ournal of Economic Studies

58 

Full text

(1)

European Journal of Economic Studies, 2015, Vol.(12), Is. 2

61

E

UROPEAN

of Economic

J

ournal

Studies

Has been issued since 2012.

ISSN 2304-9669. E-ISSN 2305-6282

2015. Vol.(12). Is. 2. Issued 4 times a year

Impact Factor OAJI 2012 – 0,527 Impact Factor MIAR 2015 - 3,477

EDITORIAL STAFF

PhD Vidishcheva Evgeniya – Sochi State University, Sochi, Russia (Editor-in-Chief) Dr. Simonyan Garnik – Scientific Research Centre of the Russian Academy of Sciences, Sochi, Russia

Dr. Levchenko Tat'yana – Sochi State University, Sochi, Russia

Dr. Tarakanov Vasilii – Volgograd State University, Volgograd, Russia

EDITORIAL BOARD

Dr. Balatsky Evgeny – Central Economics and Mathematics Institute (RAS), Moscow, Russia Dr. Dinh Tran Ngoc Huy – Banking University HCMC Viet Nam – GSIM, International University of Japan, Japan

Dr. Gvarliani Tatjana - – Sochi State University, Sochi, Russian Federation Dr. Gunare Marina – Baltic International Academy, Riga

Dr. Kryshtanovskaya Olga – Institute of Sociology of the Russian Academy of Sciences, Moscow, Russia

Dr. Minakir Pavel – Economic Research Institute of the FarEastern Branch Russian Academy of Sciences, Khabarovsk, Russia

Dr. Papava Vladimir – Ivane Javakhishvili Tbilisi State University, Tbilissi, Georgia Dr. Prokopenko Olga – Sumy State University, Sumy, Ukraine

Dr. Radu Sorin – Universitatea din Petrosani, Petrosani, Romania

Dr. Beciu Silviu – Economic Engineering in Agriculture and Rural Development UASVM Buchares, Romania

Dr. ŠtefkoRóbert – University of Prešov in Prešov, Faculty of Management, Presov, Slovakia

The journal is registered by Federal Service for Supervision of Mass Media, Communications and Protection of Cultural Heritage (Russia). Registration Certificate ПИ № ФС77-50465 4 July 2012.

Journal is indexed by: CrossRef (UK), EBSCOhost Electronic Journals Service (USA), Electronic scientific library (Russia), Global Impact Factor (Australia), Index Copernicus (Poland), Open Academic Journals Index (Russia), ResearchBib (Japan), ULRICH’s WEB (USA).

All manuscripts are peer reviewed by experts in the respective field. Authors of the manuscripts bear responsibility for their content, credibility and reliability.

Editorial board doesn‟t expect the manuscripts‟ authors to always agree with its opinion.

Postal Address: 26/2 Konstitutcii, Office 6 354000 Sochi, Russia

Website: http://ejournal2.com/ E-mail: ejoes@inbox.ru

Founder and Editor: Academic Publishing House Researcher

Passed for printing 15.06.15. Format 21  29,7/4. Enamel-paper. Print screen. Headset Georgia.

Ych. Izd. l. 4,5. Ysl. pech. l. 4,2.

Circulation 250 copies. Order № 112.

© European Journal of Economic Studies, 2015

А

E

ur

ope

an

J

ou

rna

l of Econom

(2)

European Journal of Economic Studies, 2015, Vol.(12), Is. 2

62

Е

ВРОПЕЙСКИЙ

ЭКОНОМИЧЕСКИХ

Ж

урнал

ИССЛЕДОВАНИЙ

Издается с 2012 г. ISSN 2304-9669. E-ISSN 2305-6282 2015. № 2 (12). Выходит 4 раза в год.

Impact Factor OAJI 2012 – 0,527 Impact Factor MIAR 2015 - 3,477

РЕДАКЦИОННАЯ КОЛЛЕГИЯ

Видищева Евгения – Сочинский государственный университет, Сочи, Россия (Гл. редактор)

Левченко Татьяна – Сочинский государственный университет, Сочи, Россия

Симонян Гарник – Сочинский научно-исследовательский центр Российской академии наук, Сочи, Россия

Тараканов Василий – Волгоградский государственный университет, Волгоград, Россия

РЕДАКЦИОННЫЙ СОВЕТ

Балацкий Евгений – Центральный экономико-математический институт РАН, Москва, Россия

Гварлиани Татьяна – Сочинский государственный университет, Сочи, Российская Федерация Гунаре Марина– Балтийская международная академия, Рига

Динь Чан Нгок Хай – Банковский университет Хошимин Вьетнам - GSIM, Международный университет Японии, Япония

Минакир Павел – Институт экономических исследований ДВО РАН, Хабаровск, Россия Крыштановская Ольга – Институт социологии РАН, Москва, Россия

Папава Владимир – Тбилисский государсвенный универстите имени Иване Джавахишвили, Тбилисси, Грузия

Прокопенко Ольга – Сумский государственный университет, Сумы, Украина Раду Сорин – Университет Петрошани, Румыния

Бэсью Сильвио – Факультет менеджмента, экономического инжиниринга в области сельского хозяйства и развития сельских районов, Румыния

Штевко Роберт – Прешовский университет, Прешов, Словакия

Журнал зарегистрирован Федеральной службой по надзору в сфере массовых коммуникаций, связи и охраны культурного наследия (Российская Федерация). Свидетельство о регистрации средства массовой информации ПИ № ФС77-50465 от 4 июля 2012 г.

Журнал индексируется в: CrossRef (Великобритания), EBSCOhost Electronic Journals Service (США), Global Impact Factor (Австралия),Index Copernicus (Польша), Научная электронная библиотека (Россия), Open Academic Journals Index (Россия), ResearchBib (Япония), ULRICH’s WEB (США).

Статьи, поступившие в редакцию, рецензируются. За достоверность сведений, изложенных в статьях, ответственность несут авторы публикаций.

Мнение редакции может не совпадать с мнением авторов материалов.

Адрес редакции: 354000, Россия, г. Сочи, ул. Конституции, д. 26/2, оф. 6

Сайт журнала: http://ejournal2.com/ E-mail: ejoes@inbox.ru

Учредитель и издатель: ООО «Научный издательский дом "Исследователь"» - Academic Publishing House Researcher

Подписано в печать 15.06.15. Формат 21  29,7/4.

Бумага офсетная. Печать трафаретная. Гарнитура Georgia.

Уч.-изд. л. 4,5. Усл. печ. л. 4,2. Тираж 250 экз. Заказ № 112.

© European Journal of Economic Studies, 2015

(3)

63

C O N T E N T S

Certified Public Accountant is Unmatched Advantage on the Global Job Market

Tatyana G. Borisova, Rimma A. Bekhteneva ………. 64

Experimental Evaluation of the Efficiency of the Third Party Joint and Several Liability in the Polish VAT System

Piotr Gut ……… 69

Effects of Trade Openness, Exchange Rate, and Oil Price on the Exports in Syria

Adel Shakeeb Mohsen ……… 76

Role the Local Population in Ecotourism Development – Attitudes of Citizens Northeastern Montenegro: a Case Study

Goran Rajović, Jelisavka Bulatović ………. 84

Two-factor Analysis of Employee Motivation at "Postal Traffic – Department in Novi Sad"

Jelena Pandţa, Lukrecija Đeri, Adam Galamboš, Tamaš Galamboš ……… 101

The use of Resort-Service Design Methodology in the Management of Sanitarium-Resort Organizations

(4)

64

Copyright © 2015 by Academic Publishing House

Researcher

Published in the Russian Federation

European Journal of Economic Studies

Has been issued since 2012.

