. That’s why Asia is the top region in SWF investment, not surprisingly. EU and US are following the Asia (Velde, 2010). Again it is not surprising that the ratio of reserves to GDP is relatively high in many countries with SWFs. However, reserves are relatively lower in some countries, such as the countries in the Gulf area like Saudi Arabia, Kuwait, Oman, and United Arab Emirates, with SWFs of longer duration (Aizenman and Glick, 2008). According to Velde (2010), new and existing vehicles for SWFs may help channel global finance from surplus countries to the countries where returns on investment are utmost, or it could be directed to areas where increased liquidity is needed the most for systematic reasons. Analysis of Turkey’s Gold Reserve Position in the G-20: International reserve holdings and gold reserve holdings data are selected from the World Bank’s indicator list. Both data are in current US dollars and calculated for the year of 2011. Due to the availability, the gold holding levels are calculated with the difference between the data of “total reserves minus gold” and “total reserves including gold”. It is indicated by the World Bank that “total reserves excluding gold” comprise special drawing rights, reserves of IMF members held by the IMF, and holdings of foreign exchange under the control of monetary authorities. Table 1: “Total Reserves Minus Gold” Ranking of G-20 Countries (2011) Ranking Country Name 1 2 3 4

China Japan Saudi Arabia Russian Federation

Total Reserves 3,20279E+12 1,25817E+12 5,40677E+11 4,53948E+11

5 Brazil 3,50356E+11 6 Korea, Rep. 3,04255E+11 7 India 2,71285E+11 8 Mexico 1,43991E+11 9 United States 1,36912E+11 10 Indonesia 1,06539E+11 11 United Kingdom 79272313250 12 Turkey 78322384557 13 Germany 66928149354 14 Canada 65652141599 15 Italy 49185199802 16 France 48611516661 17 Argentina 43226839533 18 Australia 42783369933 19 South Africa 42595178722 Source: World Development Indicators; http://data.worldbank.org/indicator/FI.RES.XGLD.CD).

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South Africa

Australia

Argentina

Italy

France

Canada

Germany

Turkey

United Kingdom

Indonesia

United States

India

Mexico

Brazil

Korea, Rep.

Japan

Saudi Arabia

China

3.5E+12 3E+12 2.5E+12 2E+12 1.5E+12 1E+12 5E+11 0

Russian…

Figure 2: “Total Reserves Excluding Gold” Position of G-20 Countries (2011, current US$)

Source: World Development Indicators According to the Figure4, two Asian countries, China and Japan are in the first and second place in total reserve level among G-20 countries while Saudi Arabia, Russia and Brazil are following them. Turkey is seen in the 12th place after United Kingdom. South Afrcia is seen as the country holding the least reserves but the last five countries (Italy, France, Argentina, Australia and South Africa) present similar results in terms of reserve numbers among G-20 countries. Figure 2 is consistent with the fact of international reserve hoarding of especially some Asian economies (specifically China) after the Asian financial crisis. It was a given fact that some economies such as China, Japan, Korea, Malaysia and Taiwan, have started to accumulate reserves at an increasing rate. After the event of Asian crisis, the ratios of reserve holding increases have been seen as 262%, 133%, 107%, 124% and 126% respectively by the aforenamed countries (Cheung and Ito, 2009). Holding more of international reserves is generally considered as a positive indicator since it is thought as a tool to decrease vulnerabilities. It is easy to understand the reserve stocks in an economy with external surpluses. The country may be able to put aside some of its money since it earns more than it consumes (Akat, 2013). This is the case that can be easily seen in economies like China, Saudi Arabia, Russia, etc. The case of G-20 leadership may be very beneficial if they can construct a system which rich and poor countries can push each other to utilize constructive policies and not just hold meetings inside themselves but instead try to reach the other through media (Bergsten, 2004). If they can manage to construct this kind of steering committee with key players such as China, Korea, Argentina or Brazil, it would be very crucial for global stability. After this point, G-7 would be weak for the stability job since the key players will be outside the group. Even the creation of G-20 in 1999 was an indicator that shows us the inefficient efforts of G-7 in dealing with the main problems of world economy (Bergsten, 2004). Hegemonic powers shift from one hegemony to another; during the financial crisis of 2008 which US hegemony apparently had been crushed, whereas China was mostly safe (Clark 2011). Before one year ago the global crisis, Michael Cox (2007) rightly asked ‘Is the United States in decline - again?’ Hence, based on current trends it seems to be only a matter of time until US hegemony ends and G.20 will rule the world Despite the fact that Turkey accounts for 1.1% of the global GDP, it ranks third, after Argentina and China, among G-20 countries in terms of growth with a growth rate of 8.5%, based on the data of the third quarter of 2011. Turkey ranks 11 th in terms of population and 13th in terms of per capita income. Turkey will have the term presidency of G-20 in 2015, following Mexico (2012), Russia (2013) and Australia (2014). In the G-20 Foreign Ministers Summit, held in February 2012 in Los Cabos. Moreover, other important issues were also addressed such as problems in the Middle East, economic crises, environmental problems and poverty. By touching upon the support that Turkey has been providing to the Least Developed Countries and stating that Turkey has promised to provide aid to these countries amounting to 200 million USD every year as part of the Istanbul Action Plan; he suggested that a common mechanism should be formed with the aim of bringing together G-20 countries and the Least Developed Countries. Turkey, which is the 16 th largest economy of the world and the 6th largest one in Europe, sees G-20, which brings developed and developing countries together, as the most appropriate platform in addressing international financial and economic problems and attaining the coordination of global attempts to solve the economic crisis. 4. Conclusion To conclude, it is undeniable that the sovereign debt crisis of 2008 has caused to shift global power from G7 countries to G 20 countries. and forced the country to make concessions and adjust to new circumstances. Accordingly a tendency in gold reserves to grow; not only globally but also at the scale of individual countries is observed. Although Turkey is among these countries, its foreign exchange reserves are still very much above its gold reserves. In conclusion, whether as a part of a new exchange system or not, the rise in countries’ confidence in gold is quite visible. This can be easily inferred from the amounts of reserves they hold in gold. In this respect, while some think that a return to the gold exchange system would be possible, some others believe that such a change could never be the case. As it is discussed so far, there exists a global consensus on the existence of problems regarding the dollar reserve system and quests are ongoing for a new global reserve money system to replace the USD. Last but not least, such gravitation towards gold and significant rises in gold prices render gold as the biggest candidate that a newly introduced system to be considered. Turkey continues to contribute to global governance reforms by actively participating in the works of G-20 at every level.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Recommendations Its still being observed that the effects of the global financial crisis are clearly felt and people try to take measures, come up with new ideas and present much more marginal reform proposals accordingly. Although hearing such reform attempts from someone in a prominent position in the global economy spurs multifarious reactions, it nevertheless propelled everyone to think and discuss for attaining the best. If a change happens through a multi polar financial system, not a single currency will shine alone very strongly in the crisis times. Since they are just using dollars for all of their activities ranging from workers’ payments to product sales, it will be more complicated for them to change among currencies. For example; they don't have to suffer from the cost of changing foreign-currency earnings into dollars. American companies will face with some problems such as exchange rate risks. On the contrary, total opposite will be true for the other nation’s companies since they will be able to do business with their own currencies. Also the rivalry of Euro and renminbi is a very big change for the dollar. The other fact about US dollar is, the danger it faces about losing its safe haven status because of its federal debt (75% of US GDP). Even if the dollar’s reserve money status is not lost, it might be shared with other currencies It is actually hard to replace a currency which has such credibility in international trade and investment. This situation creates a gap in international issues. Finally, today is not a day of just one currencies’ hegemony. Before, technology was not developed as today and it was difficult to compare prices in different currencies. That’s why it was not the case of using multi-currency by traders and bond issuers in order not to confuse their customers. Today, the situation is very different and it is possible to have more than one currency in the system References Abdelal, Rawi / Blyth, Mark / Parsons, Craig (eds.): Constructing the International Economy, pp. 227-239. Aizenman, Joshua, Inoue, Kenta, & National Bureau of Economic Research. (2012). Central banks and gold puzzles NBER working paper series no 17894 (pp. 1 online resource (39 p.)). Retrieved from http://papers.nber.org/papers/17894 Akat, Asaf Savaş. (2013). Döviz Rezervi ve Kısa Vadeli Borç, Vatan. Retrieved from 22.01.2013 from http://haber.gazetevatan.com/dovizrezervi-ve-kisa-vadeli-borc/507905/4/yazarlar Amadeo, Kimberly. (2012). What Is the Gold Standard, and How Would a Return Affect the U.S. Economy? Retrieved 01/08/2012, from http://useconomy.about.com/od/monetarypolicy/p/gold_standard.htm Baur, Dirk, & McDermott, Thomas. (2009). Is Gold a Safe Haven? International Evidence IIIS Discussion Paper (pp. 38): Institute for International Integration Studies. Bergsten, C. Fred. (March 4, 2004). The G-20 and the World Economy. World Economics, Vol. 5(No. 3), 27-36. Blumen, Robert. (2011). US To Return to Gold Standard. Really? Retrieved 05/08/2012, from http://lewrockwell.com/blumen/blumen23.1.html Cheung, Yin-Wong, & Ito, Hiro. (2009). A Cross-Country Empirical Analysis of International Reserves CESifo Working Paper Series (pp. 47) Cheung, Yin-Wong, & Qian, Xing Wang. (2007). Hoarding of International Reserves: Mrs Machlup’s Wardrobe and the Joneses. 41. Conway, Edmund. (2010). Return to the Gold Standard Would Be Madness, The Telegraph. Retrieved from http://blogs.telegraph.co.uk/finance/edmundconway/100008531/return-to-the-gold-standard-would-be-madness/ Cox, Jeff. (2013). Is the Dollar Dying? Why US Currency Is in Danger. Retrieved 10.05.2013, from http://www.cnbc.com/id/100461159 Delfeld, Carl. (2012). Will the Dollar Be Replaced As a Reserve Currency?. Retrieved 10.05.2013, from http://www.investmentu.com/2012/May/dollar-reserve-currency.html Durden, Tyler. (2010). World Bank President Robert Zoellick Calls for Return to "Old Money" Gold Standard. Retrieved 01/2013, from http://www.zerohedge.com/article/world-bank-president-robert-zoellick-calls-return-old-money-gold-standard Dykewicz, Paul. (2011). Forbes Predicts U.S. Gold Standard Within 5 Years. Retrieved 05/08/2012, from http://www.humanevents.com/2011/05/11/forbes-predicts-us-gold-standard-within-5-years/ Eğilmez, Mahfi. (2012). Altın. Retrieved from http://www.mahfiegilmez.com/2012/05/altn.html Eğilmez, Mahfi. (2012). Döviz ve Altın Rezervleri Ne işe Yarar. Retrieved from http://www.mahfiegilmez.com/2012/03/doviz-ve-altnrezervleri-ne-ise-yarar.html Eichengreen, Barry. (2011). The Dollar: Dominant no more? Retrieved 06.05.2013, from http://www.voxeu.org/article/dollardominant-no-more Eichengreen, Barry. (2011). Why the Dollar's Reign Is Near an End, The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052748703313304576132170181013248.html Engdahl, William. (2003). The Dollar System and US Economic Reality Post-Iraq War. Retrieved from http://www.engdahl.oilgeopolitics.net/1973_Oil_Shock/Dollar_System/dollar_system.html Gökay B. and Whitman D. Ghost Dance: The U.S. and Illusions of Power in the 21 st Century, Alternatives. Turkish Journal of International Relations, Yalova 2004, Volume: 3, Issue: 4, pp. 60-91. Justin Yifu, Lin, Justin Yifu, Lin, Volker, Treichel, & World Bank. (2012). The Unexpected Global Financial Crisis: Researching Its Root Cause (pp. 1 online resource (82 p.)). Retrieved from http://elibrary.worldbank.org/content/workingpaper/10.1596/1813-94505937 Mandeng, Ousmene. (2011). International Reserve Diversification - A Proposal for the G20: Ashmore Investment Management Limited. Melloy, John. (2011). Return to Gold Standard? Why Price Would Hit $10,000. Retrieved 05/08/2012, from http://www.cnbc.com/id/44891595/Return_to_Gold_Standard_Why_Price_Would_Hit_10_000.html Mwase, Nkunde. (2012). How much should I hold? Reserve Adequacy in Emerging Markets and Small Islands IMF working paper WP/12/205 (pp. 44 p.). Retrieved from http://www.imf.org/external/pubs/cat/longres.aspx?sk=26191.0 Olokoyo, Felicia, Osabuohien, Evans, & Salami, Adeleke. (2009). Econometric Analysis of Foreign Reserves and Some Macroeconomic Variables in Nigeria(1970-2007). African Development Review, 21(3), 454-475. Posen, Adam S. (2008). Why the Euro will not Rival the Dollar. International Finance, 11(1), 75-100. Stiglitz, Josepf. (2009). Reform is Needed. Reform is In The Air. We Can't Afford to Fail, The Guardian. Retrieved from http://www.guardian.co.uk/commentisfree/2009/mar/27/global-recession-reform

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Stiglitz, Joseph. (2010). One of the Main Lessons from the Financial Crisis is that the State Must Play a Key Role in Sustaining Economic Development. Retrieved 08/2012, from http://www.afdb.org/en/news-and-events/article/joseph-stiglitz-one-of-the-mainlessons-from-the-financial-crisis-is-that-the-state-must-play-a-key-role-in-sustaining-economic-development-5524/ Wolf, Martin. (2010). Could the World Go Back to the Gold standard? Retrieved from http://blogs.ft.com/martin-wolfexchange/2010/11/01/could-the-world-go-back-to-the-gold-standard Xiang, Zhang. (2009, 27/03/2009). Nobel Laureate Stiglitz Calls For New Global Reserve Currency System, China View. Retrieved from http://news.xinhuanet.com/english/2009-03/27/content_11080532.htm Vaitilingham, Romesh. (2011). FT Guide to Using the Financial Pages (6th ed.): Prentice Hall.

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Good Agricultural Practises in Turkey and Consumer Behaviours: Logit Regression Analysis 1O.Karkacıer*, 2Akdeniz,

S. Karabaş, 3O. Sav,Akdeniz Çankırı Karatekin University, Turkey *[email protected]

Abstract: Good Agricultural Applications (GAA) which is a production method that does not threaten environment and human health has become widespread in the country and in the world. In this study, GAA is researched as a production management system. GAA as a production method is set forth to state what extent it is known by consumersandthe sensitivity of consumers by logit regression analysis. As a conclusion, it is found that GAA as a controlled and secured production system is to be improved and generalised for each area and region in an attempt to prevent potential threats in agricultural sector, this should be carried out by governmental institutions. Key words: Good agricultural applications, consumer analysis using logit regression 1. Introduction The sectors in the economy have made different progress in the world. In recent years, especially together with 2000s, it is seen that the structure of production and consumption have changed a lot. These changes also lead human behaviours and consumption patterns into different ways. In favour of removing factors of late years threatening human health and environment Good Agricultural Applications (GAA) and Good Agricultural Products (GAP) is a system needed to be put into effect. From the point of recent developments in the world, GAA should take its place as controlled mechanism within production system in agriculture sector at every stage. Yet, the harm caused by groups lacking education and equipment due to misuse of technology should no longer be brought under control. In this study, it is aimed to offer alternatives and provide solutions regarding how to set up GAAconsidered being obligation as a systemwithin production management. First, consumer side is discussed and recognition size of GAA and sensitivity of consumer behaviours are determined. Deductional statistics and logistic regression analysis intended for consumer behaviours are carried out. The potential points that may distinguish strategically in production and marketing side are identified and searched out for a solution so as to dynamise the system. It is come to a conclusion that controlled and secured agricultural production approach, production system contributing to this is needed and management should be developed and spread to all sectors in which the government should be in charges of all stages. 2. Material and Method As a research area, Central Black Sea Region is chosen.The aim is to improve production and marketing strategy for GAA and support model proposals.It is required data for consumer models to be used in GAA regression analysis. Since these are not obtained from data networks, original data are collected via questionnaires in these kinds of specific studies. The questionnaires are conducted via face to face interview method. In an attempt to research consumer consciousness in GAA, structural analysis can be reinforced through logistic regression analysis to develop business strategy. Regression analysis ensures more reasonable interpretation in examining factors’ impacts of the phenomenon. Logistic regression model is a non-linear model designed for 2 independent variables and it can be linearized via conversions (Stock and Watson 2007).That Logitcoefficientsare interpreted as Odds ratios, provide advantage for logit regression method (Gürsakal 2007). Logistic regression model has the same setting model techniques valid for other models used in statistics. Namely, it is to set an optimum model in describing the relation between dependent variable and explanatory variable series. Dependent variable It ismade use of logistic distribution function in order to state independent variable Xi and dependent variable Y of binary logistic regression model, that is (Gujarati 2005): 1 Pİ  E Y  1   X İ  1  e 1   2 X i  

In this function; Pi is an independent variable and expresses the probability of 1 or 0 occurrence of Y. In studies, being 0 or 1 varies depends on binary or multinomial status of logitregression model. In this study, since dummy independent variable is used, binary logit regression model is preferred. By applying maximum probability method in logistic regression model, it is possible to describe and analyse social variables due to the fact that regression estimates obtained from Least Square method sometimes remains incapable. In that, Least Square method assumes normal distribution of dependent variable. Since dependent variable has nominal scale, this assumption is not provided (Kalaycı 2005). Providing the fact that variables are nominal or categorical scale, logit model is appropriate in these types of models (FreseeandLong 2006). In measuring qualitative variables, data are categorised. Ordinal and nominal scaled data are used. Making use of likert scale, consumer behaviours can be examined.Definitionalstatistics is the descriptive of important sides of a measurement set(Bowerman ve ark. 2013). Logit model is derived from cumulative logistic distribution function. Dependent variable has two options. As parameter estimates of these models cannot be obtained from Least Square method, logit transformation is made use of. Logit transformation is shown below: Pi  E (Y  1 / X i ) 

1 1  e   xi

In this equation, if Z

i

  xi

is (  xi  1   2 X i )

1 is obtained. Pi  E (Y  1 / X i )  1  e Zi

From Z i ,' to  ' a , Pi is between 0 and 1.There is a non-linear relation between Pi and Z i . Due to that fact that there are grouped or repetitive data, parameter estimates are derived through Weighted Least Square methods. Hence, respectively; a. Pi  ni / N i , estimated probability values are calculated.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) b. For each x i , logit is calculated. L= ln 

   Pi   1 P i 

     