ISSN: 2304-9669 E-ISSN: 2305-6282

Vol. 12, Is. 2, pp. 64-68, 2015

DOI: 10.13187/es.2015.12.64

www.ejournal2.com

UDC 33

Certified Public Accountant is Unmatched Advantage on the Global Job Market

1 Tatyana G. Borisova 2 Rimma A. Bekhteneva 1-2 Sochi State University, Russian Federation

354000, Krasnodar region, Sochi, Sovetskaya str., 26a

1 PhD in Economics, Associate Professor

E-mail: tatyana-borisova@bk.ru

2 PhD, Associate Professor

E-mail: tatyana-borisova@bk.ru

Abstract

The article devotes to the necessity of rapid adaptation to the changes connected with the enormous growth of industry, the world globalization process and development of information technology. In this context there is a general opinion in the profession about the need to improve the quality of accounting, professional competence, and accounting education. Maintaining high ethical standards, compliance with relevant laws, as well as accounting and auditing standards are also on the agenda.

Keywords: certified public accountant; certified internal auditor; global job market; business administration; accounting; auditing; management accounting.

Introduction

The role of global business in world affairs is becoming more important. Multinational corporations spread their activities across national boundaries, the international banking system carries on banking activities throughout the global world, financial and commodity markets have become world markets.

Significant changes are known to have taken place in accounting in recent years. The accountancy profession has gained a very high status. The modern accountant has begun to play an important role in global business activity.

As a result, the majority of employers prefers to hire applicants who have obtained a master‟s degree in accounting, or a master‟s degree in business administration (MBA).

(5)

65

Materials and Methods

Source information, concerning Certified Public Accountants, was collected on open source resources, namely on science websites, Wikipedia. General scientific methods of research, in particular, analysis, dialectic, system and functional approaches are used.

Discussion

Bookkeeping is a task that relates to creating and maintaining a detailed record of all transactions which include finances. This procedure is to be carried out by all companies, whether a small firm or a large organization. The transactions recorded in bookkeeping usually comprise sales, purchases, due payments, earnings, etc. Some people might think bookkeeping to be the same as accounting. However, both are slightly different in the method of operation. Bookkeeping is a primary task and pertains to taking direct information and details from the transactions conducted. On the other hand, accounting is concerned with referring to bookkeeping records and then preparing reports accordingly. Accounting is a very wide profession that requires a person to have the best analytical and logical thinking, decision making, mathematical, and communication skills. Many people have a misconception regarding this career opportunity. They think that the accounting field only has one professional which is referred to as an „accountant‟. However, this broad area consists of many different jobs such as auditing, forensic accounting, tax accounting, financial analysis, just to name a few. [10]

Accountants and auditors are broadening the services they offer to include budget analysis, financial and investment planning, information technology consulting, and limited legal services. Specific job duties vary widely among the four major fields of accounting: public, management, government, and internal.

Public Accounting.

This type of accounting is the most varied type. Public accountants perform a broad range of accounting, auditing, tax, and consulting activities for their clients, who may be corporations, governments, nonprofit organizations, or individuals. For example, some public accountants concentrate on tax matters, such as advising companies of the tax advantages and disadvantages of certain business decisions and preparing individual income tax returns. Others offer advice in areas such as compensation or employee healthcare benefits, the design of accounting and data-processing systems, and the selection of controls to safeguard assets. Still others audit clients‟ financial statements and report to investors and authorities that the statements have been correctly prepared and reported.

Public accountants, many of whom are Certified Public Accountants (CPAs), generally have their own businesses or work for public accounting firms. A public accounting business can have one or more accountants and both certified and non-certified accountants can provide public accounting services to their clients. [1]

Some public accountants specialize in forensic accounting – investigating and interpreting white collar crimes such as securities fraud and embezzlement, bankruptcies and contract disputes, and other complex and possibly criminal financial transactions, such as money laundering by organized criminals. Forensic accountants combine their knowledge of accounting and finance with law and investigative techniques in order to determine if illegal activity is going on. Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials.

New Federal legislation restricts the non-auditing services that public accountants can provide to clients. If an accounting firm audits a client‟s financial statements, that same firm cannot provide advice in the areas of human resources, technology, investment banking, or legal matters, although accountants may still advise on tax issues, such as establishing a tax shelter. Accountants may still advise other clients in these areas, or may provide advice within their own firm.

Management Accounting.

(6)

66

cost and asset management, budgeting and performance evaluation. This is more on the basis of employer-employee relation. They also perform internal audit to review the company financial management practices and keep an eye for any mismanagement and fraud. The accountants who perform these audits have specializations in compliance auditing, information technology auditing or environmental auditing.

Government Accounting.

Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulation or taxation. Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those who are employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.

Internal audit.

Internal auditors verify the accuracy of their organization‟s internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing. Internal auditors examine and evaluate their firms‟ financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations – evaluating their efficiency, and compliance with corporate policies and procedures, laws, and government regulations. There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and healthcare auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation. Internal auditors also may recommend controls for their organization‟s computer system to ensure the reliability of the system and the integrity of the data.

In today's scenario running a business is not an easy deal, it requires a lot of business professionals to integrate their knowledge and skills for running any business successfully. Regarding this, Certified Public Accountant is the statutory title given to the qualified accountants who have passed the Uniform Certified Public Accountant Examination. Certified Public Accountant should also meet experience requirements and additional state educational requirements to get the license for public attestation, auditing opinions on financial statements. Certified Public Accountant has to get certified in different states also for obtaining the designation of CPA in that state in the United States.

Professional соmpetences through certification or license provide unmatched advantage on the job market. CPAs are licensed by a State Board of Accountancy. The vast majority of States require CPA candidates to be college graduates, but a few States consider public accounting experience as a college degree. In 2003, due to the American Institute of Certified Public Accountants (AICPA), 42 States and the District of Columbia require training 150 academic hours and defensing of college project work (30 academic hours) instead of getting a Bachelor Diploma. Another five States – Arizona, Minnesota, New Mexico, New York, and Virginia – perform the similar training. Colorado, Delaware, New Hampshire, and Vermont do not require training comprising 150 academic hours. Many schools have modified their curricula accordingly, providing master‟s degree training (150 academic hours), and a prospective accountant should carefully master accounting curricula and meet the requirements of that State where he is getting a license. [5]

(7)

67

The AICPA also offers valid CPA certificates of the Accredited in Business Valuation (ABV), Certified Information Technology Professional (CITP), or Personal Financial Specialist (PFS). These degrees are conferred by those who have in - depth experience in accounting. The ABV degree comprises a written exam, 10 business assessment projects which reflects candidate‟s professional competences and experience. The CITP is not free of charge, and also consist of written statement, and the performing of an assessment set of tasks. Those who do not meet the requirements may pass a written exam. The PFS candidates must get a certain number of points via passing a written exam. It should be noted here that references are of great importance.

About 50 States CPAs and public accountants are obliged to obtain licenses. The professional associations represent numerous curricula, seminars, group-participative educational programs, training, etc.