For the validity of the model, -2LogL statistics is used (Gujarati 2005). Apart from that, the intended use of logit regression analysis is to set a model ensuring the description of the relation between dependent and independent variable. For this reason, the optimum and reasonable model should be found. In the goodness of fit test of the model “Hosmer and Lemeshow Test” is made use of(HosmerandLemeshow 2001). In determining optimum logit regression model, stepwise selection technique is applied. With respect to independent variable in the model, estimated coefficient (β), related variables’ standard errors (SE), degrees of freedom, Odds ratios exp (β) and level of significances are taken into account for interpretation. 3. Findings and Discussion This section is considered in 2 parts. First, Good Agricultural Applications are reviewed theoretically and hypothetically, afterwards findings obtained from consumer surveys and analysis results are included. Due to the fact that the big retailers dominating 70-80% of the fresh vegetable and fruit markets in European Union countries made up EUREP standards in 1997 are accepted by different countries in the world, it becomes globally and is named as GLOBALG.A.P. For the agricultural products involving minimum standards to be followed beginning from field to fork, GLOBALG.A.P. compromises criteria that are known as good agriculture in Turkey.The general rules of Good Agricultural Applications takes place on the 5 th clause of “Good Agricultural Applications Regulations” appeared in the official gazette dated 7th June 2010 with the 27778 number (O.G.- 27778 / 07.12.2010). There is no transition period in good agricultural applications which is production model making easy to reach healthy and reliable products for the consumer. Since good agricultural applications allows for input usage in conventional production, it is a production model in accord with producers’ habits. Among good agricultural applications’ actors; there are producers, retailers, consumers, control and certification institutions and Ministry of Food, Agriculture and Livestock that constitutes structure of the system. Under“General Directorate of Vegetables and Animal Production” with the “Organic Agricultural and Good Agricultural Application Head of Department” coordination, GAA activities are carried out. Within the scope of GAA activities by the Ministry, along with legislation studies, projects, demonstration studies and supervision activities are implemented. The Ministry set up a data base for each production system to record all the agricultural activities and the producers. With regard to vegetable production, it is required to be registered to ÇKS; animal production activities, it is required to be registered to TÜRKVET and fishery activities, it is required to be registered to Fishery data base. GAA activities are carried out in accordance with “Good Agricultural Applications Regulations”. The producers should comply with the criteria related to production line that they operate. The criteria and control points to be applied with the conformity degree as vegetable production (52 pages), animal production (75 pages) and water products production (33 pages) have been declared on the official web site of the Ministry (TKB 2013). Within the context of GAA, the producers have to apply around 213 criteria. In Turkey, Good Agricultural Applications were carried out on 5360ha by 651 producers in 2007 (Anonymous2012). As per 2012, the number of producers has reached to 4500 and the production areas has reached to 781.174da (Bayulgen 2012). In the world, 112.600 producers produceunder GLOBALG.A.P. standards in 112 countries on 409 varieties and certificate these products (GLOBALG.A.P. 2011). GAP Consumer Behaviours Model Logistic Regression Analysis Findings: In this section, it is aimed to research the variables that determine consumption of good agricultural products through logistic regression model. In this study that researches consumer behaviour, binary logistic regression model is applied. For dependent variable, consumption of good agricultural product is taken into account to state the two possible situations. Dummy variables; 1; Consume GAP Y= 0; Do not consume GAP With the help of proper statistical program, data is interpreted via binary logistic regression analysis. In an attempt to obtain the initial model functional form of estimated logistic regression model, step-wise variable addition-elimination transaction has been applied to make the model moreharmonised.A great number of variables has been added and eliminated in the model. For this reason, statistical significance of each independent variable has been evaluated. However, variable related to social-economic factors included in the model and the other factors affecting GAP consumption has been tried, variables having statistical problem has been eliminated from the model. In the goodness of fit studies, problems have been faced in getting favourable results as of statistics. The basic reason of this is that GAP is not in the public eyes which cause difficulty in finding sensitive variables. In the sensitivity analysis,few numbers of variables sensitive to dependent variable has been defined and most of them are social-economic variables. Variables included in the initial model are described below. Nevertheless, most of them did not take apart in the final model depending on statistical problem. In the table 1, estimate results of binary logit regression model related to initial model used in the optimum model trials through stepwise selection technique is shown. In the table 1, estimated coefficient (β) for each variable, standard error (SE), degree of freedom, odds ratios exp (β) and significance levels (Sig) in the model is seen. When it is referred to t test stating statistical significance of each independent variable in the model, “Education level of patriarch (EE) and/or matriarch (EK) variables, housewife or occupation of matriarch(MK) variable, awareness of GAP variable(ID), fruit and vegetable expenditure level(MSH) and purchase of organic product(OSA)’’ variables have been found significant as statistical. In the model where variables are found significance as statistical, coefficients of variables and odds ratios can be interpreted. It is inconvenient to interpret other variables statistically. Table 1: Statistical test results of binary multilogit regression model B S.E. Wald Age of Male (YE) Age of Female (YK)

-,036 ,017

,047 ,048

302

,615 ,120

Df 1 1

Sig.

Exp(B) ,433 ,729

,96 1,02

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Education of Male (EE) Education of Female (EK) Occupation of Female (MK) Income of Family (AG) Number of people in the family (AKS) Awareness of GAP (İD) Fruit-Veg.Exp(MSH) Purc.organic product (OSA) Constant term

-,479

,152

9,923

1

,002**

,62

,304

,170

3,215

0,174 -,120 ,131 2,598 ,002 2,432 -1,930

0,70 ,124 ,129 ,364 ,001 ,363 1,205

6,188 ,941 1,030 50,824 3,281 44,838 2,564

1

,073***

1,36

1 1 1 1 1 1 1

0,013** ,332 ,310 ,000* ,070** ,000* ,109

1,19 ,89 1,14 13,44 1,02 11,38 ,14

* % 1 statistically significance **% 5 statistically significance ***% 10 statistically significance

The first operation in terms of goodness of fit transactions in logistic regression analysis model is accordingly. Taking into account of the existence and non-existence of certain variables, their support in terms of explanatories is determined. The comparison of observed and estimated values in logistic regression is based on loglikelihood-LL function. Good model is the model consisting of high probability of observed results which means small -2LL(AkgünveÇevik2007). In GAA model including only constantin logistic regression, the value of 2LL is 492,929. In the model involving constant and all independent variables, the goodness of fit statistics -2LL value is 428,608 and the value including constant is smaller than 492,929.Model “Chi-Square” produces the difference between -2LL including only constant and 2LL involving all the variables. Model Chi-Square statistics tests null hypothesis where the coefficients of all independent variables in the model are zero(0) excluding constant. This is equivalent of F test in regression model(Akgünve Çevik 2007). In the model, Chi-square value is 64,321 which is the difference between two values. G= 492,929 -428,908 = 64,321 Since the given test is P=0.000 (at 1% significance level), it shows that at least one of the coefficient is different from zero. Namely, the estimated model is found significance in general. On the basis of significance variables in GAA binary logit regression model, the coefficients and Oddsratios (Exp(B)) can be interpreted. Even though it has been required to research the effects of head of family and the age of partner variables in the model on GAP usage, it has not been interpreted as there is statistical problem in these variables. Education level is the variable that is found significance in statistical. Education level variable is taken as a variable of male and female in the family who have a voice in consumption decision. EE variable belonging to the head of family or her partner is found significance at %5 confidence level which is negative. For this reason, increase in EE variable affect GAP usage negatively. That negative affect of male decision maker in GAP usage do not conform to theoretic rules spring to mind. However, it is known that women play a big role in the family with respect to consumption of foodstuff. It is expected to find significance the education variable of dominant female on the consumption decision in the model. The EK coefficient of this variable is 0,304 and positive. As long as the education level of female improves, the possibility of GAP consumption grows. The Odds ratio for the coefficient of EK is 1,36. This means that; when EK variable increases one-time, the possibility of GAP consumption increase by 1,36 times. In other words, when the education level of female rise to upper level such as from high school graduate to the post graduate, GAP usage increase by 1,36 times. The coefficient belonging to the occupation of female in the model that is significance in statistically is 0,174 and positive. When the professional status improves, possibility of GAP usage rises. The Odds ratio related to the female occupation is found 1,19. In that, when the professional status of the dominant female on the consumption decision in the family increase one-time, the possibility of GAP usage rises by 1,19 times. One of the important variables in GAP consumption regression model is to be familiarized with GAP that is variable of being knowledgeable about it. Shortly, the coefficient of this ID variable is 2,598 and positive which show a positive relation between ID variable and GAP consumption. At 1% confidence level, ID variable is found significance and its Odd ratio is 13,44. Accordingly, for the ones who know and who are aware of GAP, the possibility of GAP consumption is 13,44 times more. This is a very important finding with respect to the success of GAA.Hence, the ones who are knowledgeable on GAA and GAP use GAP at high rate The other important variable as statistically is the consumption level of fruit and vegetable at home. So, as long as the consumption of fruit and vegetable increases, the usage of GAP rises, the added MSH variable is found significant at the confidence level of 10%. MSH variable is too closed to zero but it is positive. The Odd ration of this variable is closed to 1. In case that coefficient is negative, Odd ratio drops to below 1, if it is zero, coefficient is 1. It can be said that this variable is significant as statistically and not a determiner for GAPA. The last significant variable in the model is organic product consumption variable. The addition of OSA variable to the model is based on the assumption that GAP and organic products are consumed in a similar way. In other words, the families tend to consume organic agricultural products also tend to consume GAP. As a result, this assumption confirms the idea produced in the first instance. That OSA organic product consumption variable is found significant at 1% level as statistically and its coefficient is positive can be seen in Table 1. The coefficient is stated as 2,432 and Odds ratio is 11,38. That is to say, for the families that tend to consume organic products, GAP consumption trend of them increases by 11,38 times. Namely, when organic product consumption trend increase by 1 unit, GAA consumption trend rises by 11,38 times. This is one of the important findings of this study. In a sense, it can be said easefully that GAA is an alternative to the organic product consumption of which production is insufficient. To summarize the logit regression analysis result, the female in the family has an effect on GAP consumption, particularly when the education level and professional status of females improves, the usage of GAP rises. Therefore, organic product consumers can also be good GAP consumers and the most important thing is that in case that awareness of GAP grows, the usage of it will increase too fast. 4. Result The findings based on the analysis of data obtained from the research states the primary results. Essentially, social-economic characteristics and behavioural factors effecting consumer behaviours for GAP has been discussed. In the analysis of consumer behaviour analysis, it is possible to present functional relations with regression analysis. With this purpose, the variables determining GAP consumption has been researched via logistic regression model. The data obtained from consumer questionnaires has been analysed via

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) binary logit regression model. In this study where consumer behaviour model is assessed, GAP consumption as a dependent variable has been determined by dummy variables; 1. When it is consumed GAP, it takes 1, 2. When it is not consumed GAP, it takes 0 ( zero) As per binary logit regression analysis result, the significance variables can be interpreted accordingly.The female in the family has an effect on GAP consumption, particularly when the education level and professional status of females improves, the usage of GAP rises. Therefore, organic product consumers can also be good GAP consumers and the most important thing is that in case that awareness of GAP grows, the usage of it will increase too fast. As per more certain findings, when the education level of female increases by 1 unit, GAP usage will increase by 1,36 times and when professional status increases by 1 unit, usage of GAP increases by 1,19 times. According to another logistic finding, for the ones who are knowledgeable on GAP, the possibility of GAP consumption increases by 13,44 times. This is a very important finding on the success of GAP. The ones who know GAP and GAA tend to consume GAP at high rates. In the findings obtained from logistic regression that make use of odds ratios, organic product consumers tend to consume GAP. As per results, if there is an 1 unit increase in organic product consumption trend, GAP consumption trend increases by 11,38 times. This is one of the most important findings of the study. Namely, it can be said easefully that GAA is an alternative to the organic product consumption of which production is insufficient. In the GAA research, private companies belonging to industry and trade sectors have to take part in the system at high rates and their marketing strategies are needed to be defined. The factors to be taken into account in forming customer group subject to GAA system is according: Demographic factors, Social factors, Economic factors, Geographic factors, Product users, Political factors, Natural factors, National or international markets. On the customer grouping, firstly it should be urged on economic factors and secondly markets being national or international. In line of GAA and alternative projections, being national and international market oriented comes to the forefront. International markets and its size is so changeable and fragile. With conventional product techniques and products, international markets have too risky. In conclusion, the success of the system depends on the application of GAP in whole agricultural areas and products. Partial applications put the general success of the system into the shades. It is advised to the public enterprises to be responsible for all the control and certification transaction, keep private sector away from supervision and certification transactions. Model is revised in due course and optimal system is achieved. References AkgünA, veÇevik O (2007). İstatistikselAnalizTeknikleri.EmekOfsetBasımevi, İstanbul. Anonim (2012).İyiTarım 5 bin ÇiftçiyeUlaştı. http://www.dunya.com/iyi-tarim-5-bin-ciftciye-ulasti-150344h.htm Bayülgen Ş (2012).İyiTarımUygulamaları.Migros A.Ş. 4 Mayıs 2012, İstanbul.http://symcon.com.tr/3gida/salonb/4may/15.30-15.50ViDEO/Seyma-BAYULGEN/4-Mayis-2012-Sunum.pdf, (Erişim: 07.03.2013). BowermanO’ConnelMurphreeOrris (2013).İşletmeİstatistiğininTemelleri.(4.basımdan çeviri: McGrawHill), Nobel Yayıncılık. ISBN: 978605-133-368-7. Gegez E.A (2007). PazarlamaAraştırmaları. Beta BasımYayımDağıtım A.Ş., ISBN 978-295-636-0. İstanbul. GLOBALG.A.P. (2011).Annual Report 2011, February, 2012.http://www1.globalgap.org/cms/front_content.php?idart=479 Gujarati D.N (2005). TemelEkonometri.LiteratürYayıncılık, İstanbul. GürsakalN (2007).SosyalBilimlerKarmaşıklıkveKaos. Nobel YayınDağıtım, Ankara. Gürsakal N (2013). Çıkarımsalİstatistik, Minitab- SPSS Uygulamalı. Dora Yayınları, ISBN 978-605-4485-81-9, Bursa. Fresee J ve Long J.S (2006).RegressionModelsForCategoricalDepentVariablesUsing.StataCollege Station. Hosmer D.W andLemeshow S (2001).AppliedLogisticRegression, Newyork: John Wiley&Sons. Kalaycı Ş (2005).SPSS UygulamalıÇokDeğişkenliİstatistikTeknikleri.SailYayınları, Ankara. R.G.-27778/07.12.2010. İyiTarımUygulamalarınaİlişkinYönetmelik.ResmiGazeteTarihi: 07.12.2010, ResmiGazeteSayısı: 27778. Serper Ö (2010). Uygulamalıİstatistik.EzgiYayınları, Yenilenmiş 7. Baskı, Bursa. Stock, J.Hand WATSON M.W (2007).IntroductiontoEconometrics.PearsonAddisonWesley, Boston. TKB (2013).http://iyi.tarim.gov.tr

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Entrepreneurship Aspects of Teaching and Learning: Levels of Practice Instilled by Lecturers and Existing Achievements of Students in Private Institutes of Higher Learning 1,2

1Rosima Alias, 2Nora Dato’ Yahya Universiti Tenaga Nasional, Malaysia [email protected]

Abstract: The objective of this study is to observe the level of practice instilled by lecturers of private IHL’s on aspects of entrepreneurship to the existing achievement levels of students. A questionnaire and interview was used as the main mode of study and means of support for quantitative data on sampling consisting of 200 lecturers and 440 students. Measurements of entrepreneurship constructs on competitive skills, talent diversification, usage of existing or minimal resources, speculation and risk-taking, unique entrepreneurship talent and spending ability was benchmark against Factor Analysis Means and Structural Equation Model (SEM) techniques. Findings indicate: (1) 14.3 % of lecturers instill entrepreneurship aspects in the process of T & L, (2) 18.1% of students acquire entrepreneurship skills with distinction, and (3) 0.8% to 1.9% students and 3.8% to 9.6% lecturers has not mastered or instilled any aspects of entrepreneurship in the process of T & L respectively. Implications indicate the parallel findings between the T & L process of entrepreneurship and student achievements and also a gap in the hopes of the government in the development of young professional entrepreneurs in its strategic move. The originality of this study emerged from the lack of literature in the study of T & L on entrepreneurship in private IHL’s. Keywords: Teaching and Learning, Entrepreneurship Aspects, Private Institutions of Higher Learning, Practices, Existing achievements 1. Introduction Since the 80’s employers has been on the lookout for workers with much more than the cognitive and specialized skills possessed by graduates in the courses that they had obtained. From studies done, it has been found that employers are not only concern with basic tertiary education of its staff, they also stress on an assortment of other developing attributes that is crucial for the success of an employee’s career path. The need for an assortment of other developing attributes by employers is to ensure that their organization will be able to compete in the global market, and in the case of Malaysia, it is to fulfill the governments agenda to achieve a developed nation status by year 2020 with a learned and skilled workforce (Ramlee et al 2008). There are assortments of attributes that are highly sought-after by employers to face the tidal onslaught of change in the work environment in this global era (Dickerson & Green 2002; Mohd Lazim&Andullah Sani 2007; Kaur & Sharma 2008). The needs of these attributes differ amongst the employers. Communication skills is one attribute that is sought after by employers as indicated in studies by Ortiz Jr (2005), Lizzio and Wilson (2004), Mohd Izham et al (2011), Mohamad Sattar et al (2009) and Ranjit and A. Wahab (2008). Even studies byQuek (2005) finds that attributes such as discipline, dependency, responsible, resilient and respect for others as attributes sought by employers of the business community. In fact, Malaysian researchers such as Yahya (2004), Ranjit and Normah (2005), Juriah et al (2002), and Zalizan et al (2007) has listed out an assortment of attributes needed by employers but did not list attributes or entrepreneurship aspects as the main requirements of employers. So too were the studies done by foreign researchers since the beginning of the 21st century namely AC Nielsen (2000), Newberger (2002), Luca (2002), Boud and Middleton (2003), Lizzio and Wilson (2004) and Lowery et al (2006) finds that attribute sought-after and needed by organizations did not include the attributes of entrepreneurship. Is the lack of importance for aspect of entrepreneurship tied to the level of Teaching and Learning ( T& L ) of lecturers and accomplishments of students at university level? Studies done locally indicated that non-technical T & L attributes on average is run on a medium scale only (Zalizan et al 2007). Local studies also points out that a number of factors contribute to the obstacles faced in instilling aspects of entrepreneurship, such as the curriculum, administrative problems, incompetent lecturers (Yahya 2006), and inadequate infrastructure (Ahmad Esa&HishamJamaluddin 2009). These findings are in tandem with findings from Baharin Abu and MagritOligung (2010). Past studies done does not indicate any inclusion of the aspects of entrepreneurship but there more importance is placed on the aspects of communication, problem solving and teamwork. In all the hype of the policymakers to promote the culture of entrepreneurship amongst students of IHL, it is found that development in the aspects of entrepreneurship is not being fully promoted by lecturers of IHLs. This is supported by studies by Mok Soong Sang (2003) and Ahmad (2005) which specified that effective T & L needs lecturers who are well verse in the aspects of entrepreneurship and this is the opposite in the real situation. Entrepreneurship is an attribute that needs to be mastered by students especially those in IHLs because it is a process that would benefit themselves and also the community at large for now and the future ( Ab Aziz Yusof 2000). Entrepreneurship forms productive characteristics within a the future graduate, namely in terms of being on guard (Kirzner 1979), opportunistic (Stevens et al 1989), innovative, creative, confident, industrious, risk-taker and perseverance (Nor Aishah 2002). For an organization entrepreneurship develops new products, services and organization (Schumpeter (1934) in Dollinger 1995). The importance of entrepreneurship has been realized since 1725 by J.B. Say, a French economist. Due to the importance of entrepreneurship which has long since been realized by many but yet not been fully utilized by employers, IHL and students of this country, therefore this study has the following objectives to guide it to investigate: 1. The level of practice on the aspects of entrepreneurship by lecturers of IHLs 2. The level of achievements on the aspects of entrepreneurship amongst students of IHLs 3. The analysis of factors to measure the aspects of entrepreneurship 2. Research Methodology This is a quantitative study using a questionnaire survey as the main mode of study and an interview as a supporting means for data collection. Items in the questionnaire measures aspects of entrepreneurship adapted from “Modul Insaniah Untuk Institut Pengajian Tinggi Malaysia (Kementerian Pendidikan Malaysia 2006). This module has been used as a baseline study for the development of new entrepreneurship aspects which are suited through time change. In this study, there are 11 government and private organizations