Accountants and auditors also can try to improve their qualifications as volunteers. Voluntary certification can be attested to professional competence in the specialized branches of economics such as accounting and auditing. It can also certify that the certain level of professional competence has been achieved by the accountants and auditors in case of need to get the CPA examination. [4]

The Institute of Management Accountants (IMA) confers the Certified Management Accountant (CMA) those applicants who‟ve got a bachelor‟s degree or attain enough points at school entrance exams. Applicants are obliged to have not less than two – years experience in management accounting, pass a four-level examination, and meet educational standards and professional requirements. The CMA program is administered by the Institute of Certified Management Accountants, an affiliate of the IMA. [3]

Graduates from the accredited colleges and universities who have two - years experience as internal auditors and have passed a four-level examination may get the Certified Internal Auditor (CIA) at the Institute of Internal Auditors (IIA). The IIA implemented three degrees – Certification in Control Self-Assessment (CCSA), Certified Government Auditing Professional (CGAP), and Certified Financial Services Auditor (CFSA). Requirements are similar to those of the CIA. The Information Systems Audit and Control Association confers the Certified Information Systems Auditor (CISA) those candidates who‟ve passed the examination and have five-years experience in auditing information systems. Auditing or data-processing experience and a college Diploma may be substituted by two-years experience. For instance, an internal auditor can obtain CPA, CIA, and CISA degrees.

The Accreditation Council for Accountancy and Taxation, a Pilot organization of the National Society of Public Accountants, confers three degrees– Accredited Business Accountant (ABA), Accredited Tax Advisor (ATA), and Accredited Tax Preparer (ATP). It is obligatory for the ABA candidates to pass an exam, while ATA and ATP candidates are to defense the coursework and then pass an exam. As a rule, they will get multiple licenses and degrees. [1]

The Association of Government Accountants grants the Certified Government Financial Manager (CGFM) degrees for the accountants, auditors, and other government financial officials at the Federal, State, and local levels. Candidates must have a bachelor‟s degree, 24 hours curriculum in financial management certificate, two-years experience, and pass three exams. The exams cover topics in governmental accounting, financial reporting, and budgeting, financial management and control.

Those who want to be a success in accounting should have an aptitude for mathematics and be able to analyze, compare, and interpret facts and data thoroughly. They must be able to communicate both in written and verbally the results of their work to both clients and managers. Accountants and auditors must be good at dealing with people, as well as with businesses and IT. Undoubtedly, accountants should be familiar with basic accounting software packages. Because financial decision making is based on their statements and services, therefore, accountants and auditors should have high standards of integrity.

Capable accountants and auditors may advance rapidly; those who have insufficient academic knowledge may be assigned to routine jobs and find promotion difficulties. Many graduates of junior colleges, business and correspondence schools, as well as, bookkeepers and accounting clerks meeting the education and experience requirements, can obtain operating accounting positions and be promoted and achieve heights in their careers.

(8)

68

managers, or partners or launch their own PLC Co., or obtain executive positions in management accounting or internal auditing in LTD Co.

Management accountants often start their careers as cost accountants, junior internal auditors, or trainees for other accounting positions. As they climb the ladder in the organization, they are succeeding in getting such positions as: an accounting manager, a chief cost accountant, a budget director, or a manager of internal auditing. Some of them become controllers, treasurers, financial vice presidents, chief financial officers, or presidents of the corporations. Many senior corporation executives have in-depth experience in accounting, internal auditing, or finance.

In general, public accountants, management accountants, and internal auditors are highly mobile. As fact, they switch over from management accounting position to internal auditing, from public accounting to internal auditing or management accounting. However, it is uncommon for accountants and auditors to switch over from management accounting or internal auditing to public accounting.

In conclusion it should be noted that accountants and auditors help to ensure that the Nation‟s firms are run efficiently, its public records kept accurately, and its taxes paid properly and on time. They perform these vital functions by offering an increasingly wide array of business and accounting services to their clients. These services include public, management, and government accounting, as well as internal auditing. Beyond the fundamental tasks of the occupation – preparing, analyzing, and verifying financial documents in order to provide information to clients – many accountants now are required to possess a wide range of knowledge and skills.

References:

1. American Institute of Certified Public Accountants (AICPA) - Company Profile, Information, Business Description, History, Background Information on American Institute of Certified Public Accountants (AICPA) URL http://www.referenceforbusiness. com/ history2 /82/American-Institute-of-Certified-PublicAccountants-AICPA.html

2. L. Chasteen, R. Flaherty, M. O‟Connor. Intermediate Accounting.

3. R. Bekhteneva, T. Borisova. Accounting on the global market: challenges and rewards / Sovremenniy etap rasvitiya buhgalterskogo ucheta, kontrolya i audita: tendentsii, problemi, perspectivi / V megdunarodnaya nauchno-practicheskaya konferentsia // Sbornik nauchnikh statei. – Sochi: Tipografia IP Krivlyakin S.P., 2014. p. 32-37.

4. R. Bekhteneva, T. Borisova, A. Tumasyan. Interactive course of Olympic Volunteers‟ Academic and professional foreign language interaction: scientific rationale and specific character. // Vestnik SUTR. 2011. № (18). p. 160-162.

5. R. Miller. American Institute of Certified Public Accountants (AICPA) – Center for Professional Responsibility URL http://www.americanbar.org/groups/professional _responsibility /commission_multidisciplinary_practice/rmiller.html

6. T. Borisova. K voprosu o certificatsii professionalnih buhgalterov (na primere USA) / Sovremenniy etap rasvitiya buhgalterskogo ucheta, kontrolya i audita: tendentsii, problemi, perspectivi / V megdunarodnaya nauchno-practicheskaya konferentsia // Sbornik nauchnikh statei. – Sochi: Tipografia IP Krivlyakin S.P., 2014. p. 57-67.

(9)

69

Copyright © 2015 by Academic Publishing House

Researcher

Published in the Russian Federation

European Journal of Economic Studies

Has been issued since 2012.

ISSN: 2304-9669 E-ISSN: 2305-6282

Vol. 12, Is. 2, pp. 69-75, 2015

DOI: 10.13187/es.2015.12.69

www.ejournal2.com

UDC 33

Experimental Evaluation of the Efficiency of the Third Party Joint and Several Liability in the Polish VAT System

Piotr Gut

Poznan University of Economics, Poland Niepodleglosci Street 10, 61-875 Poznan Dr (Economy), Assistant Professor E-mail: piotr.gut@ue.poznan.pl

Abstract

The article presents research results, indicating, that VAT third party joint and several liability in an efficient antifraud element of the Polish VAT system.

As the experimental verification of joint and several responsibility proves, there are situations, in which the VAT fraud is possible when this element of the VAT system is not applied, and is not possible any more when the element is applied, which indicates the efficiency of thereof and proves the hypothesis of the present article.

Keywords: VAT, Value Added Tax, VAT fraud, joint and several liability.

Introduction

Since 1979 VAT, a destination-based, multiphase turnover tax, with the input-output tax mechanism has been a part of tax systems of all EU-Member States, and became one of the most important sources of states‟ budget revenues [2].

Value added tax (VAT) generates significant public revenue (more than one fifth of world total tax revenue, including social contributions) and has been introduced in about 140 countries. It is the main source of revenue in some Member States of the European Union and plays an important role in ensuring public finance stability [3].