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) involve in the baseline study. From the study, aspects of entrepreneurship are developed after each item modification has been completed. All aspects of entrepreneurship are measured against the Likert 5 Point Scale. Reliability value for instrument items on entrepreneurship aspects were conducted on a group of respondents totaling 357. The Alpha value (α-value) on the aspects of entrepreneurship is based on Cronbach Coefficient value of .920. According to Babie (1992), the coefficient Cronbach-α, of which the α is in the high category (>0.90), therefore this questionnaire can be accepted for use in the actual study. Respondents of this study consist of 200 lecturers and 440 students from private IHLs with university status. The actual student respondents in this study totals to 365 (82.9%), while 144 lecturers (72%) make up the total of the respondents for the study. Private IHL students are from year 3 and 4 only. The number and status of lecturers of private IHL which was not uniform in nature limits this study to extract the questionnaire responses due to a number of private IHL having less than 10 lecturers with temporary positions. This impedes the distribution of the questionnaire surveys. 3. Findings Analysis of factors measuring aspects of entrepreneurship: From the base line study conducted, the set of questionnaires built identified six (6) items which measures the aspects of entrepreneurship, which are: (1) speculation and risk-taking opportunities, (2) utilizing existing or minimal resources, (3) competitive skills, (4)possess unique entrepreneurship talent, (5) entrepreneurship spending ability, and (6) talent diversification. The authentication of these items was benchmarked against Factor Analysis Means. During the analysis, there were overlapping items and item which could not measure the concept of entrepreneurship, and therefore those items were eliminated. Before the analysis could be carried out, a number of tests were conducted to test the suitability of items for analysis. One of the test was the Bartlett’s Test of Sphericity and Kaiser-Meyer-Olkin (KMO) test. Table 1: KMO and Bartlett’s Test Kaiser- Meyer- Olkin Measure of Sampling Adequacy .966 Bartlett’s Test of Sphericity Approx. Chi Square 2.403E4 df 2485 Sig .000 ________________________________________________________________________________________________________ Through the Barlett’s Test of Sphericity, it showed a significant value of 0.000 and this shows that p,0.05. and shows a correlation between items which is enough to run through the analysis factor. Through the Kaiser-Meyer-Olkin test (KMO), findings shows a value of 0.966 which is greater than 0.50. This shows that the items were suited to be run through the factor analysis and data does not have serious multicollinearity. Since both conditions has been complied with, the Rotation Component Matrix Table is used to test each item that measures the aspects of entrepreneurship. From the table, it was able to list the items that measures each aspects of entrepreneurship. Table 2: Rotation Component Matrix Table Item-Item Value 5a .802 5b .793 5c .784 5d .713 5e .599 5f .565 Key: 5(a) = speculation and risk-taking opportunities, 5(b)= utilizing existing or minimal resources, 5(c)= competitive skills, 5(d) = possess unique entrepreneurship talent,5(e)= entrepreneurship spending ability, 5(f) = talent diversification. Based on schedule interpretation by Chua (2009), to show the strength of correlation between items, it was found that correlation between items with aspects of entrepreneurship is high which is greater than the value of 0.3. This shows that relationship between the items are closely related, not independent and can measure the aspects of entrepreneurship. The validity of entrepreneurship items could also be measured using the Structural Equation Modeling Technique (SEM). The interpretation based on the strength of correlation between factors by Chua (2009), Figure 1.0 shows items 5e (.82), 5a (.75), 5f (.75), 5c (.67), 5d (.66) and 5i (.63) possessing a medium correlation strength (.51 - .70), strong (.71 - .90) and strongest (.91 – 1.00). This shows items or variables that can represent latent variables (entrepreneurship aspects). Figure 1: Validity test for aspects of entrepreneurship

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Key: 5(a) = speculation and risk-taking opportunities, 5(b) = utilizing existing or minimal resources, 5(c) = competitive skills, 5(d) = possess unique entrepreneurship talent,5(e) = entrepreneurship spending ability, 5(f) = talent diversification. Through the Standard Regression Coefficient or β, it proves that the items 5e, 5a, 5f, 5c, 5d and 5i correlated positively with the aspect of entrepreneurship (latent variable) because all the items (indicators) gives a loading above 0.50 and fulfill the convergent validity. For this study, the β value chosen is between .794 to .933 because is possesses strength correlation which is strong and very strong. The loading factor is the relationship between the latent variables (aspects of entrepreneurship) and indicator (items) or the observed variables (Hair et al 2006) as shown in Schedule 3.0: Table 3.0 Standardized Regression Weights Estimate B5m

Government tax before 2002 o: Government tax after 2002 = Government tax before 2002 p: Based on Negative Ranks q: Two tailed significance levels

N 0a 11b 0c 11 0d 11e 0f 11 0g 11h 0i 11 0j 11k 0l 11 0m 11n 0o 11

Mean Rank 0 5.5

Sum of Rank 0 60.5

0 5.5

0 60.5

0 5.5

0 60.5

0 5.5

0 60.5

0 5.5

0 60.5

Z-value

P-valueq

-2.803p

.005

-2.803p

.005

-2.805p

.005

-2.803p

.005

-2.803p

.005

The forecasting of economic performance: Liberalization is demonstrated to be beneficial to the casino-based economy in the first part of this study. The next question is: how long and how strong will this positive effect last? According to the information from American Gambling Association, gambling and gambling revenues started to decrease in 2008. Revenue in the national commercial

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) casino sector dropped about 4.7% compared to 2007. Gross gaming revenues went down every month since February 2008 compared to the same month of the previous year, and as the recession got worse, monthly revenue decreases have become more significant (Horváth & Paap, 2012). To test the continuing influences of gambling industry liberalization, this study predicts the GDP per capita in Macao from 2013 to 2015 based on the data from 2008 to 2012. Grey Model (Deng, 1982) is applied to forecast under uncertainty. The following illustration details the method used to construct the model adopted herein by creating a sequence of one order linear moving GM (1, 1) (Deng, 2000). Table 3: Economic indicators from 2008 to 2012 Year GDP per capita Population

Land

Gambling tax

Government total tax

2008 2009 2010

38,552 39,761 52,918

543.1 533.3 540.6

29.2 29.5 29.7

5,237 5,539 8,597

6,385 7,205 11,061

2011 2012

67,247 76,615

557.4 582.0

29.9 29.9

12,457 14,172

15,372 18,124

Source: Statistics and Census Service of the Macao Special Administrative Region, 2013. Macao primitive sequence x

x

( 0)

0 

is constructed based on GDP per capita from 2008 to 2012 in Table 3. That is

 38,552, 39,761 52,918 67,247, 76,615 1

One order AGO sequence of

x (1)  38,552 78,313, 131,231 198,278,

x

275,093

is derived as

In addition, matrix B and constant vector yn are accumulated as  78,313  1   58,432.5 131,231    104,772 ， 1   yn     198,478    164,854.5 1     1 275,093  236,785.5

aˆ is acquired as a    0.2066027  aˆ       b  29960.64891

The forecast model of GDP in Macao is acquired by substituting a and b into forecasting equation to obtain the following: xˆ 0  k   145,015.759654e 0.2066027k 1 1  e 0.2066027 ........................................................................................................................................(1) By substituting k=2,3,4,5 into equation (1), the total forecast values of GDP per capita in Macao is obtained as 38,552, 42,128, 51,796, 63,683 and 78,297 from 2008 to 2012, respectively. The sequence of reduction is:  ( 0)

x  38,552 42,128 51,796 63,683 78,279 The forecast value, actual value and residual error can be obtained by substituting x 0  k  and x 0  k  , k  2,3,4,5 into forecasting equation separately. Given k=6,7,8 from forecasting equation, this research forecasts the GDP per capita in Macro from 2013 to 2015 to be 96,266, 118,359, and 145,521, respectively. Table 4 shows the forecast value, real value and the residual error of GDP per capita in Macao. The average residual error is 3.89%, and the average of accuracy is 96.11%. These statistics suggests the good predictive ability of this model. Table 4: Forecast value, real value and residual error of GDP per capita in Macao Year k Real value Forecast value 2008 1 38,552 38,552 2009 2 39,761 42,128 2010 3 52,918 51,796 2011 4 67,247 63,683 2012 5 76,615 78,297 2013 6 96,266 2014 7 118,359 2015 8 145,521

Residual (%) 0 5.95 2.12 5.30 2.20 -

Repeating the foregoing steps, the data of population, land, gambling tax, and government total tax are operated to construct the predictive formulas as the followings: Population: xˆ 0  k   17,051.485451e0.0296199k 1 1  e0.0296199 .............................................................................................................................................(2) Land: xˆ 0  k   6,241.8857144e0.0046995k 1 1  e0.046995 ...................................................................................................................................................(3) Gambling tax: xˆ 0  k   14,584.272321e0.2793356k 1 1  e0.2793356 ................................................................................................................................(4) Government tax: xˆ 0  k   19,100.112793e0.2769051k 1 1  e02769051 ............................................................................................................................(5)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Given k=6,7,8 from forecasting equation, population, land, gambling tax, and government total tax from 2013 to 2015 are forecasted and shown in Table5. The average residual error of GDP per capita, population, land, gambling tax, and government total tax are 3.89%, 7.40%, 1.69%, 7.90%, 6.7%, respectively, suggesting the good predictive ability of this model. Table 5: The forecast value and real value of economic indicators in Macao 2009 2010 2011 2008 (k=1) (k=2) (k=3) (k=4) Real value 38552 39761 52918 67247 GDP Forecast value 38552 42128 51796 63683 per capita Deviation (%) 0 0.0595 0.0212 0.053 Real value 543.1 533.3 540.6 557.4 POP Forecast value 543.1 528.94 544.85 561.23 Deviation (%) 0 0.0082 0.0079 0.0069 Real value 29.2 29.5 29.7 29.9 Land Forecast value 29.2 29.541 29.68 29.82 Deviation (%) 0 0.0014 0.0007 0.0027 Real value 5237 5539 8597 12457 Game Forecast value 5237 6387.4 8445.8 11167 Deviation (%) 0 0.1532 0.0176 0.1035 Real value 6385 7205 11061 15372 Gov Forecast value 6385 8130.8 10725 14147 Deviation (%) 0 0.1285 0.0304 0.0797