Data published in the Polish Ministry of Finance State‟s Budget Execution Reports indicate, that Value added tax is the most important source of states budget revenues in Poland.

Table 1: The share of VAT revenues in tax revenues and total budget revenues in Poland in the period of 2000–2014

Ord. Specification 2000-2014

1 Weighted average share of VAT revenues in tax revenues 46,75%

2 Median of (1) 46,37%

(10)

70

4 Weighted average share of VAT revenues total budget 41,25%

5 Median of (4) 40,63%

6 Standard deviation of (4) 2,90%

Source: Own elaboration based on Polish Ministry of Finance State‟s Budget Execution Reports [14].

The data presented in the Table 1 indicate on relatively high, constant long term share of VAT revenues in budget revenues in Poland. Especially worth emphasizing in the context of long term stability, is that both coefficients: weighted average share of VAT revenues in total budget revenues and weighted average share of VAT in tax revenues, hardly differ from their medians. At the same time their standard deviations present irrelevantly low level, which justifies the conclusion, that share of VAT revenues in budget revenues, can be regarded as stable.

Relevance of the fiscal function of value added tax in Poland confirms the Graph 1, which presents the share of VAT revenues and the share of excise duty revenues (second largest budget revenues) in budget revenues total in the period 2000 – 2014.

Graph 1. Share of VAT revenues and the share of excise duty revenues (second largest budget revenues) in budget revenues total in Poland in the period 2000–2014.

Source: Own elaboration based on Polish Ministry of Finance State‟s Budget Execution Reports [14].

Even though the revenues from value added tax are such important for fiscal stability in Poland, there has been estimates, showing significant difference between VAT Theoretical Liability (VTTL) and actual VAT Real Receipt (VTRR) in Poland, called VAT Gap, which in the period from 2006 till 2012 ranged from 9% (2008 VAT gap estimates from CASE Report [1]) to even 32% (2012 maximal VAT Gap estimates according to PwC [16]).

Moreover, in 2012 VAT revenues in Poland decreased by 0,7% even though Polish GDP as well as final consumption expenditures increased at the same time respectively by 4,5% and 4,7%. What‟s even worse, 2013 was the second consecutive year with increasing GDP (2,5%), increasing final consumption expenditures (2,0%) and decreasing VAT revenues (-5,5%), whereas under standard economic conditions VAT revenues should be positively correlated with GDP and FCE.

(11)

71

Therefore the main objective of the present paper is to present results of experimental evaluation of the efficiency of the third party joint and several liability, introduced into the Polish VAT system.

In order to achieve the above main objective, following operational objectives have been adopted:

To present a third party joint and several liability for certain domestic transactions as an additional antifraud element, introduced into of Polish VAT System in order to prevent it from the VAT Gap;

To present the methodology of the experimental efficiency evaluation of the joint and several liability;

To present the results of the conducted efficiency evaluation research.

Territorial scope of the presented research results covers Poland as an EU-Member State, which applied an European harmonized Value Added Tax.

The research covers period form 2011 till 2014.

The subject of this article is an experimental evaluation of the efficiency of a third party joint and several liability, as a new antifraud element introduced into the Polish VAT system.

The object of this article is the VAT system of Poland.

Consequently, the hypothesis of the present paper is that there are situations in which VAT fraud is possible, without third party joint and several liability, but is not possible any more after activating third party joint and several liability.

Materials and Methods

The present article bases basically on Law from July the 26th, 2013, amending the Polish VAT Act and some other laws, which introduced a third party joint and several liability in Poland, and results of experimental verification of the efficiency of thereof.

Methods. Regarding the methodology, in authors opinion, additional antifraud element of the VAT System may be considered as efficient, when it makes the system more fraud resistant (or less fraud susceptible). According to the paradigm of approximate description any concept, theories and discoveries are limited and approximate. Science will never provide a comprehensive and definitive understanding of reality. Scientists do not deal with the truth (in the sense of compatibility between description and described phenomenon), but with the limited and approximate descriptions of reality [4]. According to Reichenbach, scientific cognition is unable to reach neither absolute truth nor absolute disingenuousness. On the contrary, scientific cognition can only reach infinitely many degrees of probability, limited by unattainable truth and disingenuousness [7].

Considering the above, author recognizes, that for mere statement, that an analyzed antifraud element of the VAT System is efficient, it is enough to find at least one situation, in which VAT Gap was possible when the additional element of the VAT system was not applied, and is not possible any more when the element is applied.

In empirical science efficacy of the cognition through observation and experiment as well as application of thereof to formulate and verify theorems seems to be an unsolved scientific problem. It can be considered, whether a fact, scientifically verified as a truth should be the basis of the theorem, or is it more justified to base a theorem on an empirically tested logical consequence of the fact. Contrary to the observation, experiment method may be used either to launch a particular phenomenon or to influence thereof and to discover interdependences between launched or influenced phenomenon as independent variable and dependent variables, usually imperceptible under natural conditions. Consequently, verifying a hypothesis using an experiment method allows to discover isolated factors, interdependencies and features, which are imperceptible when using method of observation only. In this way experimental verification allows to achieve the theory of fact, instead of adopting fact as a theory [13].

In economy as a science, a numerical case study may be regarded as an equivalent of experiment in which:

(12)

72

“Unknowns” are the scientific proofs, verifying correctness of the assumed theory of the researched occurrence,

Solution is a model, formulated basing on the research results [13].

The main purpose of experiment is the to induce an occurrence of a certain kind, influence its progress and to detect correlations and interdependencies between researched variables, imperceptible in natural conditions. Applying method of an experiment, a researcher is able to verify i.a. how introducing new independent variable or variables, impacts dependent variables.

Third party joint and several liability may be regarded as new independent variable introduced into the Polish VAT system. At the same time VAT revenues should be considered as a dependent variable, because they are a sort of general result of functioning the VAT system as a whole. Using a numerical case study method as a kind of experiment allows to verify how introducing the above element of the VAT system influences its fraud susceptibility and consequently how it should influence existence of VAT Gap.

It should be emphasized that author of the above publication has already published partial initial results of the experimental verification of the efficiency of a third party joint and several liability in some scientific papers beforehand*.

Discussion

In 2012 and 2013 a decrease in VAT revenues in Poland has been observed, even though GDP and final consumption expenditures, which are normally positively correlated with VAT revenues, increased.

Table 2: VAT revenues and GDP in Poland in the period of 2011–2013 in mill. PLN and their correlation

2011 2012 2013

VAT revenues in mill. PLN (current prices) 120 832 120 001 113 412

VAT revenues annual change in % 12,01% -0,69% -5,49%

GDP in mill. PLN (current prices) 1 528 127 1 596 379 1 635 746

GDP annual change in % 7,87% 4,47% 2,47%

FCE in mill. PLN (current prices) 1 208 639 1 264 807 1 289 634

FCE annual change in % 6,40% 4,65% 1,96%

Source: own elaboration, basing on public statistics data published by the Polish Ministry of Finance [14] and Central Statistical Office [5].

As indicated in Polish Ministry of Finance analysis, included in the Justification of the draft law amending the Polish VAT Act from July the 5th, 2013, the most probable factor of the

decreasing VAT revenues were massive VAT fraud and abuse in domestic transactions concerning liquid fuels, LPG, raw gold, as well as different steel products [11].