2012 (k=5) 76615 78297 0.022 582 578.1 0.0067 29.9 29.96 0.002 14172 14766 0.0419 18124 18660 0.0296

2013 (k=6)

2014 (k=7)

2015 (k=8)

96266

118359

145521

595.48

613.38

631.82

30.101

30.243

30.385

19525

25816

34136

24613

32466

42824

Economic indicators are predicted to keep increasing after the recession in 2008. Gambling tax expands the most of 32.23%. Secondly, government tax increases 31.90%, and then GDP per capita increases 22.95%. 5. Conclusion, limitation, and future research This research examines the economic impacts stimulated by the gambling liberalization in terms of GDP per capita, population, lands, gambling tax, government total tax, and finds the statically significant growth in every economic indicator. The research results is in line with Zheng & Hung (2012)’s study in evaluating the economic impacts of Casino liberalization in Macao. Zheng & Hung propose that the decision to end casino gambling monopoly immediately set off an exponential growth in GDP. Even in 2008 when the global economy was heavily struck by the financial tsunami, the Macao economy still recorded a 10.7% increase in GDP per capita. Our studies further make the statistic test to proof the positive effects on economic performance by gambling liberalization. Besides, to evaluate the continuing influences of liberalization, the economic performance after recession of 2008 is forecasted. Research results demonstrate that all the economic indicators keep growing even during and after the economic recession. This is different from the research of Horváth & Paap (2012) examining the influence of the business cycle on expenditures of gambling activities in the United States and find that economic recession negatively affects the gambling expenditure. The future research is suggested to understand the reasons why the case in the East is different from that in the West. The limitation of this study is based on the data collection. Some more economic indicators like employment (Giacopassi et al., 1999; Long, 1996; Pizam & Pokela, 1985), migrant workers (Loi & Woo, 2009; Zheng & Hung, 2012), and price (Zheng & Hung, 2012; Shaw & Coles, 2007) can be included to describe the economic performance more completely. Besides, the economic spillover and positive multiplier effect created by gambling industry (Agarwal, 2012; Vong, 2008; Garrett, 2004) can be considered to provide a stronger illustration and implication to the research findings. Reference Agarwal, S. (2012). Resort Economy and Direct Economic Linkages. Annals of Tourism Research, 39(3), 1470-1494. Balsas, C.J.L. (2013). Gaming Anyone? A Comparative Study of Recent Urban Development Trends in Las Vegas and Macau. Cities, 31, 298-307. Beatty, C. & Fothergill, S. (2004). Economic Change and the Labour Market in Britain’s Seaside Towns. Regional Studies, 38(5), 461-480. Bernhard, B.J. Green, M.S. & Lucas, A.F. (2007). From Maverick to Mafia to MBA: Gaming industry leadership in Las Vegas from 1931 through 2007. Cornell Hospitality Quarterly, 49(2), 177-190. Boger, C.A., Jr., Spears, D., Wolfe, K. & Lin, L.C. (1999). Economic Impacts of Native American Casino Gaming. In C. Hsu (Ed.). Legalized Casino Gaming in the United States: The Economic and Social Impact (135-154). Binghampton, NY: Haworth Hospitality Press. Deng, J.L. (2000). The Theory and Application of Grey System (1st edition), 67-71. ChuanWa, Taipei. Eadington, W.R. (1995). Economic Development and the Introduction of Casinos: Myths and Realities. Economic Development Review, 13, 51-54. Eadington, W.R. (1995). Economic Development and the Introduction of Casinos: Myths and Realities. Economic Development Review, 13, 51-54. Etches, M.W. (2011). The Politics of Casino Gambling. Economic Affairs, 31(1), 20-26. Gaming Inspection and Coordination bureau Macao SAR, 2013, http://www.dicj.gov.mo/web/en/history/index.html. Garrett, T.A. (2004). Casino Gaming and Local Employment Trends. Federal Reserve Bank of St. Louis Review, 86, 9-22. Garrett, T.A. (2004). Casino Gaming and Local Employment Trends. Federal Reserve Bank of St. Louis Review, 86, 9-22. Giacopassi, D., Nichols, M. & Stitt, B.G. (1999). Attitudes of Community Leaders in New Casino Jurisdictions Regarding Casino Gambling’s Effects on Crime and Quality of Life. Journal of Gambling Studies, 15(2), 123-147. Goudriaan, A.E. (2013). Gambling and Problem Gambling in the Netherlands. Addiction, Article in Press. Hang, K.W. & Penny, W.Y.K. (2011). Impacts of Casino Gaming on Small Tourism Ventures in Macao. Asia Pacific Journal of Tourism Research, 16(5), 573-593.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Horváth, C. & Paap, R. (2012). The Effect of Recessions on Gambling Expenditures. Journal of Gambling Studies, 28(4), 703-717. Jenkins, C.L. (1982). The Effects of Scale in Tourism Projects in Developing Countries. Annals of Tourism Research, 9(2), 229-249. Koo, J. Rosentraub, M.S. & Horn, A. (2007). Rolling the Dice? Casinos, Tax revenues, and the Social Costs of Gaming. Journal of Urban Affairs, 29(4), 367-381. Koo, J., Rosentraub, M.S. & Horn, A. (2007). Rolling the Dice? Casinos, Tax Revenues, and the Social Costs of Gaming. Journal of Urban Affairs, 29(4), 367-381. Littlewood, M. (2011). Gambling and Regulation: Why There Is Nothing to Fear from Liberalization. Economic Affairs, 31(1), 34-37. Loi, K.L. & Woo, G.K. (2009). Macao’s Casino Industry: Reinventing Las Vegas in Asia. Cornell Hospitality Quarterly, 51(2), 268-283. Long, P. (1996). Early Impacts of Limited Stakes Casino Gambling on Rural Community Life. Tourism Management, 17(5), 341-353. Loveman, G. (2011). It Is Time to Reconsider UK Gambling Policy. Economic Affairs, 31(1), 14-19. Ludwig, M. Kräplin, A. Braun, B. & Kraus, L. (2013). Gambling Experiences, Problems, Research and Policy: Gambling in Germany. Addiction, 108(9), 1554-1561. MacIsaac, M. (1995). Casino Gambling: A Bad Bet. Reader’s Digest, 146, 71-74. McLain, P.M. & Maheshwari, S.K. (2006). Impact of Gaming Industry on Local Employment and Personal Income. Journal of Economics and Economic Education Research, 7(3), 35-52. Ng, Y.-K. (2006). Some Policy Implications of Behavioral Economics and Happiness Studies for Singapore: With Special Reference to Casinos. Singapore Economic Review, 51(1), 1-18. Ng, Y.-K. (2006). Some Policy Implications of Behavioral Economics and Happiness Studies for Singapore: With Special Reference to Casinos. Singapore Economic Review, 51(1), 1-18. Nunkoo, R. & Ramkissoon, H. (2010). Modeling Community Support for a Proposed Integrated Resort Project. Journal of Sustainable Tourism, 18(2), 257-277. Pizam, A. & Pokela, J. (1985). The Perceived Impacts of Casino Gambling on a Community. Annals of Tourism Research, 12(2), 147-165. Rephann, T.J. (1997). Casino Gambling as an Economic Development Strategy. Tourism Economics, 3(2), 161-183. Rose, I.N. (1995). Gambling and the Law: Endless Fields of Dreams. In Tannenwald, R. (Ed.). Casino Development: How Would Casinos Affect New England’s Economy? (18-46). New York: Federal Reserve Bank of Boston. Schubert, S.F. Matias, Á. & Costa, C.M.G. (2012). A General Equilibrium Analysis of Casino Taxation in Portugal. Tourism Economics, 18(3), 475-494. Schubert, S.F., Matias, Á. & Costa, C.M.G. (2012). A General Equilibrium Analysis of Casino Taxation in Portugal. Tourism Economics, 18(3), 475-494. Shaw, G. & Coles, T. E. (2007). The Resort Economy: Changing Structures and Management Issues in British Resorts. In Agarwal, S. & Shaw, G. (Eds.). Managing Coastal Tourism Resorts: A Global Perspective (40-55). Clevedon: Channel View. Shaw, G. & Coles, T. E. (2007). The Resort Economy: Changing Structures and Management Issues in British Resorts. In Agarwal, S. & Shaw, G. (Eds.). Managing Coastal Tourism Resorts: A Global Perspective (40-55). Clevedon: Channel View. Siu, R. (2007). Is Casino Gaming a Productive Sector? A Conceptual and Cross-jurisdiction Analysis. Journal of Gambling Business and Economics, 1(2), 129-146. Stanton, J. & Alislabie, C. (1992). Up-Market Integrated Resorts in Australia. Annals of Tourism Research, 19, 435-449. Stiles, R.B. & See-Tho, W. (1991). Integrated Resort Development in the Asia Pacific Region. Travel and Tourism Analyst, 3, 22-37. Vong, F. (2008). Influence of Personal Factors on Macau Residents’ Gaming Impact Perceptions. UNLV Gaming Research and Review Journal, 12(1/2), 15-28. Walker, D.M. (2007). The Economics of Casino Gambling. New York: Springer. Wall, G. (1997). Integrating Integrated Resorts. Annals of Tourism Research, 23(3), 713-717. Wan, Y.K.P. & Kong, W.H.F. (2008). An Assessment of the Business Environment for Small Tourism Ventures Development in the Gaming City of Macao. Journal of China Tourism Research, 4(3-4), 297-318. Wan, Y.K.P. (2012). The Social, Economic and Environmental Impacts of Casino Gaming in Macao: The Community Leader Perspective. Journal of Sustainable Tourism, 20(5), 737-755. Wan, Y.K.P. (2012). The Social, Economic and Environmental Impacts of Casino Gaming in Macao: The Community Leader Perspective. Journal of Sustainable Tourism, 20(5), 737-755. Wong, I.A. & Rosenbaum, M.S. (2012). Beyond Hardcore Gambling: Understanding Why Mainland Chinese Visit Casinos in Macau. Journal of Hospitality and Tourism Research, 36(1), 32-51. Wong, I.A. & Wu, J.S. (2013). Understanding Casino Experiential Attributes: An Application to Market Positioning. International Journal of Hospitality Management, 35, 214-224. Zagorsek, H. (2009). The Impact of Resort Casino Development on National Economy: The Case of Slovenia. Transformations in Business and Economics, 8(3), 90-103. Zheng, V. & Hung, E.P.W. (2012). Evaluating the Economic Impact of Casino Liberalization in Macao. Journal of Gambling Studies, 28(3), 541-559.

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Level of Development and Size of Government Spending: The Impact on Entrepreneurial Entry of Opportunity-driven and Necessity-driven Female vs. Male Entrepreneurship Thanyaporn Soontornthum College of Interdisciplinary Studies, Thammasat University, Thailand [email protected] Abstract: This study analyses gender difference in entrepreneurial entry by linking the size of government spending as an fundamental institutions and level of economic development to explain opportunity-based and necessity- based female entrepreneurship versus those of male entrepreneurship. Using GEM (Global Entrepreneurship Monitor) data at country level, model specifications are tested using OLS regression, and then utilize seemingly unrelated regression (SUR) for robustness check. The results reveal that the effect of size of government spending on female entrepreneurial entry and on opportunity-based entrepreneurship varies by different levels of economic development. Keywords: Entrepreneurship; Opportunity-based and necessity- based entrepreneurship; Female Entrepreneurship; Government Spending; Institutions 1. Introduction Recently, women entrepreneurial activities have outpaced significantly the male activities across in the developed and developing countries (Minniti and Naudé 2010). However, the stylized facts point out that women still own and manage significantly fewer businesses than men approximately one-third of the world’s entrepreneurs (Allen et al. 2008), and the female shares vary across countries from 26.1 percent in Peru to 1.4 per cent in Latvia. I try to present that part of the reason for fewer female entrepreneurs is due to the quality of local institutional context faced by economic agents. And the success of some countries having a high rate of female entrepreneurs is due to country’s ability to manage the right institutional context for both male and female entrepreneurship to flourish by reducing the cost of engaging in entrepreneurial activities. This is supported by several studies38 that find diverse prevalence of entrepreneurship across countries.‎ The last period of development aid and policy has not been rewarded with success in economic performance and development. Part of this is probably because the focus on macro approaches and policies, which did not emphasize the local institutional context faced by economic agents. The recent development in entrepreneurship research is put forward by Casson (1982) and Wennekers & Thurik (1999) to explain the probability of becoming entrepreneur from institutional perspectives. However, scholars suggest that research on gender difference is understudied (e.g., Brush 2006; Minniti and Naude 2010), and there are few studies drawing from institutional economics to study gender aspect of entrepreneurship (e.g., Verheul et al., 2006). Built upon Aidis, Estrin & Mickiewicz (2007) and Estrin & Mickiewicz (2009), this study discusses into gender difference of entrepreneurship by linking Kirzner’s concept39 of entrepreneurial alertness (1973) with institutional context in the different level of development to explain entrepreneurial entry of opportunity- and necessity- based female entrepreneurship versus those of male entrepreneurship. The major purpose is to understand whether the female and male entrepreneurial activities response differently to institutions across levels of development. This study therefore frames two sets of research question as follows: 1) Does institutional context have more pronounce effect on female entrepreneurs rather than male entrepreneurs? And what is the different effect across three levels of economic development? 2) Does institutional context have more pronounced effect on opportunity-based female entrepreneurs rather than that of male entrepreneurs? And what is the distinct impact across three levels of economic development? 2. Literature review and theory Opportunity-necessity entrepreneurship ratio: Reynolds et al. (2002) distinguish the entrepreneurial motives as either opportunitybased or necessity-based. Opportunity-based entrepreneurship refers to entrepreneurs who involves in start-up to take advantage of opportunity; meanwhile, entrepreneurs who identify no better option available for work are classified as necessity entrepreneurs (Hechavarria & Reynolds, 2009). The cross-country comparison reveals that necessity-motive entrepreneurs are often found in developing countries while entrepreneurship in advanced countries is often opportunity-driven (Reynolds et al., 2002; Bosma et al., 2008). However, non-opportunity entrepreneurs are not likely to have an effect on the restructuring of the poor economies (e.g., Hausmann & Rodrik, 2003; Rodrik, 2007). Verheul et al. (2010) suggest the distinct characteristics between them such as style of managing business may lead to different contribute to economic development. Acs et al. (2008) suggest that opportunity-necessity entrepreneurship ratio is basically an indicator of economic development “as more and more of the population becomes involved in opportunity entrepreneurship and as more and more people leave necessity entrepreneurship (self-employment) the more we see rising levels of economic development”. We thus expect that using the opportunity-necessity entrepreneurship ratio as dependent variable will capture the effect of institutions on economic development via the entrepreneurial activities.

The diverse prevalence of entrepreneurship across countries point to influence of level of development (e.g., Wennekers, van Stel, Thurik, & Reynolds, 2005; Acs, Desai, & Hessels, 2008) and institutions (e.g., Baumol, 1990; Levie & Autio, 2008; Aidis, Estrin & Mickiewicz, 2009) on entrepreneurship. 38

Traditional views of entrepreneurship are shaped by Schumpeter, Kirzner and Knight. Schumpeter emphasizes the inherent disequilibrium nature of market dynamics which see entrepreneurial activity as innovation activity pushing the economy out of equilibrium. Kirzner stresses alertness to exploit opportunities of entrepreneurs which have two functions as providers of entrepreneurial inputs and receivers of a return for bearing risk. Knight explains entrepreneurs in two functions which are to exercise responsible control and secure the owner of productive services against uncertainty in their incomes. 39

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Institutions and female vs. male entrepreneurship: Baumol (1990) observes that features of incentive structure in economy have impact through entrepreneurial activities. He argues that institutions affect quality of entrepreneurial activities in economy because entrepreneurs model their strategies to fit opportunities and limitations in institutional setting (North, 1990). Therefore institutions provide indirect effect on people’s alertness to economic opportunities (Harper, 2003). Sobel (2008) empirically tests Baumol's conjecture and confirms that areas with better institutions have more productive entrepreneurship and less unproductive entrepreneurship. This findings influence policy perspective toward institutional development which enhances economic development through building a capacity for individuals to harness new ideas and enter market as productive entrepreneurs. Estrin & Mickiewicz (2009) point that gender difference and discrimination arises between female and male entrepreneurs because behavioral consistent from informal institutions at embeddedness or cultural level. The ineffective institutions can be maintained mainly because of influence of path dependence from cultural institutions. Elam & Terjesen (2010) also argue that the difference between female and male entrepreneurship is rooted at the level of tradition which is institutionalized in the form of practices and eventually influence the implementation of laws and regulations. Aidis et al. (2007, p.19) emphasize that male and female entrepreneurs “are different in deeply rooted in cultural patterns, which are slow to change”. Such ineffective institutions can be maintained mainly because of influence of path dependence from cultural institutions. Institutions therefore determine economic behavior (North, 1990) and economic transactions (Williamson, 1998; 2000) of male and female entrepreneurs differently, and their change may give different implication for female and male entrepreneurs. Minniti & Naude (2010) also argue that this constrains possibly affect women more than men. Minniti (2010) evidently shows that there is significantly stable difference between men and women entrepreneurship across countries. Participating rates of men tend to be 50 per cent higher than those of women and, interestingly, countries with higher rates of male entrepreneurs are likely to have higher percentages of female entrepreneurs. In this sense, female and male entrepreneurs may be facing different institutional problems that impede them to fully participate in economic activities. Levie & Autio (2008) suggest that analyzing male and female entrepreneurship rate separately might show different institutional conditions that matter for males and females. Level of Development, institutions and entrepreneurial activities: Female versus male entrepreneurship: Fogel, Hawk, Morck & Yeung (2006) and Acs et al. (2008) offer a link between institutions and level of development in entrepreneurship research. They argue that better system in developed economy generate more entrepreneurial activities, and those entrepreneurs can contribute more to economic development. Advanced economy is believed to be favorable for economic development due to more favorable institutions facilitates individuals/entrepreneurs with perceived opportunities (Aidis et al., 2007). Similarly, Audretsch & Thurik (2004) report high rates of entrepreneurial activities in developed economies, which is a switch from a managed toward entrepreneurial economy. Carree, van Stel, Thurik, & Wennekers (2002) and Wennekers et al. (2005) report a U-shaped relationship between the country’s rate of entrepreneurship and its level of development. They also report that the U-shaped relationship is held for opportunity-based entrepreneurship. Meanwhile, the institutional failures in developing countries delay development of economy because such economies generates low rate of opportunity-driven entrepreneurs (e.g., Reynolds et al., 2002; Naude, 2010; Stam & van Stel, 2009). We can thus expect that, as countries develop into more advanced economy, opportunity-based entrepreneurship (female and male) is more likely than necessity-based entrepreneurship to start entrepreneurial activities. Therefore level of development has profound influence on opportunity-based entrepreneurship and the development of economy as a consequence. Acs et al. (2008) emphasis the difference in entrepreneurial contributions among countries depended on institutions which affect other characteristics such as quality of governance, access to resource and entrepreneurial perception. This aligns with Baumol (1990) who argues that features of incentive structure in economy have impact through entrepreneurial activities because, as North (1990) observed, individuals model their strategies to fit opportunities and limitations in institutional setting. Sobel (2008) also found better institutions have more productive entrepreneurship and less unproductive entrepreneurship. Similarly, Aidis et al. (2007) find a stronger effect of institutions on opportunity-driven entrepreneurship in more developed economies. We can thus expect that creating enable institutional environment is a means to enhance economic development as this build a capacity for individual to harness new ideas and enter market as productive entrepreneurs. Aidis et al. (2007) push forward by providing evidence showing that there is a stronger effect of institutions on opportunity-necessity entrepreneurship ratio in more developed economies. Correspondingly, Gries & Naude (2010) argue that institutional changes create opportunity-driven entrepreneurship. Their findings confirms the notion that institutions are prerequisites for promoting entrepreneurship (e.g., Valliere & Peterson, 2009; Stam &Van Stel, 2009), and poor institutions discourage opportunity-based entrepreneurs (Aidis et al., 2007). Once developing countries stepping into middle income economy, there are more employment opportunities for women, and female entrepreneurs tend to quit if better jobs available (Allen et al., 2007). Meanwhile, Neumark and McLennan (1995) found that at the high end of economic development, women are able to exploit opportunities and start businesses even their employment opportunities are stable and open.‎Terjesen & Amoros (2010) found the Ucurve relationship between income level and opportunity-based female entrepreneurship using time-series countries level data of Latin America countries. Interestingly, as pointed out by Verheul et al. (2006), while the U-shaped relationship is obvious for female entrepreneurial activity rate, there is no such pattern for the male entrepreneurial activity. We thus can expect that institutional environment and its change may give different impact and implication for female and male entrepreneurs. 3. Hypothesis development Government spending as fundamental institutions: Fundamental institutions that have been argued to influence female and male differently are property rights, corruption, business regulations and size of state sector (Estrin & Mickiewicz, 2009) and financial development (Korosteleva and Mickiewicz 2011). Based on the previous study, the institutional variable employed this study is the size of government spending. I conjecture that government spending can be seen as fundamental institutions in that a large government budget directly affects the collection of taxes from the return of entrepreneurial investment, and reflects strong institutions that may cause weak protection of property rights, corruption behaviors, and consequently more barriers to entrepreneurs. Contrast to the institutional logic above, some believe that government spending is means to create entrepreneurs in economies. Thus it is worth to investigate into the effect of size of government spending in order to lessen reluctant implication for entrepreneurship policy, and understand how such impact gives different implication for female and male entrepreneurship.