In order to make the Polish VAT system more fraud proof, Poland has introduced a third party joint and several liability for transactions concerning certain steel goods, liquid fuels, lubricants and raw gold, effective from October the 1st, 2013 [12].

According to VAT Council Directive, EU Member States may introduce joint and several responsibility of taxable persons for VAT liabilities of their suppliers, normally obliged to pay VAT as person carrying out a taxable supply of goods or services [6]. Introducing such regulation is to help tax administrations of EU Member States to collect and execute VAT liabilities (…) [17]. However it should be restricted only to the situations when a purchasing taxable person acted in

* I.e.: Gut, Piotr, “VAT Gap in Poland and means to prevent it.” International Banking Institute Proceedings

(13)

73

bad faith and knew or should have known, that some or all of the VAT payable in respect of taxable purchase executed to them, or of any previous or subsequent supply of in the supply chain, would go unpaid [18]. Purchasing taxable person may not be regarded as jointly and severally liable for VAT unpaid by a supplier, if he is able to prove that he acted in good faith and undertook all necessary precautions to ascertain, that a taxable supply executed to him is not a part of a VAT fraud [10].

Third party joint and several liability has been introduced in Poland effective from October the 1st, 2013, for domestic transactions, concerning the so called sensitive goods, where the most

significant VAT fraud has been observed:

certain steel products: pipes, plates, rods, angels, steel sections, steel mesh, steel bars, steel nets and fences,

liquid fuels, LPG, CNG, heating oils and lubricants,

raw gold [12].

According to the amended Polish VAT Act, the VAT taxable persons, who acquired the above sensitive goods, is jointly and severally responsible for VAT due arising from the taxable supply executed to them, but unpaid by the taxable supplier.

Joint and several liability may be applied only in case following prerequisites are met:

net value* of the sensible goods purchased from one supplied exceeds 50.000 PLN per

month,

at the moment of the supply the purchasing taxable person knew or had reasonable grounds to suspect that some or all of the VAT payable in respect of that supply would go unpaid [15].

It should be emphasized, that author of the present paper has already described joint and several liability in some scientific papers published beforehand†. Therefore in the present

publication this antifraud element of the Polish VAT system has been described in an abbreviated way.

Research results

Assumptions for experimental verification of efficiency of third party joint and several liability:

Considerations concern taxable supply of goods for consideration, executed exclusively between taxable persons “A” and “B” both of them established in Poland, for which Poland is the place of taxation, taxed with a basic VAT rate 23%‡,

Analyzed supplies of goods (or respectively purchase of goods) are the only VAT taxable transactions, executed by the given taxable persons in the analyzed VAT reporting period,

Statutory rounding of VAT amounts have been intentionally omitted,

Taxable person “A” does not settle its VAT liability, at the same time taxable person “B” does settle its VAT liability,

If the supplier does not settle VAT liability, then tax and legal prerequisites to apply joint and several liability are fulfilled, joint and several liability will be actually applied and the unpaid amount of VAT is enforceable by the purchasing taxable person.

Taxable person A supplies goods to taxable person B for net 100 PLN + VAT 23 PLN. Consequently, output VAT of the supplier A (OVa) equals then 23 PLN. Because taxable person A has neither executed any taxable purchase nor has any input VAT to be carried forward from the previous VAT reporting periods, input VAT of the taxable person A (IVa) equals then 0 PLN. Consequently VAT liability to be paid to the Tax Office by the taxable person A (VLa) equals:

VLa = OVa – IVa = 23 PLN – 0 PLN = 23 PLN (1)

* Net value means value without VAT (before output VAT is levied)

I.e.: Gut, Piotr, “VAT Gap in Poland and means to prevent it.” International Banking Institute Proceedings

No 11(2), Apr. 2015: 121–131; Gut, Piotr, “Joint and several responsibility for VAT liabilities in Poland in comparison to European solutions”, Rachunkowość na rzecz zrównoważonego rozwoju. Gospodarka - etyka –środowisko 329/2014: 127-135.

(14)

74

Taxable person B resells the goods, acquired from the taxable person A, to the final consumer, which is a natural non-taxable person with the net margin of 50 PLN. Considering the above and equation (1) VAT, output VAT of the taxable person B (OVb) and input VAT of the taxable person B (IVb) equals:

OVb = (100 PLN + 50 PLN) x 23% = 34,5 PLN (2)

IVb = OVa = 23 PLN (3)

Consequently VAT liability to be paid to the Tax Office by the taxable person B (VLb) equals:

VLb = OVb – IVb = 34,5 PLN – 23 PLN = 11,5 PLN (4)

Considering the equations (1) and (4) total VAT theoretical liability (VTL) equals:

VTL = VLa + VLb = 23 PLN + 11,5 PLN = 34,5 PLN (5)

Taxable person A does not pay its VAT liability (regardless the reason), consequently VAT Liability of the taxable person A actually paid to the Tax Office (VLPa) equals 0 PLN. A the same time taxable person B does pay its VAT liability to the Tax Office, consequently VAT Liability of the taxable person B actually paid to the Tax Office (VLPb) equals 11,5 PLN.

Therefore state‟s budget actual VAT receipts (AVR) equal:

AVR = VLPa + VLPb = 0 PLN + 11,5 PLN = 11,5 PLN (6)

Comparing the equations (5) and (6) value added tax gap (VAT Gap1), defined as a difference between VAT theoretical liability (VTL) and actual VAT receipts (AVR1) equals:

VAT Gap1 = VTL – AVR1 = 34,5 PLN – 11,5 PLN = 23 PLN (7)

Let‟s make the taxable person B jointly and severally liable for the VAT unpaid, arising from the taxable supply of goods executed to it by the taxable person A. VAT arising form joint and several liability of taxable person B (VJSLb) will then be equal to VLa and will amount for:

VJSLb = VLa = 23 PLN (8)

Actual VAT revenues (AVR2) will then amount for:

AVR2 = VLb + VJSLb = 11,5 PLN + 23 PLN = 34,5 PLN (9)

Consequently, application of the third party joint and several liability reduces VAT Gap from 23 PLN to 0 PLN:

VAT Gap2 = VTL – AVR2 = 34,5 PLN – 34,5 PLN = 0 PLN (10)

Considering the assumed methodology, equations (1) – (10) prove hypothesis of the present paper, according to which there are situations in which VAT fraud is possible, without third party joint and several liability, but after activating third party joint and several liability is not possible any more. Consequently, it can be stated, that a third party joint and several liability as an efficient vat antifraud means.

Conclusion

(15)

75

government to introduce efficient antifraud means, which would stop the decrease of VAT revenues. Such means is a third party joint and several liability, concerning steel products, liquid fuels, LPG, CNG, some lubricants and raw gold, introduced in October 2013.

As the experimental verification of joint and several responsibility proves, there are situations, in which the VAT fraud is possible when this element of the VAT system is not applied, and is not possible any more when the element is applied, which indicates the efficiency of thereof and proves the hypothesis of the present article.

References:

1. Barbone L., Belkindas M., Bettendorf L., Bird R., Bonch-Osmolovskiy M., Smart M., Study to quantify and analyse the VAT Gap in the EU-27 Member States, CASE Network Reports No. 116/2013, Warsaw 2013.