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Government spending and opportunity-based entrepreneurship: As discussed above, government spending reflects the high spending of government budget. Government spending may lessen the opportunity-based entrepreneurship. It is found that the high level of unemployment support (Koellinger & Minniti, 2009), welfare support, and state-owned enterprises has been agued to increase entrepreneurs’ opportunity cost and reduce net expected return (Parker, 2004). The low rate of entrepreneurial activities may occur as a consequent e.g., Sweden (Henrekson, 2005). Similarly, Henrekson (2007) argues that high taxes may spur self-employment but reduce productive entrepreneurship. Moreover, high tax rates encourage entrepreneurship in the black market and evasive entrepreneurship such as the production of legal services helping productive entrepreneurs to lower their effective tax rate. Hypothesis 1: Opportunity-based (female and male) entrepreneurs are less likely than necessity-based entrepreneurs to start entrepreneurial activities in countries where the size of government spending is larger.(-) Level of development and opportunity-necessity entrepreneurship ratio: Aidis et al. (2007) argue that more favorable institutions are linked with perceived opportunities and facilitate opportunity-based entrepreneurship. This argument is supported by the higher ratio of opportunity-necessity entrepreneurship in high-income countries rather than in middle and low income countries (Acs et al., 2005). As discussed earlier, the opportunity entrepreneurship tends to be more prevalent in high-income countries, while necessity entrepreneurs are more common in the low-income countries. This is because the favorable institutions in high-income economy facilitates more on opportunity-based entrepreneurship (Aidis et al., 2007), meanwhile the institutional failures in developing countries delay development of economies via generating low rate of opportunity-driven entrepreneurs (e.g., Reynolds et al., 2002; Naude, 2010; Stam & van Stel, 2009). Thus we could expect that more developed economies have greater effect on the opportunity-necessity entrepreneurship ratio. Additionally, institutions should have greater effect on the opportunity-necessity entrepreneurship ratio in more developed economies as well. Hypothesis 2: Opportunity-based (female and male) entrepreneurs are more likely than necessity-based entrepreneurs to start entrepreneurial activities in more developed economies.(+) Allen et al. (2007) found that once countries develop into middle-income stage there are more employment opportunities for women in companies or manufacturing; consequently, women entrepreneurs tend to decrease. Neumark and McLennan (1995) found that at the high end of economic development, women are able to exploit opportunities and start businesses even their employment opportunities are stable and open. When taking entrepreneurial motives into account, previous GEM reports (e.g., Minniti et al., 2006; Allen et al., 2008) and Verheul et al. (2006) confirm the high rates of necessity-based entrepreneurship in low- and middle- income countries, especially in women entrepreneurship; meanwhile, more developed countries have higher shares in opportunity-driven women entrepreneurs (Allen et al., 2008). Therefore it seems that there is a relationship between the levels of development and the rate of entrepreneurial activities for women entrepreneurial activities. Terjesen & Amoros (2010) confirm the U-curve relationship between income level and opportunity-based female entrepreneurship using time-series countries level data of Latin America countries. Interesting, as pointed out by Verheul et al. (2006), while the U-shaped relationship is obvious for female entrepreneurial activity rate, there is no such pattern for the male entrepreneurial activity rate. Therefore, we would expect that the effect of level of development is more pronounced for the opportunity-necessity entrepreneurship of female ratio than the male ratio. Hypothesis 2a: Level of development has more pronounced effects on the opportunity-necessity ratio of female entrepreneurship than that of male entrepreneurship. (Female>Male) Government spending and female and male entrepreneurship: Following the Estrin and Mickiewicz’s line of reasoning (2009), it can be argued that difference between female and male entrepreneurial activities is linked to social structure which women are more responsive to trade-offs between domestic work and employment; consequently, women should respond more strongly to additional expense when abilities of state to provide basic supports/ services are low, and more negatively response to the larger size of government spending. For instance government expenditure affects them via higher taxes. Unlike women, men are in more gender advantage position in dealing with state while women are strongly affected than men because of a gender specific pecking order within family. Hypothesis 3: Size of government spending has more pronounced negative effects on the opportunity-necessity ratio of female entrepreneurship than that of male entrepreneurship. (-) Illustration of framework Institutional context: Size of government spending (H: Female>Male) Level of development: (H3: Opp>Nec) (H2: Opp>Nec) (H2a:Female>Male)

The opportunitynecessity ratio of FEMALE entrepreneurship The opportunitynecessity ration of MALE entrepreneurship

Low-income level (-) Transition (-) 4. Data and methods High-income level (+)

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Proceedings of 2 International Conference on Economics and Social Sceinces (ICESS-2014) Size of government spending and GDP pc ppp are collected from Economic Freedom Index 2006 (Heritage Foundation 40) and World Bank-World Development Indicators (WB-WDI)41 respectively. The size of government spending (institutional variable) is transformed to natural logarithms for better distribution. GDP is group by level of development42. This measure is used by Wennekers et al. (2005) as one of the main measures of economic development and Minniti (2010) in study of female activities and economic development. Entrepreneurship data by opportunity and necessity motives are collected from Global Entrepreneurship Monitor (GEM) 43. The GEM questionnaires inquired if the start-up initiative was voluntary or necessity; for example, the question used for interview is quoted as follow: “Are you involved in this new business to take advantage of a business opportunity or because you had no better choices for work?”. If the respondents stated they involved in start-up to take advantage of opportunity, they are categorized as opportunity entrepreneurs. If they indicated no better option for work, they are classified as necessity entrepreneurs. Opportunity-necessity ratio of female and male at country level from 42 GEM nations in 2006 are used as dependent variable in this gender comparative study because this study involves institutions that take long time to change and is more interesting in comparative perspective (Estrin & Mickiewicz, 2009). Moreover, GEM data is useful to capture informal entrepreneurial activities (Stam & van Stel, 2009) which are expected as significant entrepreneurial activities in transition and developing economies of this study. To test hypotheses, we compare the impact of determinants on opportunity-necessity entrepreneurship ratio of both genders. We regress several model specifications with OLS regression to deal with possible multicollinearity, and then utilize seemingly unrelated regression (SUR) for robustness check. Additionally, we regress the opportunity-based and necessity-based entrepreneurship on the same determinants to obtain deeper analysis. We include size of informal finance as control variables. Moreover, our model allows the possibility of different effects for development levels which are normally treated as control variables in other studies. In addition, our model tests the effect of institutions by different levels of development using interacting variables. 4. Empirical results Our core models are model 1 and model 2 (Table 1) which produce (adjusted) R 2 = 0.3877 and 0.4291 respectively in explaining the female ratio; however, the same set of variables in model 1 and 2 can explain the male ratio only 14.06% and 19.36% respectively. To test hypothesis 2 and 2a, we analyze the regression results in table 1. There is a positive relationship between GDP and the opportunitynecessity ratio of both female and male entrepreneurship at 0.05 significant level; however, the effect is very small (0.0001 more unit, See model 2). This is perhaps because the effect of GDP pc is included in the effect of size of government spending. We therefore make a further analysis by replacing GDP with dummies of development levels (model 1) Irrespective of significant level, there is indication of an interesting relationship between development levels and the female ratio from the coefficients of development levels in model 1(almost U-shaped with the short tail in low-income level and very high tail in highincome level). The female ratio is considered as moderate in low-income countries, but it is lower in transition countries, and the ratio turns up to be very high in high-income group. For the male ratio, the relationship seems to be the same pattern but the overall male ratio is lower than the female ratio for every level of development. This empirically confirms that level of development has a greater effect on the opportunity-necessity female ratio than the men ratio, and Hypothesis 2a is confirmed. Nevertheless, the results make us reluctant to confirm Hypothesis 2 as low-income countries have higher opportunity-necessity entrepreneurship ratio than transition countries. This indicates that the relationship between level of development and the opportunity-necessity ratio may be non-linear. For hypothesis 1 and 1a, the effect of government spending in Model 1 (Table 1) negatively influences the female ratio at p