2. Van Brederode R. F., Systems of General Sales Taxation: Theory, Policy and Practice, Kluwer Law International, 2009.

3. Borselli F., Organised VAT fraud: features, magnitude, policy perspectivess. Questioni di Economia e Finanza, No. 106 – October 2011.

4. Cempel Cz., Systems theory, systems engineering - principles and applications of system thinking, E-book of Poznan University of Technology 2008, http://neur.am.put.poznan.pl /is_2008/TIS_Engl_II_P.pdf, access on 28.02.2015.

5. Central Statistical Office of Poland online data, concerning annual national accounts: http://stat.gov.pl/obszary-tematyczne/rachunki-narodowe/roczne-rachunki-narodowe/ (access on 05.05.2015).

6. Council directive 2006/112/EC of 28 November 2006 on the common system of value added tax, Official Journal of the European Union L 347 from 11.12.2006 with subsequent amendments.

7. http://dylewski.com.pl/menu-boczne/nauka-o-zyciu/co-jest-prawda-naukowa/ - access date 28.02.2015.

8. Gut, P., “VAT Gap in Poland and means to prevent it.” International Banking Institute Proceedings No 11(2), Apr. 2015: 121 – 131.

9. Gut, P., “Joint and several responsibility for VAT liabilities in Poland in comparison to European solutions.”, Rachunkowość na rzecz zrównoważonego rozwoju. Gospodarka - etyka – środowisko 329/2014: 127-135.

10. Hybka M., Raison d‟etre of the third party joint and several liability in the value aded tax, in: Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu nr 306, Finanse Publiczne, Wrocław 2013.

11. Justification of the draft law amending the Polish VAT Act, parliamentary print no. 1515, Warsaw 05.07.2013, http://orka.sejm.gov.pl/Druki7ka.nsf/0/5394AF7DDFD29A7EC1257 BA2002C02DD/%24File/1515.pdf (access date 10.05.2015).

12. Law from July the 26th, 2013, amending Polish VAT Act and some other laws, Journal of Laws from September the 5th 2013, 1027 http://isap.sejm.gov.pl/ DetailsServlet?id =WDU20130001027 (access on 10.05.2015).

13. Maślankowski K. Recinstruction of theoretical basis of Activity Based Costing. Methodological study. Toruń 2011, Wydawnictwo Towarzystwo Naukowe Organizacji i Kierownictwa.

14. Polish Ministry of Finance State‟s Budget Execution Reports, http://www. mf.gov.pl/ministerstwo-finansow/dzialalnosc/finanse-publiczne/budzet-panstwa/wykonanie-budzetu-panstwa/sprawozdanie-z-wykonania-budzetu-panstwa-roczne (access on 02.05.2015).

15. Polish VAT Act.

16. Report of PricewaterhouseCoopers „VAT state‟s budget revenues losses – VAT Gap, VAT fraud and abuse as well as VAT problems in Poland”, prepared for Institute of Structural Research, Warsaw, May 2013.

17. Sachs K. (red.), VI Dyrektywa VAT Komentarz do Dyrektywy Rady Unii Europejskiej dotyczący wspólnego systemu podatku od wartości dodanej, C.H. Beck, Warsaw 2004.

(16)

76

Copyright © 2015 by Academic Publishing House

Researcher

Published in the Russian Federation

European Journal of Economic Studies

Has been issued since 2012.

ISSN: 2304-9669 E-ISSN: 2305-6282

Vol. 12, Is. 2, pp. 76-83, 2015

DOI: 10.13187/es.2015.12.76

www.ejournal2.com

UDC 33

Effects of Trade Openness, Exchange Rate, and Oil Price on the Exports in Syria

Adel Shakeeb Mohsen

Universiti Sains Malaysia, Penang, Malaysia PhD student

E-mail: adelmhsen@hotmail.com

Abstract

This study attempts to test the effect of trade openness, exchange rate and oil price on the exports in Syria over the period 1970-2010. The cointegration test indicates that exports are positively related to trade openness and oil price, but negatively related to exchange rate. Exchange rate has the biggest effect on the exports. The Granger causality test indicates bidirectional causality relationships between trade openness, exchange rate, oil price and exports in the short and long run. The study result indicates that, in order to boost the Syrian exports, it is vital for the Syrian government to open up the Syrian economy to foreign trade, decline the Syrian pound exchange rate, improve the quality of the Syrian exports, and decline the crude oil exports.

Keywords: Syria, exports, trade openness, exchange rate, oil price, VAR.

Introduction

Export plays an important role in developing the economy, and it is a main source of foreign exchange earnings for the state budget. Besides, export is an essential component in the national income of Syria and it has an important role in supporting the national economy. Moreover, the strategic location of Syria on major trade routes between the east and west has given it a significant role and increased its interest in foreign trade (Hamwi, 2005).

Syrian exports comprise primary products, oil, agriculture products, food, textiles, cotton, clothing and leather products (Ismail, Mustafa and Vernengo, 2005). Before 1991, the main markets for Syrian exports were the East European countries, but after the collapse of the Soviet Union in 1991, the European Union markets became the main markets for Syrian exports (Naial, 1996). Moreover, the largest market for Syrian primary products exports is the European Union markets, and the largest market for Syrian manufacturing and semi-manufacturing exports is the Arab countries' markets (Ismail, Mustafa and Vernengo, 2005).

(17)

77

investment climate, and using modern technology to develop the production and trade with Arab and foreign countries (SPC, 2005). Moreover, since the beginning of the twenty-first century, the government has worked much harder to liberalize foreign trade, opening up to the global markets, and provide the requirements for economic and social development. In addition, the government has passed hundreds of laws and legislations to improve foreign trade, prevent monopoly, enhance transparency of the trading system, and improve the quality of exports.

Figure 1 shows a big rise in the total value of exports in the 21st century. Exports increased from USD 5129.92 million in 1999 to USD 20894.55 million in 2010. This increase is due to the export strategy that was adopted by the Syrian government to remove export barriers and offer more exports facilitation processes such as exempting Syrian exports from export authorization, taxes, and fees (Al-iqtissadiya, 2004). Furthermore, the increase in the value of crude oil exports with the increase in the international oil prices since the second half of 1999 have helped to increase exports. In addition, signing on many trade agreements with different countries, and creating free trade zones have given a positive effect on Syrian exports (Ismail, 2005). However, because of the global financial crisis in 2009, Syrian exports declined to USD 15681.91 million.

Figure 1 Syrian exports, at current prices, in million USD, 1970-2010 (World Bank)

Unfortunately, the war which started in 2011 has caused a huge damage on the Syrian economy, and created a new situation quite different than in before 2011. Many factories have been destroyed, investment has been declined, the infrastructure has been damaged, foreign trade has been declined, the deficit in the trade balance has increased, the depreciation of the exchange rate of the Syrian pound has increased, and many oil wells have been controlled by the terrorists (SCPR, 2014).

Given this backdrop, the aim of this study is to test the effect of trade openness, exchange rate and oil price on exports in Syria during the period 1970-2010, which may assist Syrian policy maker, after stopping the war, to develop an economic plan that takes into account the effect of trade openness, exchange rate and oil price on exports. The organization of this study is as follows. The next section is the literature review and Section 3 provides a brief discussion on the methodology. Section 4 reports the empirical results, and the conclusion and recommendations are presented in Section 5.

Previous Studies

Many studies investigated the effect of trade openness, exchange rate and oil price on exports of different countries. A few studies have been taken for review:

(18)

78

Besides, Thomas et al (1991), Weiss (1992), Helleiner (1994), Jenkins (1996), Joshi and Little (1996), Bleaney (1999), Ahmed (2000), Santos-Paulino and Thirlwall (2004), Edwards and Alves (2006), Wu and Zeng (2008), Anwar et al (2010), Hoque and Yusop (2012), and Allaro (2012) found that trade openness has a positive impact on exports.

However, Enimola (2011) found that trade openness has a negative and insignificant effect on exports in Nigeria, because the policies that are used to liberalize the trade are not effective enough to stimulate export, but there is a positive and significant relationship between exports and real exchange rate. Majeed and Ahmad (2006) also found that real exchange rate has a positive significant effect on exports for 75 developing countries. Hasanov and Samadova (2010) concluded that real exchange rate is one of the main factors that affect non-oil export growth in Azerbaijan, and non-oil export is affected negatively from real exchange rate. Besides, Homayounifar and Rastegari (2008) found that increase in real exchange rate of countries that have a trade relation with Iran affects negatively Iran‟s non-oil exports, because increase in exchange rate of these countries leads to a decline in exchange rate in Iran, then the prices of Iran‟s export goods will decline, which drive Iran to decrease its exports. Furthermore, Hatab et al (2010) found that the depreciation in Egyptian pound improves Egypt‟s agricultural exports. Erdal et al (2012) found that there is a positive unidirectional causality relationship moving from the real exchange rate volatility to agricultural export in Turkey.

In the other hand, Mohammad (2010) found that oil price volatility affects negatively export earnings in Pakistan, because the increase in oil price cases a rising in inflation and increasing in the prices of each item in the basket of commodity, than the aggregate demand will decline, and that will cause a reduction in output level. Rising in oil prices also causes an increase in import bill which affect on current account balances in Pakistan, and that also will cause a negative effects on output level. However, Hassani and Nojoomi (2010) found that oil price, Iranian oil production, and Iranian oil proved reserves positively affect Iran‟s oil export revenues, while world oil production and domestic oil consumption negatively affect Iran‟s oil export revenues in the long term.

Methodology

The vector autoregression (VAR) model will be used in this study. Our model consists of four variables: exports, tread openness, exchange rate, and oil price in Syria. Export is the dependent variable. The model is presented as follows:

lnEXP = α + β1 OPEN + β2 lnEXR + β3 lnOP + εt

where α is the intercept, β1, β2, and β3 are the coefficients of the model, lnEXP is the natural

log of exports in real value (millions of SYP), OPEN is the tread openness (the percentage of total exports and imports to GDP), lnEXR is the natural log of real exchange rate (US dollars per Syrian pound), lnOP is the natural log of oil price (US dollars per barrel), and εt is the error term.

The analysis begins with the unit root test to determine whether the time series data are stationary at levels or first difference. The Augmented Dickey Fuller (ADF) unit root test is used in this study to test for the stationary of the variables. After determining the order of integration of each of the time series, and if the variables are integrated of the same order, the Johansen cointegration test will be used to determine whether there is any long-run or equilibrium relationship between exports and the other independent variables in the model. If we found that the variables are cointegrated, the Granger causality tests will be conducted based on the VECM to determine the causality relationships among variables. On the other hand, if there is no cointegration among the variables, the VAR model will be employed to test for short-run Granger causality between the variables. Lastly, impulse response functions (IRF) test and variance decomposition (VD) analysis are used in this study to help in determining whether the independent variables play any important role in explaining the variation of exports at short and long forecasting horizons.

(19)

79

Empirical Results and Discussion

From the results of the ADF unit root test in Table 1, we can see that all the variables are not stationary at the levels, but became stationary after first differencing at least at the 5 percent level of significance. This means that all the variables are integrated of order 1, that is, I (1).

Table 1: ADF unit root test results

ADF Level First difference

Intercept Trend and intercept None Intercept Trend and intercept None

lnEXP -1.074682 -2.425237 3.620430 -5.440409*** -5.357166*** -4.330685*** OPEN -1.831914 -2.484195 0.319275 -7.536732*** -7.446232*** -7.525128*** lnEXR -1.114265 -1.838314 0.691528 -6.250015*** -6.178614*** -6.161154*** lnOP -1.840498 -2.059197 1.278568 -5.723066*** -5.688067*** -5.393166*** Note: *** Denotes significance at the 1 per cent level, and ** at the 5 per cent level.

1. Johansen Cointegration Test Results

After determining that all the variables are stationary in the first difference, we can use the cointegration test to determine the presence of any cointegration or long-run relationship among the variables based on the Johansen cointegration test. But before running the cointegration test, we run the VAR model first to determine the optimal lag length, based on the minimum Akaike Information Criterion (AIC). The maximum lag has been set to 5 in the lag length selection process. The optimal lag length selection is 2 lags based on the AIC.

After we have determined the number of lags, we proceed with the cointegration test for the model. Table 2 shows that there is one cointegration equation based on the trace and maximum eigenvalue tests. In other words, the results indicate that there is a long-run relationship between lnEXP, OPEN, lnEXR, and lnOP.

Table 2: Johansen cointegration test results

No. of CE(s) Trace Statistic Probability Max-Eigen Statistic Probability

r = 0 63.00076*** 0.0065 29.69281** 0.0360

r ≤ 1 33.30795 0.0788 17.85287 0.1864

r ≤ 2 15.45508 0.2014 9.604986 0.3717

r ≤ 3 5.850093 0.2026 5.850093 0.2026

Note: *** Denotes significance at the 1 per cent level, and ** at the 5 per cent level

After having found a cointegration relationships among the variables lnEXP, OPEN, lnEXR, and lnOP, the cointegrating equation was normalized using the real EXP variable. Table 3 shows the normalized cointegrating vector.

Table 3: Cointegration equation normalized with respect to EXP

lnEXP OPEN lnEXR lnOP C

1.000000 -0.229935 1.025716 -0.271649 -22.94339

(20)

80

From the Table 3, the long-run lnEXP equation can be written as:

lnEXP = 22.94339+ 0.229935 OPEN - 1.025716 lnEXR + 0.271649 lnOP

The cointegration equation above shows that the EXP is positively related to OPEN and OP, but negatively related to EXR.

The coefficient of OPEN indicates that for every one unit increases in trade openness, exports will increase by 22.9 percent. This suggests that trade openness has an important role in supporting exports through opening up new markets for local products and reducing restrictions that affect exports, such as export taxes, and export‟s complex procedures. Our result agree with Wu and Zeng (2008), Anwar et al (2010), Hoque and Yusop (2012), and Allaro (2012). The coefficient of lnEXR indicates that for every one percent increases in exchange rate, exports will decrease by 1.03 percent. An increase in Syrian exchange rate indicates appreciation of the Syrian pound relative to the US dollar. When the Syrian pound appreciates, the prices of the Syrian products in international markets will increase and be more expensive compare to foreign products, which led to decline the external demand on the Syrian products. However, depreciation of Syrian pound will cause the Syrian products to be cheaper than the prices of foreign products, which raise the external demand on the Syrian products. Majeed and Ahmad (2006), and Hasanov and Samadova (2010) also found that an appreciation of the local currency has a negative effect on exports. The coefficient of lnOP indicates that for every one percent increases in oil price, exports will increase by 0.27 percent. Oil is one of the main exports in Syria, and its percentage share is more than 30% of total Syrian exports. Hence, oil price increases cause a rise in oil exports in the country, which in turn increases the total value of Syrian exports. Our result is in line with Hassani and Nojoomi (2010) who found that oil price affects exports positevely.

2. Granger Causality Tests Results

Since the variables in the model are cointegrated, the Granger causality tests based on the VECM are used to determine the short and long run causal relationships among the variables. The Granger causality test results based on the VECM are shown in Table 4. The significance of the coefficient of the lagged error correction term shows the long run causal effect. It is clear from Table 4 that there are bidirectional causality relationships between OPEN, lnEXR, lnOP and lnEXP in the short and long run.

Table 4: Granger causality test results

Independent variables

∑ ∆ lnEXP ∑ ∆ OPEN ∑ ∆ lnEXR ∑ ∆ lnOP ect(-1)

∆ lnEXP - 3.642218(3)** 4.03547(4)** 2.680017(2)* -2.132158**

∆ OPEN 2.485034(2)** - 3.10424(3)** 0.423085(2) -2.014217**

∆ lnEXR 4.324101(3)** 2.301035(2)** - 0.075823(2) -2.962730**

∆ lnOP 2.501434(2)** 3.150811(2)* 1.009182(2) - -2.211756**

Notes: ect(-1) represents the error correction term lagged one period. The numbers in the brackets show the optimal lag based on the AIC. D represents the first difference. Only F-statistics for the explanatory lagged variables in first differences are reported here. For the ect (-1) the t-statistic is reported instead. ** denotes significance at the 5 per cent level and * indicates significance at the 10 per cent level.

3. Impulse Response Functions (IRF) Test Results

(21)

81

that when there is a shock to OPEN or lnOP, lnEXP will respond positively in the following years. This shows the important role of the trade openness and oil price in boosting exports in the country. While, when there is a shock to lnEXR, lnEXP will respond negatively in the following years, because any depreciation of the Syrian pound makes the Syrian products cheaper than foreign products, which in turn leads to the increase in the foreign demand for Syrian products.

Figure 2. Impulse response functions (IRF) results

4. Variance Decomposition (VD) Analysis Results

The variance decomposition (VD) for 1-year to 10-year forecast horizons will be applied to explain how much of the uncertainty concerning the prediction of the dependent variable can be explained by the uncertainty surrounding the other variables in the same model during the forecast horizon.

The forecast error variance decompositions of the variables in our model are given in Table 5. In the first year, the error variance of EXP is exclusively generated by its own innovations and has been decreasing since then for the various forecast horizons. However, at the 10-year forecast horizon, its own shocks contribute about 50% of the forecast error variance. On the other hand, OPEN, lnEXR and lnOP shocks explain 24%, 12% and 14% respectively of the forecast error variance of EXP. Furthermore, the contributions of OPEN, lnEXR and lnOP in explaining lnEXP forecast error variance have increased during the 10-year forecast period.

Table 5: Variance decomposition (VD) analysis results

Period S.E. lnEXP OPEN lnEXR lnOP

(22)

82

Conclusion

This study investigated the effect of trade openness, exchange rate and oil price on the exports in Syria using annual time series data from 1970 to 2010. The model has four variables, with the exports as the dependent variable. The ADF unit root test, Johansen cointegration test, Granger causality tests, impulse response functions (IRF), and variance decomposition (VD) analysis were used in this study. The ADF test results indicate all variables are I(1). The Johansen cointegration test showed that trade openness and oil price have a positive and significant long-run relationship with exports, while exchange rate has a negative and significant long-run relationship with exports. Furthermore, from the Granger causality tests, we found that there are bidirectional causality relationships between trade openness, exchange rate, oil price and exports in the short and long run. The impulse response functions (IRFs) indicated that when there is a shock to trade openness or oil price, exports will respond positively in the following years, while when there is a shock to exchange rate, exports will respond negatively. The variance decomposition (VD) analysis showed that over a ten-year forecasting horizon, trade openness, exchange rate and oil price shocks explain 24%, 12% and 14% respectively of the forecast error variance of exports.

Based on the results of this study, trade openness makes the process of export much easier, which in turn motivates exporting in the country. Besides, depreciation of the Syrian pound increases the external demand for Syrian products, which in turn boosts the Syrian exports. Hence, it is vital for the Syrian government to open up the Syrian economy to foreign trade, improve the quality on the Syrian exports, and decline the Syrian pound exchange rate. Furthermore, fluctuation in the oil price may plays an important role in increasing or decreasing the total value of Syrian exports, because oil has a big percentage share of total Syrian exports. Therefore, it is vital for the Syrian government to decline the oil exports in order to reduce the impact of oil price fluctuations on the total Syrian exports.

References:

1. Ahmed, N. U. (2000). Export Responses to Trade Liberalization in Bangladesh: A Cointegration Analysis. Applied Economics, 32, pp. 1077-84.

2. Al-iqtissadiya (2004). ESCWA study on the Syrian Foreign Trade. Al-iqtissadiya newspaper, (149).

3. Allaro, H. B. (2012). The Impact of Trade Liberalization on the Ethiopia's Trade Balance. American Journal of Economics, 2 (5), pp. 75-81.

4. Anwar, S., Shaukat, F., & Hussain, Z. (2010). Impact of trade liberalization on export of cotton from Pakistan: a time series analysis. Sarhad Journal of agriculture, 26 (2), pp. 297-304.

5. Bleaney, M. (1999). Trade Reform, Macroeconomic Per-formance and Export Growth in Ten Latin American Countries, 1979–95. Journal of International Trade and Economic Development, 8 (1), pp. 89-105.

6. Edwards, L., & Alves, P. (2006). South Africa‟s export performance: Determinants of export supply. South African Journal of Economics, 74 (3), pp. 473-500.

7. Enimola, S. S. (2011). Foreign direct investment and export growth in Nigeria. Journal of Economics and International Finance, 3 (11), pp. 586-594.

8. Erdal, G., Erdal, H., & Esengun, K. (2012). The effects of exchange rate volatility on trade: Evidence from Turkish agricultural trade. Applied Economics Letters, 19 (3), pp. 297-303.

9. ERF. (2005). Syria Country Profile - the Road Ahead for Syria. Cairo: The Economic Research Forum (ERF).

10. Hamwi, B. (2005). Agricultural Exports in Syria. Damascus: National Agricultural Policy Center (NAPC).

11. Hasanov, F., & Samadova, I. (2010). The impact of real exchange rate on Non-Oil Exports: The case of Azerbaijan. MPRA Paper (29556), pp. 1-19.

12. Hassani, M., & Nojoomi, A. (2010). An ARDL model of factor determining Iran's oil export revenues (1971-2008). International Review of Business Research Papers, 6 (5), pp. 17-35.

13. Hatab, A. A., Romstad, E., & Huo, X. (2010). Determinants of Egyptian Agricultural Exports: A Gravity Model Approach. Modern Economy, 1 (3), pp. 134-143.

Figure

Updating...

Download now (58 pages)